Welcome to the home for real-time coverage of European equity markets brought to you by Reuters
stocks reporters. You can share your thoughts Joice Alves (joice.alves@thomsonreuters.com) and
Julien Ponthus (julien.ponthus@thomsonreuters.com) in London and Stefano Rebaudo
(stefano.rebaudo@thomsonreuters.com) in Milan.
TIRED OF RORO MOOD SWINGS? HOW ABOUT SMALL CAPS? (1148 GMT)
Cyclicals or defensives? It is difficult to choose as sentiment keeps on swinging between
risk appetite and aversion on the latest news from the pandemic.
Risk on, risk off, repeat.
So now could be the time for fresh ideas.
A Credit Suisse research note suggests betting on small caps, which historically benefited
from a declining volatility index but have not priced in its recent fall yet.
More reasons to buy European small caps, according to the investment bank:
. they are pricing in just a 45 on PMI manufacturing new orders, which is expected to rise
above 50;
. they are domestic so they intend to outperform when the euro strengthens and CS sees a
euro at 1.2 U.S. dollar;
. they benefit more than other from easing credit conditions.
. valuations appear "reasonable and earnings revisions are much better than those of large
caps."
Credit Suisse outperform rated stocks include Georg Fischer and Dialog Semi
Conductor.
Talking about small caps, interesting to note that London's AIM has neatly outperformed the
FTSE 100 since the 2016 Brexit referendum.
Below the Euro Stoxx volatility index and the Stoxx Europe small caps index
since mid-March
(Stefano Rebaudo)
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THE EUROPEAN WINNERS IN THE CRISIS (1045 GMT)
It is hard to see any positive aspects of the pandemic-induced crisis when the death toll
and number of cases across the world keep rising.
Yet as social distance and isolation deeply transform our lives, software makers are seeing
stronger demand as more than half of organisations are increasing software spending this year,
according to a survey of 500 companies by BofA Global Research team.
"Software budgets appear to be up modestly post COVID," BofA says. "Spend is strongest for
modern, cloud based products".
The bank expects the sector to continue to do well, and is "particularly positive" on
TeamViewer, Dassault, AVEVA, Blue Prism, Amadeus and Avast.
It is cautious on Micro Focus, Sage, Sabre and prefers global peers to SAP.
Shares at AMS is up 8.2%, Micro Focus is down 7.7%, both among the top movers of the STOXX.
(Joice Alves)
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THE HALF-LIFE OF A VOL SHOCK (0954 GMT)
As Australia reports its first COVID-19 death in more than a month, questions arise if a
second virus wave will lead another spike in market volatility. Not so fast, says Alan Ruskin, a
macro strategist at Deutsche Bank.
Currency volatility has halved from their peak vol in 41 days in this cycle, a quicker drop
than in any of the prior six large vol spike episodes. A similar story has played out in the
bond markets. Equity is the only space where vol struggling to fall as quickly.
The sharp drop in cross-asset vol reflects the speed at which global policymakers have
stepped in to crush market stress, a major learning of the 2008 crisis. But what this also means
is that if unprecedented policy stimulus is the main driver of restrained vol, then the biggest
threat is also a loss of policy credibility.
In other words, if stimulus creates too much inflation, resulting in higher yields, this
would be hugely supportive of a volatility surge, Ruskin argues.
But in this extraordinary world of political and markets turmoil, there is some capacity for
vol to remain constrained. Data shows vols do tend to trend lower in the 12 months after big
spikes, especially after 3 months of the original spike.
So, all in all, a surge in volatility is unlikely at the moment.
(Saikat Chatterjee)
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BUT THE ECB KNOWS BETTER (0835 GMT)
No reaction by stocks to the Ifo German Business Climate index although it was better than
expected and staged the strongest increase ever, the usual 'mechanical reaction' to the easing
in lockdowns.
It was probably expected after yesterday's European PMI numbers.
The virus is stealing the spotlight as the number of cases around the world is still
increasing but the main factor today, besides the pandemic, seems to be the ECB explaining that
getting out of the crisis will be long and painful and we should not get our hopes up even if
the last European macro data showed a strong rebound.
The cursor of the charts on 1000 CET time
(Stefano Rebaudo)
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OPENING SNAPSHOT: SELL FOOD, BUY CHIPMAKERS (0745 GMT)
European bourses slipped as the number of COVID-19 cases is rising again across the world,
which could slow down the much hoped economic recovery.
The pan-European index is down around 1%, with defensive shares driving the losses.
Health care, food & beverage and telecoms indexes are all down around 1-1.5%.
Semiconductors are doing well: Austrian sensor maker AMS jumped 4.3% and Dialog
Semiconductor 6.8%.
In terms of single stocks, an M&A potential deal stole the show with Evolution shares
diving almost 8% to the bottom of the STOXX, as the company offered to buy Netent in a $2 bln
deal. Meantime, Netent shares jumped about 30%.
(Joice Alves)
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ON THE RADAR: M&A FRENZY (0650 GMT)
Futures are pointing to an open in the red for European bourses as investors worry about the
rising number of COVID-19 cases across the world.
There is "mounting anxiety that the second wave contagion would dent the pace of business
reopening," says an analyst.
But first things first: M&A news flow resurges!
NetEnt shares are seen up 40% as Evolution Gaming offers to buy the company for 19.6 bln
SEK. Volkswagen explores acquisition of car rental group Europcar, while the Benettons have been
approached for their 3.4 billion euro stake in Cellnex.
Meantime, a slew of jobs cuts could be on its way: Swiss duty free retailer Dufry to reduce
its staff by 20-30% this year, French unions see 350 jobs at risk at Airbus as company scraps
bid to build engine parts.
Here is more coronavirus-hit on European companies in numbers: Dutch insurer NN Group
expects an impact of about 100 million euros on its operating profit, but solvency remains
strong at 227% as of May-end.
Wirecard saga continues to make headlines as Singapore's Grab puts partnership with the
German payments company on hold. Shares in the company are up 16% in early trade after the
recent massive fall.
Leg Immobilien shares are down 3.4% in early trade after company announced a
capital increase
In the UK, house-builder Persimmon has poached Dean Finch from transport operator National
Express to succeed David Jenkinson as CEO.
Spanish newspaper Cinco Dias says the World Health Organization included a vaccine from
IrsiCaixa and Grifols among the candidates against the coronavirus.
Petrofac says trading & awards materially impacted by COVID-19, fall in prices
Boozt AB - Outlook for 2020 upgraded after very strong Q2.
(Joice Alves and Stefano Rebaudo)
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MORNING CALL: RALLY RUNS OUT OF STEAM (0535 GMT)
Futures are pointing to a start of the day in the red for European bourses as yesterday's
sharp rally quickly ran out of steam as coronavirus cases looked to be accelerating across the
world.
EU countries is considering to bar U.S. travellers because of the surge of COVID-19 in the
country, the NYT reported.
Financial spreadbetters at IG expect London's FTSE to open 18 points lower at 6,303,
Frankfurt's DAX to open 17 points lower at 12,507 and Paris' CAC to open 4 points lower at
5,013.
(Joice Alves)
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