Last checked at 
* European cyclical stocks rally
* Homebuilders up to the top of the FTSE
* UK Finance Minister Rishi Sunak plans tax cuts
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.
WHAT IF STOCKS CONTINUE TO RISE? (1405 GMT)
Equity prices have been stuck in a wide range as hopes of a quick recovery in Europe are
dampened by fears of new lockdowns in the U.S, which would hurt the economy globally.
While Citi today says it expects equity markets to go sideways for a year,
Berenberg analysts sound more optimistic.
They would not be surprised if markets continued to rise, as a lot of liquidity is parked on
the sidelines and is gradually put back into play, while money supply growth fuelled by central
banks is providing support, but mostly "because nobody expects it to," a note says.
Investor sentiment is not euphoric, but more equity buying of systematic strategies is
expected as volatility has markedly fallen, while downside potential remains limited, it adds.
Besides, the European Union and the ECB future decisions could impact equity markets.
Generally speaking, "monetary policy will remain exciting," according to Berenberg. The ECB's
monthly meeting is scheduled on July 16.
Then a possible agreement at next European summit on July 17-18 that will discuss the EU
recovery fund "is likely to remain a major challenge," it adds.
(Stefano Rebaudo)
*****
BANKS: PAN-EUROPEAN GOOD VIBES (1327 GMT)
Not a single constituent of the European banking index in the red!
Sure, the risk-on wave from China is boosting the continent's lenders (+4% atm) but there
seems to be a much broader general optimism on the sector at the moment.
Consider Commerzbank: the sudden departure of both the chief executive and the chairman amid
tensions with U.S. activist Cerberus and the unions could have - one might have thought -
unnerved investors but nope! The German bank is up a handsome 8%, the top STOXX 600 performer,
on hopes the strategy will change for the better.
No everyone was impressed though, and on the credit side of things, S&P and Moody's called
the move "credit negative" and said it put the ailing German lender's strategy at risk.
One bullish thought making its way to investors' mind is that some M&A might come in sooner
rather later as a strategic way out of Commerzbank's crisis.
Here's a Breakingviews story making the case for some consolidation on the German banking
market:
Talking about M&A the Intesa's takeover offer for UBI Banca is taking place in a constructive
market for banking stocks.
Both stocks are up and UBI Banca is trading just a above the offer price, signalling some
appetite for some sweetener later along the way. Buying UBI Banca above what Intesa is offering
can be seen as a clear confidence vote.
Moreover, as noted by Jefferies, while the deal is seen as moderately beneficial for Intesa,
a successful transaction would likely boost for sentiment.
"We see successful closure having more symbolic significance for the sector consolidation
theme than for ISP itself", Jefferies analysts wrote, noting that the "UBI acquisition removes a
competitor which should bring positive implications for margins for the sector".
An earlier blog post also noted optimism for Spanish banks, notably on a the NPLs front,
showing hope for the periphery of Europe, already boosted by the planned EU recovery fund.
Another unexpected event this morning was received calmly. The resignation of António
Horta-Osório at Lloyds wasn't met with exuberant optimism but the stock is in positive
territory, up 0.8%. That's of course one of the worst performance in the sector but also, no
drama there even if the resignation comes at a critical time.
Thanks notably to today's jumps and to the mid-May/mid-June rebound , banking stocks are no
longer the worst sector year-to-date with their 30% retreat.
Travel and Leisure shares, with a 34% fall, are back to being the worst hit assets in the
coronavirus financial crisis.
Anyhow, here are the constituents of the index trading unanimously in positive territory:
(Julien Ponthus)
*****
HEADING TOWARDS AN M&A SPLASH? (1159 GMT)
As buybacks are largely seen off the table, some investors are forecasting an M&A renaissance
and a rise in organic investments for next year.
Following "more political scrutiny" on buybacks programmes, "there will be opportunities (for
companies) to deploy capital elsewhere," says Richard Saldanha, portfolio manager at Aviva
Investors.
"And M&A is definitely going to be one of those areas," he says, adding that it will
probably take a few months before we see companies investing more organically and in M&A deals
but once the worst of the crisis is behind, corporates with strong balance sheet will seek to
develop their supply chain and invest in industrial automation.
"With the US- China trade tensions I think there's a big necessity to try and localize as
much as you can your supply chain and minimise those risks," Saldanha says.
This new wave of investments "would actually be quite a good thing in our perspective on a
long-term view," he adds.
(Joice Alves)
*****
SPANISH BANKS: SOME GOOD SURPRISES (1146 GMT)
Shares in Southern European lenders have come under selling pressure since the coronavirus
outbreak on fears of an increase in non-performing loans (NPLs), even if banks were supported by
governments and by ECB's measures aimed at softening the impact of the pandemic and at
protecting balance sheets.
Surprisingly, now asset quality and provisions of Spanish lenders are "coming in better than
expected, with the peak in NPLs expected in H1 2021", according to Citi, which last week hosted
a Spanish banks virtual trip.
Seven Spanish banks took 86 billion euros of TLTRO3, "bringing total ECB funding to 224
billion," in a move which will support their profitability, Citi analysts say in a note.
Meantime, the state guaranteed lending scheme of 100 billion euro has been the most
efficient in Europe, with over 50% of disbursements by mid June.
Bottom line, Spanish bank should end 2020 with "solid capital buffers", such as CET1 ratios
in the 11-14% range.
Citi continues to prefer BBVA on its risk management, as well as digital and scale
advantages. It has a buy rating also on Unicaja and Bankia.
