* European bourses rise as airlines surge
* STOXX 600 up 1.6%
* British PM says too risky to relax lockdown yet
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 Thyagaraju Adinarayan
(thyagaraju.adinarayan@thomsonreuters.com), Joice Alves (joice.alves@thomsonreuters.com) and
Julien Ponthus (julien.ponthus@thomsonreuters.com) in London and Stefano Rebaudo
(stefano.rebaudo@thomsonreuters.com) in Milan.
CLOSING SNAPSHOT: STOCKS RALLY, BORIS RETURNS TO WORK (1555 GMT)
European shares joined a global rally today as Spain and Italy announced they are easing
coronavirus lockdown measures.
European stocks stayed in the black even after British PM Boris Johnson said it is too risky
to ease lockdowns in the UK, as he returned to Downing Street almost a month after he was
diagnosed with COVID-19.
The pan European index rose 1.6% with the travel and leisure shares leading
gains as airline stocks soared on hopes of state support.
Shares of Lufthansa jumped more than 10% after Germany's transport minister said
he was in favour of protecting the company. German tourism group was the day's top gainer, up
14.2%.
Meantime, European banks also surged 3.2% after Deutsche Bank beat Q1 earnings
expectations.
(Joice Alves)
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DID YOU KNOW THAT TESLA IS WORTH AS MUCH AS SHELL? (1321 GMT)
Well now you do!
Both companies are worth about $133.5 billion, which either tells you a lot about the ESG
hype around Tesla or tells you even more about the current collapse in oil prices and the extent
of the upcoming recession. You choose!
(Julien Ponthus and Thyagaraju Adinarayan)
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TO GET CASH QUICKLY UK COMPANIES RESORT TO CASHBOXES (1309 GMT)
UK companies have taken advantage of cashboxes, a legal scheme which is probably one of the
quickest ways to get money, now that time is more crucial than ever due to the pandemic-induced
lockdown.
Let's see how it works.
This kind of fundraising involves a company issuing shares in return for shares in a special
purpose vehicle than can be redeemed for cash. The process can take just a few days, a lot
shorter than a capital increase.
As long as the cash raised is limited to 19.9% of the company's issued share capital,
pre-emption rules can be skipped and no prospectus is required.
According to Pinsent Masons, UK listed businesses have tapped investors for 3.4 billion
pounds since the beginning of the coronavirus lockdown, on March 23, and 9 of the 33 fundraising
have used cashboxes for an overall 1.8 billion pounds.
"It is crucial for businesses to be able to access extra funding quickly and efficiently
which is why companies are bypassing the lengthier rights issue process where they can," Julian
Stanier, head of Corporate Finance at the multinational law firm.
More reading on this:
UK investors say cashbox capital raising comes at a price
(Stefano Rebaudo)
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THE TEFLON BEAR RALLY: HERE'S WHAT COULD STICK (1142 GMT)
You can pretty much throw anything at this bear rally: collapsing PMIs, surging
unemployment, collapsing EPS... nothing sticks!
Is this rebound made of QE engineered Teflon technology?
With the STOXX 600 up a comfortable 22% from its March lows and volatility back to where it
was when national lockdown had not yet been implemented, there's a growing sense on Wall street
that markets have actually bottomed out. Yet on Main Street, the worst is yet to come in terms
of unemployment and recession.
Many struggle to explain the disconnect between the S&P 500 resisting or rising 5 Thursdays
in a row in the face of eye-popping U.S. initial jobless claims.
One explanation could lie in the old saying about the difference between a recession and a
depression.
A recession is when your neighbour loses his job and a depression is when you lose yours!
"The crisis hasn’t really hit Wall Street, which is why optimism is still prevalent",
believes George Lagarias, chief economist at Mazars.
"We don’t see news of layoffs, hedge funds crumbling etc...", he adds, arguing that only
serious stress on the financial industry itself could change the optimistic mood on trading
floors.
