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.
CLOSING SNAPSHOT: A BRUTAL MONTH IS OVER (1538 GMT)
After the recovery in oil prices and the surprise expansion in Chinese factory activity
revived confidence in equity markets, European bourses had a nice run this morning and even if
later shares struggled to find a direction, they ended the day well on the black though.
The STOXX was up 1% with the oil and gas and the travel and leisure sectors
leading the gains. Britain's blue chip index gained 1.8%.
But still March was the worst month for European shares since October 1987.
Let's see what April will bring us.
(Joice Alves)
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SOVEREIGN CRISIS GHOSTS HAUNT THE EURO ZONE (1325 GMT)
The pandemic has led Europe into a financial crisis which threatens to morph into a replay
of the 2010 sovereign debt crisis which had the very existence of the euro zone at stake.
The fact that Germany and the Netherlands are resisting calls for joint debt issuance
through so-called euro bonds isn't going well in Italy and in Spain which are struggling to cope
with the deadly outbreak.
Fears are that Italy and Spain will struggle to finance the inevitable surge in deficits and
debt needed to cope with the sanitary crisis and recession.
"Investors are now worried that financing could become such a major challenge, especially
for Italy and Spain, thus jeopardising euro stability", said Manfred Hübner from Sentix, whose
'euro break index' has rose 13.4% (see chart below).
Deutsche Banks analysts are also worried.
"European solidarity is being questioned and threatens to turn a socio-economic crisis into
a political crisis", they reckon.
"Divergence is Europe’s Achilles Heel and we are concerned the virus shock will again
highlight North-South differences", the Deutsche Bank analysts wrote this morning.
Tensions are palpable and Italian mayors on Tuesday bought a page in Frankfurter Allgemeine
Zeitung newspaper to ask Germany for solidarity amid the coronavirus outbreak, saying that other
states agreed to cut its debt after World War Two.
(Julien Ponthus)
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EUROPEAN RETAIL: EMPTY CASH DRAWERS (1317 GMT)
Morgan Stanley believes earnings numbers on European retailers are now irrelevant and cash
is becoming king instead. Analysing cash positions at some of the major retailers, the
investment bank found a list of names that can weather this storm and some names that can't.
Inditex, Zalando, Boohoo, Primark-owner AB Foods and
ASOS make it to the safe list with 85 to 140 weeks of cash cover. While Ted Baker
, Dixons and H&M have 35 weeks or less.
The bank says the analysis assumes they can cut their operating costs by about 50% and have
no revenues given most stores are closed.
Here's a chart showing a clear difference in share price reactions between the two groups:
(Thyagaraju Adinarayan)
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EUROPEAN BANKS CUTTING DIVIDENDS: THE FLIP SIDE (1114 GMT)
European banks are being asked to cut or freeze their dividends to build up cash reserves
and boost lending. It's also a public image issue with so many workers facing unemployment and a
dire recession.
Limiting shareholder payouts in a time of crisis seems to make sense but "there could be a
flip side", analysts at rating agency Scope argue.
It could create a problem to investors who rely on returns to meet pension payments or
insurance liabilities.
"Depriving institutional investors of returns could divert the flow of capital to other
investment sectors", they warn, adding that cutting dividend may undermine "the investability of
banks – just when banks most need support in their equity and AT1 capital."
In a nutshell, there's a risk the idea of cutting dividends backfires.
"The risk is that poor future cash returns will constrain banks’ ability to raise equity",
Scope argued.
(Julien Ponthus)
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10 YEARS FOR DIVIDENDS TO RECOVER TO PRE-VIRUS LEVELS (0958 GMT)
The dividend Armageddon is a big trend in this financial crisis and it's really - yea really
- not going away.
Looking at S&P dividend futures, John Velis, a strategist at BNY Mellon warns that it could
take a decade for payouts to come back to where they were prior to the crisis.
"Going out 10 years to 2030, the expectation is that dividends will just about recover to
pre-Covid-19 levels", he writes, noting that it took 14 years for dividends to recover from
pre-Depression levels and seven years after the end of the first world war.
(Julien Ponthus)
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SSHHHH, THE BEARS ARE STILL AROUND (0900 GMT)
U.S. and European shares are back up nearly 20% from recent lows but Goldman Sachs reckons
what we are looking at is merely a bear market rally.
The speed of the changes has been astonishing -- having taken just 16 trading days to tumble
into bear territory (previous record was 44 days in 1929), U.S. stocks' 18% recent rebound was
the strongest three-day rally since 1933.
