* European shares higher led by tech
* Strong Q3 earnings reports also help
* Bank of England ramps up stimulus
* Wall Street futures point to more gains
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BOE: "STANDING STILL IS NOW THE NEW TIGHTENING" (0831
EST/1331 GMT)
It's fair to say that market price action was fairly limited
when the BoE recharged its QE bazooka this morning.
"After all the excitement of the U.S. election and news of
billions of pounds in fresh stimulus from the Bank of England
there were few fireworks on the markets on Bonfire Night", AJ
Bell investment director Russ Mould commented.
That's probably the least one could say when the pound
actually rose against the dollar and yields on UK government
bond jumped instead of sliding when the increase added to the UK
QE party - 50 billion pounds more than expected by most
economists - took it to 895 billion pounds.
Why is it that an extra 50 billion doesn't get anyone
excited?
"In today's topsy-turvy world, central banks refraining from
pumping in further stimulus is now the equivalent of them hiking
rates or withdrawing stimulus, so standing still is now the new
tightening, and markets are reacting to it as such", commented
Clark Fenton, Diversified Returns Fund Manager at RWC.
Similar view from James Lynch, an investment manager at
Kames Capital.
"Central banks often cite that when at the lower bound of
policy, to have an impact you have to go harder and quicker than
expected", he said.
Another explanation was relief that negative rates are not
seen as a imminent policy move.
"Neither the minutes nor the Monetary Policy Report provide
any update on the BoE’s assessment of the suitability of
negative rates even though the bank has announced such policy
option is under review", wrote Kallum Pickering at Berenberg.
"This could be a sign that the BoE is trying to reduce the
growing speculation that such a move could be imminent".
Here's the yields on the UK 10 year bonds shooting up this
morning:
(Julien Ponthus)
*****
RISK APPETITE LIKES A GOP-CONTROLLED SENATE (1252 GMT)
At the end of the day, the current scenario of Joe Biden
president with a Republican majority in the Senate might be the
best for risk-appetite across the board.
While some analysts believe a strong boost to companies’ EPS
could come from a Democratic sweep, which currently seems to be
off the table, it is also arguably true that with the GOP
controlling the Senate, there are no risks of “a progressive
left agenda,” as Eleanor Creagh, Strategist at Saxo Bank argues.
“The reduced risk of monopoly crackdown/anti-trust scrutiny
and tax increases under a blue wave scenario is contributing” to
today’s stock gains, she says.
Biden now seems to have the upper hand to oust Donald Trump
after victories in Michigan and Wisconsin, but Republicans
appeared poised to retain control of the U.S. Senate.
According to UBS analysts, the political gridlock can have
positive effects on risk-sentiment as “a divided government
increases political predictability by lowering the potential for
significant policy changes.”
Besides “Republican control of the Senate makes it very
unlikely that there will be significant tax increases on
business or individuals in the coming years,” a UBS research
note says.
(Stefano Rebaudo)
*****
Q3 REVENUE SURPRISE AT HIGHEST LEVEL IN 10 YEARS (1200 GMT)
About two thirds of the Russell 1500 companies have reported
third quarter results, of which 72% beat on earnings and 56% on
revenue making it one of best quarters for positive surprise,
Morgan Stanley says.
Most of the beats included communication services (81%),
information technology (81%) and industrials (80%) companies.
While most earnings misses so far this season involved real
estate and utilities businesses (12% and 10%, respectively),
according to MS.
The bank has identified Amazon, Philips 66, Vici Properties
and Raymond James as its top quality shares as they "delivered
outsized earnings and revenue surprises versus their sector
peers".
(Joice Alves)
*****
CHINA’S INTEREST IN LUXURY AT ALL-TIME HIGHS (1131 GMT)
Let’s take a look also at sectors which are not directly
affected by U.S. elections, such as luxury which is more
interested in China’s economic trajectories and consumer
desires.
“Surveys done by Credit Suisse’s China Quantitative Insight
team suggest that near-term pandemic disruption is responsible
for 80% of the decline in Chinese luxury spending in 2020 while
interest in luxury goods has reached historical highs based on
WeChat engagement data,” a CS research notes says.
“We view the China/Europe 35%-45% price differential as
being high enough to trigger some buying euphoria as to when
international travel resumes among Chinese consumers,” it adds.
If you do the math taking into account that Chinese demand
is around 35% of luxury sales, you realize how important is this
area for the sector.
“Medium-term visibility on Chinese demand appears to be
improving,” according to CS.
China’s economy is staging a strong recovery while the
pandemic seems to be under control.
The current situation will benefit China-exposed companies
and CS reiterates an outperform rating on LVMH with a
475 euro target price, due to its strong brand desirability in
China and smart marketing.