(Stefano Rebaudo)
*****
FTSE: REASONS TO CELEBRATE, REASONS FOR CAUTION (1040 GMT)
London blue chips are cruising through morning trading, outperforming other European bourses
with a 2.1% rise versus 1.6% for the EURO STOXX.
As Connor Campbell at Spreadex writes, the FTSE "had more reason than most to celebrate"
with notably expectations of more stimulus, courtesy of British finance minister Rishi Sunak.
See our story here:
"It may be a case of the FTSE setting itself up for disappointment come the Chancellor’s
statement, but at the moment it is more than willing to indulge in a bout of optimism", Campbell
cautions.
Joshua Mahony at IG notes for his part that "the housebuilders help drive UK markets higher
thanks to strong construction PMI and Barratt updates". More on PMIs, here:
But looking both forward and backward, George Lagarias, chief economist at Mazars, isn't
convinced UK stocks, which have underperformed in 2020 due notably to heavy exposure to oil and
banks, are set for a catch-up with world markets.
"In part, it is cyclically reversible but investors need to think deeply about the long term
implications of COVID and a potential hard Brexit to the economy and risk assets", he warns.
Talking about Brexit and the ongoing negotiations to strike a deal before the end of the
year, a note from Generali Investment also calls for caution.
"We do see the risk that UK’s Conservative Party could largely misjudge its economic and
political relevance compared to the bloc. Thus a positive result is by no means guaranteed",
Generali analysts write.
"A failure would unavoidably lead to significantly negative economic consequences (with the
UK to suffer more than the EU), immediately on the heels of the Covid-19 crisis".
Here's the FTSE 100 underperforming World, US and European shares so far this year:
(Julien Ponthus)
*****
STEEL INDUSTRY: A TAILWIND IN Q4 (1009 GMT)
For the steel industry, it's all a matter of post-Covid 19 economic recovery, which is under
way, but probably not at the speed many analysts were expecting or hoping, although some argue
single shares have a big upside potential.
A Jefferies research note says Q4 could be a good time for the sector as European car demand
is on the mend and will probably suffer again from seasonality in Q3, which will be a tailwind
for the last quarter of 2020.
Automotive is 19% of EU steel demand and an important end-market for higher margin steel
products, it says.
Besides "prices are off their bottom and import parities are supportive of further gradual
improvements near-term," it adds.
Separately, Credit Suisse keeps some of its buy ratings, but it lowers European steel
production forecasts as hopes of a V-shaped recovery softened into a L-shaped one, it says.
CS likes ThyssenKrupp, target price at 11 euros, and in the medium-term
ArcelorMittal, Salzgitter and Kloeckner, are all rated outperform.
According to Jefferies, ThyssenKrupp has a 58% upside, Acerinox 54%.
(Stefano Rebaudo)
*****
OPENING SNAPSHOT: BANKS AND UK HOMEBUILDERS FLY HIGH (0755 GMT)
Thanks to a wave of optimism from China, the easing of lockdowns in the UK and reports of
fresh support to Britain's homebuilders and hospitality sector, European shares jumped high.
The pan-European index is up 1.7% with cyclicals stocks leading the gains with banks
up more than 4%, autos more than 3%.
Britain's blue chips surged 2.2% getting a boost from homebuilders Persimmon, Taylor
Wimpey and Barratt Developments up about 5% after Finance Minister Rishi Sunak
said the UK plans to raise a property tax threshold allowing people to start paying stamp duty
from 125,000 sterling to 500,000 sterling.
(Joice Alves)
*****
ON THE RADAR: JOB CUTS, SHELL AND GEBERIT (0645 GMT)
European shares are seeing mirroring the optimism in Asia where shares touched a four-month
highs. But the resurgence of coronavirus cases in the U.S. could cap gains.
On the corporate front, companies continue to report their pandemic struggles, with Swiss
plumbing supplies company Geberit's quarterly saying sales drop 15.9% as pandemic hammers
construction sector.
And more job cuts are on the way: Sonova will close some stores and cut jobs; Air
France and HOP! airlines plans to cut 7,580 jobs
Meantime, Britain is close to a 500 million pound ($624 million) supply deal with Sanofi and
GlaxoSmithKline for 60 million doses of a potential COVID-19 vaccine, the Sunday Times reported;
while shares in Idorsia were up 6.3% in premarket trade after company announced
positive results in second phase 3 study of Daridorexant.
Britain's Tesco demands supplier price cuts by July 10.
Shell is not ruling out moving its headquarters from the Netherlands to Britain as
the company looks at ways to simplify its dual structure.
In the M&A world, Nordic banking group Nordea agreed to acquire the occupational
and individual pension portfolios from Frende Livsforsikring.
In Germany, Volkswagen is investing about 1 billion euros to retool its factory
in Emden for electric cars, newspaper Handelsblatt reported. Commerzbank was fined 650,000 euros
for deals with defunct Cypriot bank.
People moves: Swedish telecoms operator Tele2 AB CEO Anders Nilsson will step
down and be replaced by former VEON CEO Kjell Morten Johnsen.
(Joice Alves)
*****
MORNING CALL: OPTIMISM FROM ASIA (0535 GMT)
European bourses are seeing opening higher, mirroring the optimism in Asia where shares
touched the highest level since February as investors counted on super-cheap liquidity and
fiscal stimulus to sustain the economic recovery.
Meantime, the resurgence of coronavirus cases in the U.S. could cap gains.
Investors will also be watching PMI data for the euro zone and the UK that will be released
this morning.
Financial spreadbetters at IG expect London's FTSE to open 82 points higher at 6,239,
Frankfurt's DAX to 260 points higher at 12,788 and Paris' CAC to open 94 points higher at 5,102.
(Joice Alves)
*****
