WPP Share News (WPP)

* Major U.S. indexes sharply lower; Dow, down >2.5%, faring worst
* Energy, industrials biggest losers among S&P sectors
* Crude down; gold, dollar up; U.S. 10-Yr yield ~0.80%

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You
can share your thoughts with us at markets.research@thomsonreuters.com


EXPANDING AND SHRINKING THE BOND MARKET (AT THE SAME TIME) (1220 EDT/1620 GMT)
Economic theory would state that the more you borrow, the costlier it gets. But QE -- which
some would describe as a blank check handed out by central banks -- has allowed governments to
charge out and borrow ever increasing amounts at lower and lower yields. It's bondholders
instead who are paying the price, quite literally when so many bonds yield less than 0%.
Euro area investors, at least, can expect no relief, with the ECB expected to scale up its
pandemic bond-buying scheme which runs alongside its normal stimulus program. That will take
full-year ECB QE in 2021 to 1.3 trillion euros (1.1 trillion this year), easily surpassing net
new issuance of government and corporate debt, according to Hans Lorenzen at Citi.
But as the ECB moves in, investors move out. Over the past five years, private holdings of
euro-denominated bonds have fallen by more than a trillion euros and Lorenzen reckons they will
shrink 460 billion euros in 2020 and by 750 billion euros next year. At 5% of outstanding debt
it will be the largest decline ever.
But the past five years also saw savings deposits at euro zone banks increase by four
trillion euros, a trend that's accelerated further during the pandemic.
Facing low or negative yields on government debt, inflows into their savings products and a
shrinking free float, money managers have channeled cash into corporate bonds. But the ECB is
buying corporate bonds too at a monthly rate of 8-9 billion euros and its presence will shrink
that market as well.
Set against Citi's projections of new supply next year (it hasn't released those forecasts
yet), Lorenzen expects top-rated corporate bonds can absorb only a "miniscule" amount of private
flows. Flows this year are estimated around 130 billion euros in 2020, more than halving from
last year's 290 billion euros.

(Sujata Rao)
*****


ANNOUNCED BUYBACKS AND CASH MERGERS PICKING UP (1157 EDT/1557 GMT)
Two bullish signs for equities, cash takeovers and announced buybacks, have picked up
recently, according to TrimTabs, which sees the outlook for U.S. stocks as bright in the
intermediate-term, although less so than last week.
New stock buyback announcements climbed to a 12-week high of $13.6 billion, according to the
firm, as companies posted quarterly results. The announcements were led by $5 billion plans from
both Biogen and CSX Corp as well as a $2 billion share repurchase program from
Procter & Gamble, according to analyst Winston Chua.
In addition, new cash mergers have reached an 11-month high in October, the first month
since June 2019 where cash takeovers were more than $10 billion for multiple weeks in the same
month.
Cash mergers have now topped $20 billion for the past two months after totaling only $50.6
billion for the entire year before September, according to Chua, who said, "cash mergers are
generally bullish for liquidity because they remove shares from the market. All else being
equal, fewer shares translate to higher stock prices."

(Chuck Mikolajczak)
*****

CRACKS IN THE FOUNDATION? NEW HOME SALES POST SURPRISE DROP (1055 EDT/1555 GMT)
Data released on Monday bucked the recent trend for the housing market, which has roared
back to life, with many indicators blowing past pre-pandemic levels to reach heights last seen
during the housing bubble.
Sales of newly-built U.S. homes unexpectedly dropped by 3.5% this month
according to the Commerce Department, to 959,000 units at a seasonally-adjusted annualized rate.

Analysts expected a 2.8% increase, building on September's downwardly-revised 3% gain.
"While strong demand and low mortgage rates are supportive of home sales, the resurgence in
Covid-19 cases, a recovery that may be shifting into reverse and a weak labor market pose
downside risks," writes Nancy Vanden Houten, lead U.S. economist at Oxford Economics.

The report stands in stark contrast with the National Association of Realtors' existing home
sales data released last Thursday, which showed sales of pre-owned homes surging 9.4% in
September to their highest level since May 2006.
Indeed, historically low mortgage rates and an exodus to lower-density communities in search
of home office space amid the new work-from-home model have sent demand soaring.
But tight supply and rising materials costs, as well as a persistently weak labor market,
remain headwinds for the sector, and waning mortgage demand in recent weeks suggest a
deceleration of the sector's revival could be in the cards.
"This dip in sales is entirely consistent with the modest decline in mortgage applications
last month," says Ian Shepherdson, chief economist at Pantheon Macroeconomics. "But we've been
warning for a while that the summer momentum was unsustainable."
"Lending standards have tightened, and the recovery in the labor market has slowed."
The S&P 1500 Homebuilder index was down 3.1%.
More broadly, market participants were in a selling mood in morning trading, as waning
stimulus hopes and spiking COVID-19 cases threw water on investor risk appetite.
All three major U.S. stock indexes were sharply lower.
(Stephen Culp)
*****