"What can change that narrative? Bank layoffs, hedge funds and PE vehicles failing,
borrowing costs soaring, exactly all the things that QE seeks to prevent", he writes.
Central banks have indeed fired away unprecedented massive salvos of QE at the crisis and
seem pretty determined to their theoretically unlimited supply ammo to achieve their goal.
Below you can see the VIX and its European peer go back down to early March levels:
(Julien Ponthus)
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THE COST OF A SECOND LOCKDOWN (1118 GMT)
Global stocks have rallied to the news that some countries are starting to ease lockdown
measures implemented to contain the spread of coronavirus.
If the global economy reopens in about a month, get ready to see a further jump.
UBS forecast a 8% rise from here to year end "if lockdowns are lifted through May, and do
not have to be reinstated".
But there is huge uncertainty if the virus is not under control by the first half of the
year, in which case the Swiss bank sees "global equities falling through the March lows.
In this situation, EPS should be lower by 25% over a two-year period," it writes in a note.
Meantime, UBS prefers staying long US and China/North Asia over Europe and the rest of EM.
(Joice Alves)
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STICK TO DEFENSIVES, AT LEAST UNTIL SUMMER (1045 GMT)
There is probably no reason to change strategy on the European equity market: low beta
defensive shares such as pharma, utilities, staples and techs have been winners since the start
of the coronavirus crisis and will continue to win in the near future.
Despite their dramatic "outperformance we keep a low beta allocation in the portfolio," a
research note by JP Morgan says.
Cyclical stocks are not seen as a valid alternative just yet, as their earnings have been
downgraded aggressively and they will likely stay under pressure.
According to JP Morgan, the time to buy aggressively cyclicals and value stocks will come,
but not before summer.
With central banks in arms to keep interest rates at their all-time lows and crude futures
fighting with zero level, "the leadership within the market is likely to be defensive and growth
driven."
(Stefano Rebaudo)
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STRONG EPS REBOUND IN 2021, BUT 2019 PEAKS ARE A LONG SHOT (0953 GMT)
As it is clear to everyone that the equity market has priced in a sharp fall in GDP and
corporate profits this year due to the coronavirus outbreak, the real question now is:
How much will it take to get EPS levels back to 'normal'?
Several opinions are out there, but the latest Morgan Stanley update paints a grim picture
and sees "high probability that European EPS will not rise back to its earlier 2019 peak until
2023 at the earliest".
This would mean that "any upside for European equities from here will need to be primarily
driven by a substantive valuation re-rating."
In 2020 the European EPS is expected to fall by 45%, making 2020 the worst full year ever,
according to the investment bank. Then it will probably post a 40% rebound in 2021; but at the
end of next year it will still be 23% below 2019 highs.
Even a 20% rise in 2022 will leave European earnings 8% below their peaks, and this without
taking into account any additional equity issuance.
(Stefano Rebaudo)
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GUESS WHO'S BACK? (0853 GMT)
Boris Johnson is back at 10 Downing Street but those expecting more visibility on the UK
exit strategy from lockdown must be quite disappointed.
The PM, who recovered from a serious COVID-19 infection said it was too early for the UK to
ease its lockdown with the risk of another deadly outbreak.
Despite so many other European countries announcing plans to start moving forward, Johnson's
prudent stance didn't derail the good move on the London stock exchange.
UK stocks barely moved, losing just a bit of ground during Johnson's speech between 0910 and
0920 London time as you can see on the chart.
(Julien Ponthus)
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OPENING SNAPSHOT: AN UNEQUIVOCAL RISK-ON MONDAY (0730 GMT)
Looking at what banks, autos, travel and leisure shares are doing usually gives a pretty
good assessment of the mood across trading floors in these troubled times.
And when these three sectors are leading the rest of the market and comfortably up over
2.5%, which they are today, it's an unequivocal 'risk on'.
The broader STOXX 600 is up 1.8% with all regional bourses trading well in the black.
The uncontested star of the session is Deutsche Bank with its shares up a handsome 7.7%.
