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* STOXX 600 down 1.4%
* Tech stocks lose 3.8%
* Wall Street futures down
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 Joice Alves
(joice.alves@thomsonreuters.com) and Julien Ponthus
(julien.ponthus@thomsonreuters.com) in London and Stefano Rebaudo
(stefano.rebaudo@thomsonreuters.com) in Milan.
PANDEMIC IS SCARY, BUT MAYBE LESS SO (1216 GMT)
Where we are in terms of controlling the coronavirus outbreak is what
analysts have been trying to assess from the beginning of the crisis given its
bearing on economic recovery.
The U.S yesterday recorded more than 1,100 deaths from COVID-19, as the
pandemic escalates in southern and western U.S. states.
Even though deaths are rising in the United States for a second week in a
row, they remain well below levels seen in April, when 2,000 people a day on
average died from the virus.
According to a Unicredit research note, U.S. data reveals that a second wave
of infections is under way but there are also some good signs.
While the number of cases is rising fast, the rate of increase is now
slowing, the note says.
Besides, much of the rise “is due to the increased prevalence of testing,”
while hospitalizations are now comparable “to the highs of the first wave in
March-April”. There are signs that “the second wave has been less deadly than
the first one.”
Hotspots in the south and the west of the U.S. are now seeing new cases
stabilize or fall.
Europe and Asia seem to be under control as localized outbreaks have been
managed by authorities to prevent them from spreading to a national level.
The big unknown is what is going to happen in emerging markets.
(Stefano Rebaudo)
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THREE GOOD POINTS FOR EUROPEAN EQUITIES (1114 GMT)
Today's tech sell-off and gloomy mood might have some investors question the
general upbeat sentiment and wonder whether European equity markets have jumped
the gun on the V-shaped recovery narrative.
But there's still quite some data out there to suggest that Europe's bourse
have not got carried away, yet.
Morgan Stanley analysts in a strategy note this morning make the case that
so far the recovery has been in line with past recessions.
"The 33% rise in MSCI Europe from the March low is consistent with the
rebound seen post the cycle-lows of 2003 and 2009", they argue.
Another positive fact is that the leadership of outperforming stocks has
been much wider in Europe than in the U.S. where the tech mega stocks have had
an overwhelming impact in pulling indexes higher:
And finally, the ESG investment theme is very much alive and kicking in
Europe, boosted by the EU's new green deal and recovery plan.
"ESG continues to be a dominant force in European markets but less so
globally", which could give the old continent an edge moving forward.
See like some ESG indexes rival with the mighty Nasdaq:
(Julien Ponthus)
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NOT BUYING A V-SHAPED RECOVERY? YOU MIGHT THINK AGAIN (1047 GMT)
Market sentiment is not in very good shape, as the pandemic continues to
spread while U.S.-China tensions are stealing the centre stage again.
But some analysts see more upside room for stocks.
“When we look at financial markets, we struggle to find any pricing of the
recovery itself: we see the recovery in macro data, but not yet in market data,”
a Unigestion research note says.
“In the coming quarters, we expect to see this pricing materialise, although
we think this is unlikely to be linear,” it adds.
Its Growth Nowcasters, which gathers data which are indicative of a
recession, is showing a strong decline, by 72% for the U.S., 82% for the
Eurozone and 58% for China.
Unigestion says investors are not buying a V-shaped recovery but they are
wrong.
“We do not think investors should be too intimidated by market valuations.
In our view, the third quarter should see a recovery in pricing now that the
lower rate environment has hit valuations fully".
UBS also says there is still room to grow for equities as liquidity remains
strong and positive medical developments are expected, while bonds are likely to
provide negative real returns for the foreseeable future. But investors will
have to manage volatility.
(Stefano Rebaudo)
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BOTTOM FISHING FALLEN ANGELS (0929 GMT)
Bottom fishing four month ago at the peak of the coronavirus market crash
has proved quite a successful strategy for savvy or lucky stockpickers with a
overall 35% rebound for the STOXX 600.
While the rewards were sometimes even more impressive within the upbeat
tech, healthcare, chemicals and utilities sectors, hard-hit stocks in say, the
oil and gas or banking sectors were more than often nasty value traps.
Anyhow, question is, at this stage of what's looking like a bona fide
recovery, where to look for another round of bottom fishing?
"What we are looking at, are fallen angels which have become value
investments", Roland Kaloyan, equity strategist at Societe Generale told us
yesterday.
"These companies had convincing business plans prior to the pandemic and
would benefit the most if a vaccine would be available, say tomorrow", he added,
naming hotels or restaurants, luxury goods, brewers, as interesting segments of
the markets to scan for undervalued stocks.
But Kaloyan made clear that he's not advising going for a straight vanilla
value style binge.
