WPP Share News (WPP)

* Major U.S. indexes sharply lower; Dow, down >3%, faring
worst
* Energy, industrials biggest losers among S&P sectors
* Crude down; gold, dollar up; U.S. 10-Yr yield ~0.79%

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markets.research@thomsonreuters.com


EXPECT MARKET TO REMAIN RANGE BOUND (1314 EDT/1714 GMT)
Monday's sharp selloff notwithstanding, Morgan Stanley's
U.S. equity strategist Michael Wilson expects equities to remain
range bound between 3,100 to 3,550 on the S&P 500 as the
rally in stocks begins to broaden out.
From a technical standpoint, Wilson notes a key resistance
area for the benchmark index stands around 3,550, as it failed
to break through that level for a second time two weeks ago,
suggesting a "formidable" resistance that "will be difficult to
surmount in the near term." Wilson views the 200-day moving
average of around 3,125 as a support level.
Wilson believes investors should favor companies that can
deliver higher earnings growth than what is currently
anticipated. While those that have been able to continue
operating near normal capacity have been able to grab share,
expectations are now high and comparisons difficult.
As such, Wilson sees companies that may have not been able
to operate in a fully functioning fashion may "provide better
investments at this time primarily because expectations remain
low and wallet share gains are likely."
Some of these companies may not be able to recover, and
Wilson cautions investors to be selective, with the pandemic
causing structural changes that will affect things in the
future.
But Wilson sees infrastructure as a winning play globally as
the world looks for safer ways to operate and central banks
willing and able to finance such a plan. As such the firm favors
industrial and materials sectors,
"particularly base metals like copper."

(Chuck Mikolajczak)
*****


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)