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* European shares down 0.5% after flat open
* BBVA and Sabadell in merger talks
* S&P 500 futures slightly down, Nasdaq up
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WORLD STOCKS: BIGGEST PROFIT UPGRADES IN A DECADE (0823
EST/1323 GMT)
Growing hopes of a vaccine breakthrough haven't only boosted
stocks globally, but they're also filtering into corporate
profit forecasts which have now reached a new positive
milestone.
Check out this chart showing monthly net earning revisions
for world stocks hitting their highest point since May 2010
following the promising updates from Pfizer and Moderna.
That's surely a good omen for 2021, which indeed could turn
out to be the "Year of Renewal" that UBS anticipates and in
which corporate profits will return to pre-pandemic levels.
(Danilo Masoni)
*****
EUROPEAN UTILITIES? PICK THE RIGHT ONE (1319 GMT)
As time for value stocks seems around the corner, investors
are taking a closer look at single sectors.
On European utilities, UBS lines up companies to buy as they
are adapting early and preparing to compete in the new global,
renewable landscape.
The impact of renewable energy is “potentially very large
and could come to dominate the historic macro correlations as
management teams reflect and re-assess their strategies.”
In terms of valuations their 1-year forward PE is above
average, but Utilities versus market forward PE is still below.
(Stefano Rebaudo)
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S&P 500 TURBOCHARGES TESLA TO OVERTAKE WALMART AGAIN (EST
0742/1243 GMT)
As ETF and portfolio managers rush in to adjust to Tesla
entering the prestigious S&P 500, the electric car maker seems
set to overtake Walmart's market capitalisation when Wall Street
opens in less than two hours.
Quite a symbolic win against the mighty supermarket giant
widely seen as the U.S. biggest private employer and which
boasts sales of over $500 billion.
With less than 1/20th of the retail behemoth's sales, the
company led by Elon Musk is currently set to reach over $430
billion in market cap, which is just where Walmart stands, when
the bell rings.
See below:
(Thyagaraju Adinarayan and Julien Ponthus)
****
THE COST OF EMOTIONALLY DRIVEN INVESTMENT DECISIONS (1235
GMT)
When COVID-19 hit the market and equities fell sharply
earlier this year, some people in the UK rushed to pull some, or
all, of their cash out of the stock market.
Some 1.38 million retail investors sold £10,000 or more of
their investments during the early stages of the crisis, and
531,900 people sold £100,000 or more of their holdings, Oxford
Risk says in a report.
The study claims that retail investors took these decisions
seeking for ?emotional comfort and their anxiety will cost them
a fair amount of money.
“Many of the investment decisions retail investors ?make are
for ?emotional comfort,? and in a normal year this can on
average cost them 3% in ?returns. Driven by the COVID-19 crisis,
stock market volatility levels have been greater this year, so
the losses will be higher,” says Greg B Davies, head of
behavioural finance at Oxford Risk.
“Those investors who pulled money out of the markets in
March will already have lost much more… they lost when the
markets dropped, and many have missed out on the rebound since.
Many are also likely to find it emotionally difficult to get
this money reinvested for the long-term and so may lose out on
even more foregone returns in the long-run,” says Greg B Davies,
head of behavioural finance at Oxford Risk.
Oxford Risk's advise?
“Retail investors should avoid watching the markets
day-to-day as this increase anxiety and remain focused on their
long-term plans and ignore much of the background noise that can
tempt them into making the wrong investment decisions,” says
Marcus? Quierin, ?Oxford Risk CEO.
(Joice Alves)
*****
CAN 2021 BE EVEN WORSE FOR BANKS? (1126 GMT)
The 25%+ surge in European banking shares this November says
a lot about the optimism burst triggered by the Pfizer/Moderna
vaccines announcements.
But looking forward into the global banking sector in 2021,
S&P, which considers longer term debt ratings rather than short
term prospects for stocks, takes a sobering view.
"This year has been hard for banks but next year may be even
tougher", the rating agency believes, noting stress might build
up across banking loans when governments eventually phase out
their help.
"The expected progressive withdrawal of such support in 2021
will reveal a truer picture of underlying bank asset quality,
even as economies start to recover".
In that light, "short-term supports to banks and borrowers
may leave longer-term overhangs", it adds, while other risks
such as a weakening in property prices could also bite.
Not to mention a worse than expected economic slump caused
by the pandemic and a rise in leverage and insolvencies.
In a nutshell, "the recovery of banking systems globally to
pre-COVID-19 levels will be slow, uncertain, and highly variable
across geographies," writes S&P Global Ratings credit analyst
Emmanuel Volland.
"For many banking systems, we do not envisage recovery to
pre-COVID-19 levels until 2023 or beyond", Volland adds.
Here's the timing of the recovery S&P expects over different
geographies:
(Julien Ponthus)
*****
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)
*****
