Last checked at 
* BBVA and Sabadell in merger talks
* STOXX 600 opens flats, now down 0.1%
* S&P 500 futures slightly down, Nasdaq up
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A COUPLE OF IDEAS ON OIL SERVICE STOCKS (1034 GMT)
Oilfield service stocks have been overlooked during the
coronavirus crisis and woke up with other value stocks after the
vaccine news last week. But what now.
According to Morgan Stanley, successful trials on vaccines
do not change the scenario for the industry despite the rally in
share prices. However there are two stocks "that, in our view,
are well positioned, and offer upside under conservative
assumptions,” it says.
Subsea 7 orders in hand already account for 40% of
its market cap, a Morgan Stanley research note recalls.
Even in today's market, the company should be able to take
$11 billion in orders in about 3 years. With a debt-free balance
sheet and a 14% FCF yield, we reiterate Overweight, it adds.
Wood Group shares are 30% down year-to-date and the
company should be able to comfortably generate $400 million in
FCF per year -- a 17% FCF yield relative to its market cap of
$2.4 billion -- and to reduce its balance sheet gearing.
With this prospect, we expect the management to reinstate a
10 pence dividend early next year, growing to 20 pence in 2022 -
a 7.5% prospective yield, MS says.
Renewables/other energy is already 25% of Wood Group's
revenue mix and growing rapidly.
(Stefano Rebaudo)
*****
REVERSAL OR ROTATION, WHAT'S NEEDED FOR A PARADIGM SHIFT
(1001 GMT)
Price action today - with defensives doing relatively well
in a softer market - would suggest that the shift from growth to
value triggered by signs of a possible vaccine breakthrough is
already fizzling out after an initial violent reversal.
This loss of momentum may be partly due to the easing of
short covering pressure that powered the move at its start, and
now the key question is whether this initial slight reversal
could turn into a more sustainable rotation.
Giacomo Tilotta, fund manager and head of European equity at
AcomeA in Milan, believes that's possible but three ingredients
are needed for this trend not to be temporary, as happened in
the past, but rather be more of a "paradigm shift".
* Damage limitation: "A containment of the possible negative
effects caused by restrictions to fight the spread of the virus
is important not to undermine investors' confidence"
* Vaccine newsflow: "Given for granted a green light,
effectiveness in the vaccine's distribution and marketing is
going to be crucial..."
* Fiscal policy: "only with..(an effective fiscal policy) we
could see a shift from a market guided by central bank liquidity
to a market guided the economic cycle's real prospects..."
(Danilo Masoni)
*****
EUROPE HOLDS THE LINE AT THE OPEN (0820 GMT)
Investors have opted against any strong tactical withdrawal
after yesterday's Moderna vaccine gains.
European equities have opened sideways and are broadly
holding the line of yesterday's close.
The STOXX 600 is down 0.1% at 8.44 GMT. Market price action
is quite limited across the different sectors too, which are
moving mostly within a -0.5%/+0.5% range.
Utilities are gaining the most but with a limited
0.4% rise, while losers are led by travel and leisure stocks
, which are shedding 1.2%.
In terms of single stocks, Intermediate Capital Group is the
top performer up 5.6% after HY results. France's Klepierre is
the biggest underperfomer of the STOXX 600, losing 5%.
There's an absence at the moment of other wild moves at the
exception maybe of Banco Sabadell, which rose sharply, and BBVA,
now losing ground, after the announcement of their merger talks.
(Julien Ponthus)
*****
ON THE RADAR: EUROPEAN BANKS AND A BIG EASYJET LOSS (0725
GMT)
With a 27% surge since the beginning of the month, European
banks have pretty much been at the centre of the market price
action triggered by the vaccine/U.S. election combo.
But one of the key structural catalysts for their long term
recovery, M&A, is also providing investors with long term hope.
After a wave of consolidation in Italy, Spain seems to be
switching gears and moving towards a more integrated market.
BBVA and smaller rival Sabadell announced last evening they
were in talks to create Spain's second-biggest domestic lender,
the latest move after Caixabank agreed to buy Bankia in
September.
There's also some action in the glamorous fintech/payment
space with Wirecard's insolvency administrator saying the
payment system provider's technology platform had been sold to
Spain's Banco Santander.
More M&A still in that space with France's Sopra Steria
planning to acquire the software subsidiary of Fidor bank.
In terms of regulatory hurdles, the sector is also back on
the offensive with the head of the European Banking Federation
calling (EBF) for a temporary partial reprieve in the 'Basel IV'
capital rules.
Apart from banks, EasyJet is obviously on the front page
with a 1.27 billion pound loss in the 12 months to the end of
September, showing the extent of the impact of the pandemic on
the British low-cost airline which had never before made an
annual loss in its 25 year history.
Talking about the industry, ADP, the operator of Paris
Charles de Gaulle airport, on Monday estimated that traffic in
2021 would be 45% to 55% of 2019 levels based on a gradual pick
up from April.
There's also more in terms of mergers and acquisitions:
Poste Italiane said on Monday it was buying domestic rival
Nexive from German fund Mutares and Dutch mail and parcel group
PostNL.
Some trading updates also with French telecoms operator
Iliad reporting Q3 revenues up 6.3%, boosted by record net adds
for its French fiber offering and demand for its set-top Freebox
Pop and Freebox Delta.
In premarket action, Valora stocks are down 3.2% after the
company completed a placement of 440,000 shares at 158 Swiss
francs per share by way of an accelerated bookbuilding, to
increase financial flexibility and to implement strategic
priorities.
Shares in SFS Group are up 2.8% in premarket trade after the
company said it expects its operating results for the second
half of the year to be significantly better than previously
projected.
In the healthcare sector, QIAGEN announced the European
launch of a test that will help quickly identify and
differentiate between patients with common seasonal respiratory
infections and COVID-19.
(Julien Ponthus and Stefano Rebaudo)
*****
EUROPE MORNING CALL: IS THIS IT? (0635 GMT)
Is the boost provided by Moderna's vaccine news already
over?
After a spectacular session during which global equities
reached new records, sentiment has gradually fizzled out and
European futures, very much like their Wall Street peers, are
currently trading in slightly negative territory.
Many investors believe however that the great rotation to
value and cyclicals, triggered by Pfizer's vaccine announcement
last Monday and the aftermath of the U.S. election, is work and
progress.
"The arrival of Covid-19 vaccines appears to be making the
'buy everything' trade, literally 'buy everything'", wrote OANDA
analyst Jeffrey Halley.
The bullish tone of many strategists also comes from the
fact that beyond the long term hope of beating COVID-19, there's
very likely more to come in terms of monetary and fiscal
stimulus along the way.
In the meantime, there's some trade angst in the air: the
U.S. Chamber of Commerce said it was concerned the United States
was being left behind after 15 Asia-Pacific economies formed the
world's largest free-trade bloc, cementing China's dominant role
in regional trade.
(Julien Ponthus)
*****