"We are definitely staying away of those which had been in the value
category before the crisis and were already struggling to convince investors,
like some airlines or car makers or media companies which face structural
issues".
More broadly on the state of the European equity market, Kaloyan believes
this Q2 earnings season has been, so far, quite encouraging.
"Clearly companies are coming out with very reassuring message, recovery is
clearly under way for the sectors that were not targeted by the lockdown, for
sectors like industrials, the message is pretty reassuring", he said.
Optimism on a speedy recovery has also been swiftly priced in.
"When you look at current valuations, half of all sectors are valuing a 'V+
shaped' recovery with EPS back to 2019 levels in 2021", he also said.
Anyhow, here's how the recovery looks for now, sector by sector, in the
STOXX 600:
(Julien Ponthus)
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INVESTING IN AIRLINES? IN A PANDEMIC? SERIOUSLY? (0935 GMT)
With the coronavirus pandemic hitting the tourism industry hard, as
countries put tight restrictions on international arrivals, you'd think low-cost
European airlines would feature pretty high up on the list of companies
investors want nothing to do with.
But AXA Investment Managers' fixed income portfolio manager, Nicolas
Trindade, reckons the debt of Europe's budget airlines makes for a compelling
investment opportunity.
He believes many budget airlines have strong balance sheets, relatively
little debt and that their bonds are trading at prices that do not reflect their
fundamentals as activity starts to pick up.
"The strong financial position of these airlines was such that despite the
relaxation in travel restrictions, they could quite conceivably go on for quite
some time with no revenues at all," said Trindade, who manages the AXA Global
Short Duration Bond Fund.
"The airlines also have the benefit of unencumbered assets," he added. "They
own their fleets rather than lease them, and have low debt levels associated
with planes."
He said that some investment-grade airline bonds are still up to 400 basis
points wider than their pre-crisis levels, making them very attractive against
the improving backdrop.
Trindade said he had added several names to his portfolio but did not
specify which.
(Elizabeth Howcroft)
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OPENING SNAPSHOT: RISK AVERSION AND TECH SELLOFF (0740 GMT)
European stocks are lower in early trading as worries about the post-COVID
economic recovery continue to dampen investor risk appetite, despite the
approval of the EU recovery fund.
The Stoxx 600, which is poised to close the week in negative territory, is
down 1.9%. Tech shares are leading losses, down 4%, after a selloff on Wall
Street with Apple and Microsoft shares dropping more than 4%.
Among single stocks, Centrica is the best performer of the Stoxx
600, up 24% after it announced a proposed deal for the sale of its unit Direct
Energy for $3.6 billion cash. Signifiy stocks are up 4% after
stronger than expected results, while shares in Vodafone are down 4%.
(Stefano Rebaudo)
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ON THE RADAR: VODAFONE, CELLNEX, SCHINDLER (0633 GMT)
European stocks look set to close the week in negative territory despite the
approval of the EU recovery fund, as investors focus on rising tensions between
the U.S. and China while worries about the post-Covid economic recovery continue
to weigh.
On the corporate front a fresh batch of coronavirus-damaged results are on
their way, with Thales slashing financial forecasts for the year after
its profits fell by more than half in the first half.
Schindler is cutting 2,000 jobs after its profit fell more than a
quarter and 2020 expected revenues are contracting up to 6%.
Shares in Lonza are up 0.9% in premarket trade after the company's
first half profit and sales rose on brisk hygiene product sales and rising
demand from biotech customers.
Vodafone said it would list its towers unit in Frankfurt in early
2021, after posting a 1.3% decline in first-quarter organic service revenues.
Pearson posted a first-half loss and said it was on track to
deliver adjusted operating profit broadly consistent with expectations as
markets recovered.
Signify reported a 62% jump in second-quarter net profit and said
it intended to pay down 350 milllion euros in debt this year.
Cellnex has completed its sale of 13.2 million shares at 57 euros each, as
it builds up a warchest for infrastructure deals.
Shares in Brenntag are up 4.4% in premarket trade after results.
TietoEVRY reported a rise in second quarter underlying profit,
helped by cost cuts following the takeover of EVRY business last year, and said
it would pay out dividend.
(Stefano Rebaudo)
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MORNING CALL: IN THE RED ON U.S.-CHINA TENSIONS, TECH SELLOFF (0528 GMT)
European futures are in the red this morning as rising tensions between U.S.
and China and a selloff of tech stocks on Wall Street hurt investors’ sentiment.
The approval of the EU recovery fund failed to prop up European stocks this
week, with the Stoxx 600 which might end in negative territory as worries about
the economy continue to weigh.
The U.S. Nasdaq lost around 2% overnight with Apple and Microsoft shares
dropping more than 4%, while risk appetite in Asia sank after Beijing vowed to
retaliate against a U.S. order to close its consulate in Houston.
(Stefano Rebaudo)
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