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Welcome to the home for real-time coverage of European equity markets brought to you by Reuters
stocks reporters. You can share your thoughts with Joice Alves (joice.alves@thomsonreuters.com)
and Julien Ponthus (julien.ponthus@thomsonreuters.com) in London, Danilo Masoni and Stefano
Rebaudo (stefano.rebaudo@thomsonreuters.com) in Milan.
STILL CAUTIOUS ON BANKS, M&A MIGHT NOT HELP MUCH (1153 GMT)
While M&A in Spain has triggered a brief bullish mood on European banks, some analysts
continue to worry about uncertainty on future dividends and pandemic-induced impairments.
Both the Stoxx 600 banking index and Spain’s Ibex 35 Banks jumped on
Friday on the announcement of M&A talks between Bankia and Caixabanx, but
are now below their Friday’s highs.
Credit Suisse expects M&A to “accelerate in fragmented markets like Italy and Spain” but is
still sceptical of big cross-border deals despite merger and acquisitions are “encouraged by
regulators through more lenient treatment of capital buffers and badwill.”
Besides more capital might be needed as “buffers must be rebuilt and given ex-ante dividend
cancellations, future stress tests might demand more capital from the sector” after the
pandemic-induced regulatory easing comes to an end.
Lower for longer rates will keep margins under pressure, but lenders might be able to cut
costs as “more customers access services digitally and as more staff work from home.”
This scenario strengthens Credit Suisse preference for asset gatherers, such as UBS
, Baer and Credit Agricole, while the investment bank upgrades ING
to outperform as it sees “some new opportunities among heavily de-rated banks with
high capital levels.”
(Stefano Rebaudo)
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WALL STREET/EUROPE GAP: IT'S THE ECONOMY, STUPID (1102 GMT)
Lots has been said about how Wall Street has outperformed European bourses in 2020, with a
gap of about 18% year-to-date between the STOXX 600 (-12.5%) and the S&P 500 (+6%).
The big U.S. tech overweight is of course an obvious factor and the Fed's seemingly
unlimited QE ammo, another.
But how about fundamentals? Hmm? Good old fashion earnings and economic growth?
Because looking at 2020 and 2021 earnings expectations on both sides of the pond sure seems
to give a clue:
Another hint can also be provided by the GDP Now indicator of the Atlanta Fed which sees the
U.S. GDP jumping close to 30% in Q2:
"This is the most fantastic rebound on planet Earth since the dust cleared and ushered in
the Jurassic period", the Long View twitter account commented.
Anyhow, Morgan Stanley is also seeing a V shaped recovery helping the U.S. bounce back:
"The U.S. economy could reach its pre-COVID 19 levels by the second quarter of next year,
while the entire developed markets could reach that level by the third quarter of next year, MS
analysts said.
Global economy seeing sharper V recovery, raising case for inflation - Morgan Stanley
(Julien Ponthus, Thyagaraju Adinarayan and Vidya Ranganathan)
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CONFIDENCE IN GERMANY’S ECONOMY (1012 GMT)
Germany's industrial recovery is on track but it looks a second round of stimulus might be
necessary to return to its pre-coronavirus levels.
Exports in July remained far below their pre-crisis levels despite a 4.7% increase, adding
to signs that Germany's economic recovery from the coronavirus will be slow.
More conventional support will be necessary to close the output gap, a Citi research note
says, adding "the political imperative is there in the election year 2021 and the fiscal space
is there, too."
"The industrial sector was still only operating at around 90% of pre-crisis levels, but
consumer-related data continues to look better", it adds.
More lockdowns will be able to derail the current recovery, but Germany is so far managing
"the second wave of infections over the summer relatively well and our assumption remains that a
vaccine brings the pandemic under control by mid-2021."
(Stefano Rebaudo)
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I WANT TO RIDE MY BICYCLE, BICYCLE, BICYCLE (0939 GMT)
Among the COVID-19 stock winners, Britain's Halfords stands out with a handful of
retailers.
Of course, it would be hard to tell today with the shares falling down 3% following a
trading update which showed sales of electric bikes and scooters were up 230% year-on-year
.