MANY BEATS BUT WEAK PRICE REACTION (1001 EDT/1501 GMT)
While we have seen many beats in the earnings season currently under way, price action often
is missing.
This scenario shouldn’t come as a surprise as investors are saddled with strong uncertainty
due to virus trajectories and the risk of a contested U.S. presidential election.
But Morgan Stanley analysts say they have a list of companies which could come up with
positive surprises in terms of results in Europe, which includes Carlsberg, Coca Cola
HBC, Heidelberg Cement, Sainsbury, Sanofiand WPP.
According to Morgan Stanley in Europe "price action may suggest some degree of good news
around 3Q earnings is starting to become priced into markets."
More generally, JP Morgan acknowledges that even though most companies are showing EPS beats
so far, stock price reaction has been rather muted globally, although stocks that are missing
estimates are penalized severely.

"While we believe Q3 will deliver beats due to low expectations, we do not expect this to
translate into upward EPS revisions, at least not at present," it adds.
(Stefano Rebaudo)
*****



WHAT TO PUT INTO YOUR ROTATION BASKET (0930 EDT/1330 GMT)
Stimulus and vaccine are seen as the next big catalysts for markets and even though today's
price action suggests there's little clarity on both fronts, some investors appear confident
that sooner or later a big shift is going to happen.
"We believe that a period of longer lasting style / regional & sector rotation is upon us,
post the record ever Growth vs Value run seen so far this year," say strategists at JPMorgan
Cazenove led by Mislav Matejka in London.
With that in mind they've drawn up a list of catch-up opportunities, ranking them in order
or perceived risk/reward.
Here you go: 1) Financials, banks and insurance, 2) EM ex Asia, 3) Eurozone and periphery,
4) Global corporate cyclicals, especially infrastructure related 5) Consumer cyclicals, 6)
Russel 2000, 7) Dividends, 8) Highly leveraged balance sheets, 9) Japan, 10) Energy, and 11)
Telecoms and real estate

(Danilo Masoni)
*****

DOW INDUSTRIALS: FEELING OUT THE 50-DAY FLOOR (0915 EDT/1315 GMT)
Given a CBT e-mini Dow futures' premarket loss of more than 1%, or about 350
points, the Dow Jones Industrial Average is poised to test support at its 50-day moving
average (50-DMA) shortly after the open. (Click on chart below)
Indeed, this closely watched intermediate-term moving average, which contained weakness last
Thursday, ended Friday at 28,021.33.
Of note, a closing break of the 50-DMA on September 21 led to a test of the 100-DMA shortly
thereafter. Should that sort of action play out again, it would suggest a quick drop of about 4%
from Friday's close.
The zone defined by the September 24 low (26,537.01), and the 200-DMA, which ended Friday at
26,251, is around 6%-7% below Friday's close.
That said, for now, there remains potential for a multi-week slog, characterized by violent
swings, and little sustained trend. Though, closes below the 200-DMA could suggest
a much more severe downturn was taking hold. This after the Dow failed to surpass its February
peak.
In the event, the Dow can hold the 50-DMA on a closing basis, and then move above Friday's
high (28,436.52), the blue-chip average can challenge its October high (28,957.90) and the
resistance line from the February high at about 29,125. A thrust above here would suggest new
high potential above 29,568.57.



(Terence Gabriel)
*****


U.S. FUTURES SLUMP ON CORONAVIRUS, STIMULUS CONCERN (0838 EDT/1238 GMT)
U.S. equity index futures are pointing to a sharply lower open on Monday, with the S&P 500
coming off its first weekly loss in four, as coronavirus cases continue to climb while
the picture for a new fiscal stimulus package remains cloudy at best.
On Saturday, the U.S. reported 79,852 new infections, close to the previous day's record of
84,244 new cases, with hospitalizations rising to a two-month high. In Europe, new restrictions
have been imposed in Italy and France.
On the stimulus stalemate, which equities have been highly sensitive to, U.S. House Speaker
Nancy Pelosi said on Sunday the Trump administration was reviewing the latest proposal for
further COVID-19 relief over the weekend and that she expected a response today, adding that she
was still optimistic a deal could be reached. White House economic adviser Larry Kudlow on
Monday said talks have slowed, but not ended.
The economic calendar is light on Monday, with new home sales for September due shortly
after the market opens.
Below is your premarket snapshot:




(Chuck Mikolajczak)
*****

FOR MONDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT CLICK HERE:







(Terence Gabriel is a Reuters market analyst. The views expressed are his own)