But Goldman notes that between September and December 2008, the S&P 500 posted six bounces
of 9%-plus; some rallies were as large as 19% over the course of one and six trading days.
"Taking the experience of the bear market after the collapse of the technology bubble in
2000-2002, the GFC in 2008 and the mini bear market in 2015, we see a pattern of rebounds before
the market reaches a trough," Goldman analysts tell clients.
And share prices may not yet reflect the scale of earnings decline that is likely -- the
bank forecasts EPS to fall 33% in the United States and 45% in Europe. But European P/E based on
consensus forward earnings is at 12 -- during the 2008 crisis, they traded at 7 times forward
estimates.
Meanwhile dividends are set to fall -- Goldman sees S&P 500 dividends down 25% in 2020,
meaning curent dividend yields might still be too high.
(Sujata Rao)
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IN TOUCHING DISTANCE TO THE BULLS (0838 GMT)
Let's be clear, no-one is calling the return of the bull market.
But technically speaking, it's impossible to ignore that we're close to 20% up from the
March 16 intraday lows.
That being said, the consensus is still clearly that there needs to be a strong conviction
that the pandemic has peaked before any long-lasting turnaround.
(Sagarika Jaisinghani with Julien Ponthus)
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OPENING SNAPSHOT: SOME CONVICTION BUILDING UP (0739 GMT)
Sentiment has gradually improved this morning and cash markets are now firmly in positive
territory after a mix session in Asia.
The STOXX 600 is cruising up 2% with all regional bourses and industry sectors clearly on
the rise.
Travel and Leisure shares, which have become somewhat of a coronavirus fear and greed gauge,
are up 4.2%.
Oil and gas is also up 3.4% with oil prices on the rise after Russia and the U.S. agreed to
hold talks.
Among individual stocks, meal-kit delivery firm HelloFresh jumped to a record high after it
said it expected strong first-quarter sales and profit due to a surge in demand as coronavirus
lockdowns prompt more people to cook at home.
Turnaround specialist Melrose Industries surged 16% after reports it has secured a covenant
waiver.
(Julien Ponthus)
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ON THE RADAR: YOUR USUAL CORONAVIRUS BUSINESS HEADLINES (0746 GMT)
Even if futures currently point to a positive open this morning, there isn’t a clear trend
emerging yet despite Wall Street’s rally overnight.
Sure, vaccine hopes are lifting some spirits and factory activity in China unexpectedly
expanding was a good surprise but these are no game changers as of yet.
This morning brings the usual batch of coronavirus headlines with dividend cuts (French
group Hermes and L'Oreal, Ad giant WPP + Euro zone banks), profit warnings (Lindt & Spruengli
scraps 2020 targets), bailouts or lifelines (Norway's credit for airlines gets regulatory
approval) and interestingly the confirmation that M&A activity is going to take a big hit
(Altice Europe drops bid interest in Israel's Partner Communications).
On that note however, JC Decaux, the world's biggest outdoor advertising company still plans
to buy a minority stake in Hong Kong company Clear Media but in the region the fallout from the
outbreak sent first-quarter M&A activity to a seven-year low.
There’s also capex being scrapped (Shell drops out of major U.S. LNG project), bonuses being
reconsidered (Credit Suisse weighs curbing bonuses) and activity slowing down (France's Renault
puts Paris white collar staff on partial unemployment).
One individual stock under the spotlight is Hellofresh with Q1 revenues well above market
expectations. Shares are up about 10% in early trading.
(Julien Ponthus)
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THE WORST QUARTER SINCE 1987 (0655 GMT)
Seriously, what was so bad about 1987? Three men and a Baby? Fatal Attraction? Beverly Hills
Cop 2?
Well of course there was that famous October crash but really, nothing to compete with a
global deadly pandemic.
Yet, Q4 1987 saw the STOXX 600 lose 29%, which beats the 24.2% for the first three months of
2020.
(Julien Ponthus)
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MORNING CALL: NO CLEAR TREND YET (0636 GMT)
No clear trend is emerging as of yet this morning with futures for the DAX and the STOXX 50E
up about 0.5%.
MSCI's index of Asia-Pacific shares outside Japan is up 0.8% while the
Nikkei was down about 1%.
U.S. futures are flat right now after Wall Street's rally (+3%) yesterday.
Whatever happens today in Europe, this quarter is bound to be worst than in 2008.
The STOXX is down a whopping 24.3% this quarter compared to 22.5% in the last quarter of
2008 during the financial crisis.
(Julien Ponthus)
*****
(Reporting by Danilo Masoni, Joice Alves, Julien Ponthus and Thyagaraju Adinarayan)