But looking at 2020 so far it's a different story: the stock is up about 5% year-to-date,
while the FTSE small cap index has lost about 14% and the UK's general retail index 10%.
"In mid-May, Prime Minister Johnson encouraged people to cycle rather than use public
transport", recalls David Madden, adding the advice had boosted the stock.
According to Liberum, there's more to it than just being at the right time at the right
place.
"While this reflects strong market tailwinds (the cycling boom, staycation trends), we think
it is also, and importantly for the long-term, a result of the strategic initiatives being put
in place, which include the optimisation of the cycling offer, the new integrated website
launch".
That being said, Liberum expected the stock to rise this morning but there's probably some
profit taking given the recent outperformance.
(Julien Ponthus)
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OPENING SNAPSHOT: ON THIN ICE (0737 GMT)
European equities opened just slightly in the black before dipping a tad and the trend sure
looks shaky at the moment with the STOXX down 0.2%.
There's lingering tech angst for sure with the sector down 1.3%.
There's also quite a lot of market action on individual stocks, first of all on airlines
after Easyjet, down 4.4%, announced it would reduce its flying schedule after demand was hit by
quarantine measures.
BA owner IAG also lost 2.1% while the European Travel and Leisure sector lost 0.3%.
Shares in Travis Perkins, fell 5% as Britain's largest distributor of building
materials saw profits sink 81% in the first half of the year as coronovirus-driven halts in
construction work slashed its sales by a fifth.
On the bright side, the UK's Royal Mail was the best performing stock, up 9.5% after raising
its revenue target thanks notably to a jump in online shopping parcel volumes.
Still in Britain but in the retail space, JD Sports is on a roll, up 8% after a trading
update.
Another big mover is French electricity giant EDF, down over 5%, after announcing its
nuclear output fell 17.6% in August due to the effects of the coronavirus pandemic and reactor
outages.
As you can see from the breakdown of sectors going up and down, it's not a clear cut
risk-on/risk-off kinda day:
(Julien Ponthus)
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ON THE RADAR: NO VW-TESLA DEAL, BELGIAN BEER (0642 GMT)
As Europe seems to be struggling to get out of its summer break, let's start by what's NOT
happening shall we?
Volkswagen's Chief Executive Herbert Diess poured cold water on speculation that the world's
largest carmaker had a plans to develop deeper ties with Tesla.
Agreed, such a story would have been an exciting breakfast dish but instead, there's beer,
not ideal for breakfast but there you go.
Budweiser maker Anheuser-Busch InBev has started searching for a replacement for its
long-serving chief executive Carlos Brito, the Financial Times reported.
One of the key developments across Europe Inc. lately has been M&A in the banking sector and
there's more on that front today.
The controlling shareholders in Spain's Caixabank and state-owned Bankia are close to
agreeing on Valencia as their joint headquarters but are still mulling other aspects of the
planned takeover, two sources with knowledge of the deal said on Monday.
Still in the banking sector, the global commodities chief at Standard Chartered is leaving
the bank as part of the division's restructuring.
On the coronavirus front, we got EasyJet reducing its flying schedule with demand hit by
government restrictions on travel, including wider quarantine measures.
The airline said it expected to fly slightly less than the 40% planned capacity for the
final quarter of its financial year.
Still in the industry, Spanish airline Air Europa asked the government for 400 million euros
($472.64 million) in state support to cope with the consequences of the COVID-19 pandemic, El
Pais newspaper reported on Tuesday.
(Julien Ponthus)
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MORNING CALL: ANOTHER SESSION UP? (0535 GMT)
Nothing exuberant for sure but European stock markets look set to open on the rise this
morning with London and Frankfurt futures rising between 0.2% and 0.3% at the moment.
Asian bourses are also slightly in the black and Wall Street futures are in positive
territory except for the Nasdaq (-0.15%).
So the tech angst is still there with us even if at the moment, all hell ain't expected to
break lose just right now.
That said, there are other issues which might dent indexes on the old continent, among which
Brexit, which is back on top news.
(Julien Ponthus)
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