* European shares down 2.5%
* STOXX set for worst day since Sept. 21
* All sectors trading in the red
* Wall Street set to open in the red
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 Danilo Masoni and Stefano
Rebaudo (stefano.rebaudo@thomsonreuters.com) in Milan.
10, 20, 50, 100 OR 200? DOESN'T MATTER! (1317 GMT)
Yes, take any simple moving average over 10, 20, 50, 100 or even 200 days... it doesn't
really matter!
The STOXX 600 has broken all of these as it goes deeper (now -2.5%) into the red and closer
to 360 points.
Have a look, the orange ticker at 361.3, is well below all the 5 different moving averages
quoted higher:
As one trader puts it: "it feels like the machines are switched back to selling cyclicals -
a situation not helped by policy makers determined to shut down vast swathes of the economy in
an attempt to stop the virus".
With Wall street futures pushing gradually lower, the open in New York doesn't look like
it's gonna change the trend in Europe one bit!
(Julien Ponthus)
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CORPORATE LIQUIDITY CRUNCH ROUND TWO? (1234 GMT)
Much of Europe is headed into another period of tighter restrictions as governments try to
slow the rise in COVID-19 cases. The partial lockdowns will again squeeze corporate revenues and
raise new worries about businesses -- especially already-stretched high-yield debtors -- running
out of cash.
But is another corporate liquidity crunch, along the lines of March when companies scrambled
to shore up their battered balance sheets, likely?
Goldman Sachs thinks not.
Its economic research team reckons that the "large magnitude of pre-funding and liquidity
raising that has been accomplished over the past several months" will shield most companies,
even in those sectors such as travel and leisure directly disrupted by the coronavirus.
The vast deployment of monetary and fiscal firepower also helps -- central banks have been
snapping up corporate bonds and keeping markets flush with cheap cash.
Most investors reckon if the economy tanks again policymakers would act quickly, once again
giving companies breathing space and pushing back the prospect of a spike in default rates.
Still, not everyone is out of the woods.
Goldman Sachs recommends staying underweight to airlines, aerospace and defence firms,
gaming companies and lodging and leisure.
Instead, it prefers overweight positions in pro-cylical industries such as automotives,
energy, metals and mining and banks.
(Tommy Reggiori Wilkes)
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A DRINK AT HOME? HOW COVID'S CHANGED THE BEVERAGE INDUSTRY
COVID-19 has had a big impact on the global beverage industry.
Large cap beverage stocks have fallen between 15% to 25% since February but BofA analysts
say they expects most companies to emerge from the COVID-19 crisis stronger.
They argue the share price plunge was not justified because the effects of COVID-19 "have
not altered the industry's attractive long-term fundamentals".
The pandemic has actually "confirmed the resilience of alcoholic beverages consumption",
they add.
It will likely be a slow recovery but COVID effects will be a "catalyst for permanent cost
savings for many of the beverages companies, particularly the brewers".
More opportunities could even be on the way: "the consumer surveys we conducted and our
proprietary analysis of Instagram posts suggest that the cocktails-at-home trend is here to
stay," analysts at the bank also say.
Spirits and beer makers have invested in e-com and have stepped up their digital
transformation since the pandemic outbreak, and this "will widen the gap between larger
companies and smaller ones," BofA says.
Here is BofA rating on some of the top beverage companies:
(Joice Alves)
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BULL CASE FOR EUROPEAN EQUITIES? (1051 GMT)
Looking at European bourses today, hit by fresh lockdown fears, one may not think the
outlook for investment in Europe is improving.
Yet, Citi just released its October report, which identifies a number of reasons why they
think things are likely to get better for equities in Europe, excluding the UK.
"We expect equity ownership levels to rise from depressed levels. Furthermore, the changes
driving this improving outlook are long-term. For the first time in many years, Europe ex-UK
should sustainability perform in absolute and relative terms".
Here are some of the main drivers:
1) Greater solidarity across EU state members, "this is best reflected in the €750 billion
Recovery Fund", and falling Italian-German 10-year yield spread.
2) "As winter approaches and as the second wave gathers momentum, we do not expect
widespread and prolonged lockdowns"
3) The ECB will likely continue to pump money into the economy, with Citi saying it expects
it to add a further €350 billion to its already-committed €1.35 trillion Pandemic Emergency
Purchase Program, "possibly including high yield corporate bonds".
4) "European markets are underheld and undervalued," meaning equities, on a cyclically
adjusted price-to-earnings basis, are trading at a 35% discount to U.S. equities.
5) Europe offers greater exposure to COVID-cyclicals (Financials, industrials, energy,
materials, real estate, consumer discretionary), and more exposure to mid-caps.
6) Equities in Europe will benefit from Asia’s economic revival, stronger M&A activity, and
a potential Biden victory.
7) Globally, Citi says it is looking to start rotating from growth to value and there is
plenty of option in that front in Europe where value represents about 60% of European market
cap.
(Joice Alves)
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RISK OFF INDICATORS GALORE (1019 GMT)
There's more to the market gloom than the STOXX 600 falling 2.5% or Wall Street futures down
1%.
Germany's bund is also screaming "risk off" in the face of the resurgent pandemic, which is
triggering a fresh new round of social restrictions and even potentially full scale lockdowns.