(Stefano Rebaudo)
*****
U.S. TAX HIKE LESS LIKELY: A BOON FOR EUROPE INC TOO (0957
GMT)
A gridlock in Washington with Biden president and
Republicans retaining the Senate is a scenario that's becoming
more likely and equity investors are starting to appreciate the
lower likelihood of business unfriendly policy.
And the possible benefits for corporates, especially on the
tax front, are going to be felt on both sides of the pond.
"President Trump cut the U.S. corporation tax rate from 35%
to 21%. The Democrats were intending to raise it back to 28%.
That prospect now seems less likely, which should help U.S.
equities," say Citi strategists.
"It should also boost non-US companies with significant US
businesses. Their relative performance has flat-lined recently,"
they added.
Several shares in European companies with big presence in
the U.S. are doing relatively well since it emerged that Trump
was doing better than expected by the polls.
In the snapshot you can see today's price moves of a basket
of European stocks with high revenue exposure to North America.
The basket, which includes names such as Deutsche Telekom
, UBS, Roche and National Grid
, is courtesy of Citi.
(Danilo Masoni)
*****
OPENING SNAPSHOT: STRONG Q3, TECH RALLY AND MORE UK STIMULUS
(0854 GMT)
European bourses are well in positive territory supported by
a batch of positive Q3 results and more stimulus in the UK as
the country starts a second national lockdown.
The pan-European STOXX 600 index is up 0.8% to its
highest level since Oct. 20, with the tech sector
leading the gains, up 2.5%.
Britain's blue chips are up 0.3% after the Bank of
England increased its already huge bond-buying stimulus by a
bigger-than-expected 150 billion pounds to 895 billion pounds.
The BoE kept the bank rate at 0.1%.
In terms of single companies, Milan-listed Tenaris
is set for its best day in 9 years after reporting strong Q3
results, it was last up more than 11%.
(Joice Alves)
*****
ON THE RADAR: BANKS Q3, ARCELORMITTAL, SAINSBURY (0746 GMT)
Looking at futures, it seems like it is going to be a start
of the day in the black for European bourses in a data heavy
morning, which also sees investors having to digest a slew of
earnings results.
There is a mixed batch of banking Q3 results with France's
third-biggest listed bank Societe Generale swinging
back to profit, as its equity trading business continued to
recover from a weak start to the year; and Italy's
second-biggest bank UniCredit posted much higher than
expected net profit as Europe emerged from lockdowns.
In the meantime, Germany's Commerzbank swung to a
Q3 loss, as the lender undergoes a restructuring.
ING Groep, the largest Dutch bank, reported lower
than expected pre-tax profit of 1.20 billion euros on declining
interest income amid the coronavirus pandemic and said it
intends to cut 1,000 jobs.
British supermarket group Sainsbury also said it
could cut 3,500 jobs in a restructuring.
On a brighter note, ArcelorMittal, the world's
largest steelmaker, reported Q3 core profit above expectations
as the easing of lockdowns led to improved demand.
German broadcaster ProSiebenSat.1 Media returned
to profit, and reinstated its FY guidance. Its shares rose 5.7%
in premarket trade.
HeidelbergCement, the world's No.2 cement maker,
posted a 13% increase in Q3 core profit, as cost cuts helped it
to shrug off the impact of the pandemic and forecast higher
earnings for 2020.
Siemens Gamesa keeps profit target as Q4 uptick fails to
stave off loss.
British insurer RSA's underwriting profit rose
strongly in the first nine months of 2020 due to improvements
the company made to its underwriting strategy.
German reinsurance group Munich Re's net profit
declined 77% to 199 million euros in Q3.
Staying in Germany, specialty chemicals maker Lanxess
narrowed its 2020 core profit outlook range after the
coronavirus pandemic, saying it was seeing a pick up in the auto
industry, with China and the U.S. also providing positive
stimuli.
While Lufthansa said it booked a net loss of 2
billion euros in Q3.
Sunrise Communications announced plans to boost its
2020 dividend to 4.55 and 4.65 Swiss francs per share, from 4.4
francs, ahead of the Swiss telecommunications firm's takeover by
Liberty Global that will lead to its delisting.
(Joice Alves)
*****
MORNING CALL: STILL NO U.S. PRESIDENT (0638 GMT)
Futures are pointing to gains for European bourses this
morning mirroring Asian shares, which climbed on the prospect
that a gridlock in the U.S. Congress will give a boost to some
industries.
So far, the count shows that Democratic challenger Joe Biden
narrowly ahead in key states, but the risk of a prolonged
contested election remains.
Back in Europe, it will be a data heavy morning with EZ and
UK PMI data due.
The Bank of England's November monetary policy decision is
also on schedule. The Telegraph newspaper reported that the
central bank is considering a move into negative interest rates.
(Joice Alves)
*****