In an unscheduled statement late on Sunday, the German lender said it beat first quarter
earnings expectations but warned it might miss its capital requirement target this year.
Hopes the ECB will increase yet again its stimulus package is clearly reinforcing sentiment
across the banking sector.
Another winner this morning is also German: Lufthansa is up 7% amid talks of Berlin
providing state support for the country's largest airline.
Air France KLM, which has already secure some government backing is rising 5.8%.
Among car makers, Renault which is also expected to receive governmental help is up a 4.5%.
(Julien Ponthus)
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ON THE RADAR: EPS WARNINGS, STATE AID, LOCKDOWN EASINGS (0640 GMT)
Today's batch of Q1 earnings has brought its expected share of coronavirus driven profit
hits, most particularly with Adidas saying it expects sales to fall at least 40% in second
quarter.
Steelmaker SSAB reported a steep fall in quarterly operating earnings while Swiss
freight-forwarding group Kuehne und Nagel International's saw a 24% fall in first-quarter core
earnings.
It's not at all doom and gloom with shares in German drugs and pesticides company Bayer
rising in early trading after its earnings report and a statement that the economic downturn had
prompted it to take a tougher stance in talks to settle claims its glyphosate-based weedkillers
cause cancer.
Deutsche Bank announced first-quarter results it said were above market expectations.
State aid is a key theme also this morning with Lufthansa shares rising sharply in early
trading amid talk of government help. While Air France KLM secured a government backed loan,
Virgin Atlantic is still talking with the British government about a bailout package.
European planemaker Airbus is also looking into some help from the state. It issued a bleak
assessment of the impact of the coronavirus crisis, telling the company's 135,000 employees to
brace for potentially deeper job cuts and warning its survival is at stake.
Some of the optimism on the markets is fuelled by the prospects of lockdown being eased to
provide some breathing space for the economy.
The British retail industry's lobby group and its main trade union on Sunday issued new
guidance to retailers in preparation for an anticipated easing by the government of the
country's coronavirus lockdown and the re-opening of more stores.
Low cost airline Wizz Air said it would restart some flights from London's Luton Airport on
May 1, becoming one of the first European carriers to begin to restore services
Volkswagen said it had resumed work at its biggest factory in Wolfsburg, Germany, to give
its workers time to adapt to new hygiene measures to combat the coronavirus.
Reopening might prove difficult however and a trade union representing workers at Renault's
Flins plant near Paris on Sunday urged staff not to return to work before May 11, saying it was
still too risky in terms of their health.
Another positive for the automotive industry is Mercedes-Benz maker Daimler saying business
has stabilised in China.
Talking about easing lockdown and how massive testing will be key in going forward,
Healthcare and clinical diagnostics company Novacythas signed a supply contract with the UK's
Department of Health & Social Care (DHSC) for its product aimed at testing for the presence of
the coronavirus.
(Julien Ponthus and Stefano Rebaudo)
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MORNING CALL: THE RIGHT SIDE OF THE BED (0531 GMT)
European stocks markets have woken up on the right side of the bed this morning with futures
pointing to an opening rise of over 2% on the continent and 1.4% for the FTSE 100 in London.
While falling oil prices are continuing to paint a dire picture of the world economy, the
Bank of Japan pledging to buy unlimited amounts of government bonds did ease the mood in Asia
which saw risky asset move upwards overnight.
With possibly more to come from the ECB, investors seem ready to take some risk on this
morning rather than to concentrate on last week's horrid PMIs or devastating U.S. job data.
The Q1 earnings season, which is currently in full swing, is expected to shed more light on
how European blue chips sailed through the first weeks of the crisis in March and offer some
clues on the extent of the incoming EPS rout.
Anyhow, the 20% rebound in stock prices from their March lows is still alive even if many
investors fear it could prove to be nothing more than a temporary bear rally.
(Julien Ponthus)
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(Reporting by Thyagaraju Adinarayan, Joice Alves, Julien Ponthus in London and Stafano Rebaudo
in Milan.)