As you can see above, yields on German 10-year safe-haven government bonds have never been
lower in the last six months. They actually fell to their lowest point -0.627% since mid-March.
But investors are rushing for safety not only in Europe, look at the U.S. 10 year treasury
bond: yields are on a sharp downward trend.
Currency wise, there's a clear movement to dollars and a dump of euros this morning, which
has been typical of traders having a bad COVID-19 session:
And finally a look at Brent Crude Futures leaves little doubt that the angst is well spread
around financial markets:
One positive note comes from XM analyst Marios Hadjikyriacos is that so far, "the retreat
has been ‘orderly’, in the sense that there is no panic selling".
"This implies that investors are focused mainly on election dynamics and specifically on the
scenario of a ‘Democratic sweep’ that could bring even bigger stimulus early next year", he
argued in a morning note.
(Julien Ponthus)
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ASSESSING A RECOVERY: "WE HAVE ABSOLUTELY NO IDEA..." (0920 GMT)
Let's face it: making predictions about the recovery has become a tough job, especially for
COVID-hit sectors now that a second wave of infections risks triggering new lockdowns.
Berenberg analyts are plain about it and in a note on cruise operators they admit how it is
a challenge for them to assess the risk and reward for investors of the industry.
"We have absolutely no idea when ships will sail with a meaningful number of passengers, how
quickly demand will pick up, what happens to supply as ship construction is delayed and some
smaller players fail, what limitations may be placed on the industry to start sailing, the macro
outlook....," they say.
Of course, Berenberg analysts aren't the only ones dealing with such challenges and cruise
operators aren't the only sector facing high uncertainy.
That suggests markets may be in for volatile times ahead.
(Danilo Masoni)
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OPENING SNAPSHOT: STOXX 600 PAINTED RED (0737 GMT)
An overwhelming majority of STOXX 600 shares are trading in the red this morning with the
pan-European index quickly falling to -1.5% in the first ten minutes of trading.
If that downward trend holds, that would be the worst fall since September 21.
All the sectors are retreating with travel and leisure stocks, autos, oil and gas down over
2% and, unsurprisingly, defensives like real estate (-0.7%), food and beverages (-0.9%) or
utilities (-1.1%) are resisting the most.
The resurgent pandemic is fuelling fears again that extreme social distancing measures,
including national lockdowns, might have to be taken again, an option which was seen as very
unlikely only a few weeks ago.
The new French curfew on major cities is hitting some French stocks hard, such as hotels
operator group Accor, down over 5%, or elsewhere Lufthansa, down 6%.
Anyhow, as you can see below, out of the top 50 biggest movers on the STOXX 600, only three
stocks are trading in positive territory:
Shares in Unibail-Rodamco are boosted by French billionaire Xavier Neil opposing
the shopping mall operator's planned 3.5 billion euro rights issue.
French betting group FDJ is also up after its Q3 results and an upgrade from Kepler
Cheuvreux and Citigroup.
(Julien Ponthus)
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ON THE RADAR: Q3 STARTERS AND A FRANCO-ITALIAN BANKING MERGER (0638 GMT)
There's been a lot of M&A talk in the European banking sectors lately but rarely has there
been more than rumours for investors to act upon in terms of cross-border deals.
Now - it has not yet been confirmed by the involved parties - Italian daily Il Messaggero
reported that Banco BPM and France's Credit Agricole have signed a
confidentiality agreement which could lead to some sort of tie-up.
With so many analysts waiting for some sort of catalyst for the sector, a merger might be
just what markets need to get more optimistic even if for now, the mood has been soured by the
first Q3 results on Wall Street.
Talking about Q3s, we've got a few coming in: Switzerland's Roche said the frantic
global effort to test people for COVID-19 boosted its diagnostics division and kept it on track
to meet full-year 2020 targets.
France's Publicis, the world's third-biggest advertising company, beat market
expectations for the second quarter in a row with a less severe fall in sales than feared as the
COVID crisis continues hit ad spending worldwide.
Less positive tone from Swedish homeware retailer Clas Ohlson which posted an 8%
drop year-on-year in September sales.
Going back to M&A, in France, Les Echos reported that Engie has put its
industrial maintenance unit Endel up for sale.
Also worth noting, Volkswagen's truck unit Traton said its revised
takeover bid of $43 per share for U.S. truck maker Navistar International will expire on Oct.
16, if not accepted by then.
Eyes also on French leisure stocks such as Accor and Sodexo after
France's new curfew in big cities.
(Julien Ponthus and Danilo Masoni)
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MORNING CALL: IT LOOKS LIKE RISK-OFF (0540 GMT)
European futures are trading well into negative territory and why wouldn't they?
Asian bourses are in the red and Wall Street closed lower as the hope of further U.S. fiscal
stimulus seems to be fading away.
With France implementing a new curfew in big cities to try to curb the curve of COVID-19
infections, the newsflow has clearly worsened on the pandemic front with the spectre of
full-scale national lockdowns suddenly looming over a fragile economic recovery.
The EU summit which starts this afternoon can't do much to ease the mood as arguably one of
the best outcome would only be a mandate for trade talks with the UK to drag on for another few
weeks.
The earnings season could provide some well needed positive news in the coming days and
weeks but in the meantime, Q3s from Bank of America and Wells Fargo did sour the mood for the
banking sector.
(Julien Ponthus)
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