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LIVE MARKETS-Be cautious on U.S. equities for a while

Wed, 7th Oct 2020 11:54

* European shares down slightly

* Doubts over U.S. stimulus weight

* Tesco, Dialog rise on solid updates

* Europe earnings drop seen slowing in Q3

* Wall Street futures bounce back
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
(danilo.masoni@thomsonreuters.com) and Stefano Rebaudo (stefano.rebaudo@thomsonreuters.com) in


While a TINA (there is no alternative) effect on stocks will probably be in play for some
time with many analysts favouring equities over bonds, some of them now suggest being more
cautious on Wall Street for a while.

Barclays which is overweight on Europe versus U.S. as well as on China and emerging markets,
says that “in the run-up to past presidential elections, rest of the world equities tended to
outperform U.S. equities.”

"With the Fed's liquidity impetus fading and given their still-stretched valuations, we do
not find that U.S. equities offer a much better risk-reward than rest of the world," a Barclays
research note says.

The bank repeats its call for stocks as safe assets are still crowded, economic recovery is
on track and TINA is still supporting equities.

Covid trajectory uncertainty is “manageable” as European cases keep rising but not mortality
while a vaccine announcement "is a matter of when", but it is not priced in yet.

(Stefano Rebaudo)



China's economic recovery is stronger than in the rest of the world as the country seems to
have done better in fighting the pandemic.

Credit Suisse underlines the country’s supply and demand have recovered with a smaller
fiscal and monetary boost than elsewhere and recommends buying mining stocks and China’s equity.

The renmimbi continues to appreciate and this will limit capital flight.

So around "40% of the Chinese saving ratio is likely to go into equities" thanks to dividend
yields and as property looks less attractive, a Credit Suisse research note says.

P/E relatives are below average, while profits are up 18%.

CS is buy on platform companies like Alibaba as they trade "at bottom end of the
15-year P/E range despite strong earnings revisions relative to global markets,” it adds.

The mining sector is Credit Suisse’s top overweight as it looks “particularly cheap” and
will benefit from development management policies toward infrastructure in China.

AngloAmerican is the top pick.

(Stefano Rebaudo)



The third quarter reporting season is about to start later this month and although COVID-19
continues to bite, the expected fall in European profits will slow significantly compared to Q3.

The latest I/B/E/S data from Refinitiv points to a 38% fall in Q3 earnings from the 50.8%
drop in Q2 and the improvement is set to continue in Q4 before returning into rebound mode in
What's more significant, perhaps, for short-term market direction is the trend in current
estimates and even there thinks look to be getting somewhat better.

"Earnings momentum is improving," Barclays strategists say.

"The Q3 reporting season should confirm earnings have troughed and are in the midst of a
cyclical recovery," they add.

Results from Tesco and Dialog Semi this morning also bode well for the upcoming

Last week I/B/E/S data, which track companies on the pan-regional STOXX 600 benchmark,
pointed to a Q3 earnings drop of 38.8%, up from a low of around -40% expected last month.

(Danilo Masoni)



European shares were off to an uncertain start today with main benchmarks moving in and out
positive territory.

The STOXX 600 managed to gain some footing and was last up 0.2% on the day, helped
by well-received updates from UK's biggest supermarket chain Tesco and German chipmaker
Dialog Semiconductor, both up around 4%.

Shares in Italian payments firm Nexi drop 5.7% after company’s top shareholder
Mercury placed a 13.4% stake at a discount, a day after it announced a merger with rival SIA.

Banks were also a weak spot after a big rally yesterday on U.S. stimulus expectations.

Here's your opening snapshot:

(Danilo Masoni)



The confusion around timing of possible fiscal stimulus in the U.S. following Trump's
remarks overnight will likely translate into a muted open in Europe with futures last trading
between a fall of 0.2% and a gain of 0.1%.

On the corporate news front, investors will have to digest some first earnings reports,
namely from Britain's biggest supermarket chain Tesco and German chip maker Dialog
Semiconductor. Both shares are seen rising in early deals,

Tesco reported a 15.6% fall in core profit, with a jump in sales due to the COVID-19
pandemic more than outweighed by higher costs and losses at Tesco Bank. Traders said results
overall look solid and there should be some relief today given the shares had been weak ahead of
their release.

Dialog looked more upbeat after lifted its Q3 revenue guidance to about $386 million,
compared to the previous $340-380 million range. Its shares are seen rising 3% at
the open, possibly providing a positive boost for peers like sensor specialist AMS.

More generally the tech space will be in focus after a panel of U.S. lawmakers detailed late
yesterday market abuses by Alphabet's Google, Apple, Amazon.com and
Facebook, urging for strict reform. The panel recommended structural separations but
stopped short of saying a specific company should be broken up.

Shares in LSE could come under pressure after The Times reported that UK Finance
Minister Rishi Sunak plans to take on new powers to block companies from listing on the London
Stock Exchange on national security grounds.

Eyes also on aerospace stocks after Boeing cut its rolling 20-year forecast for
airplane demand, sending its shares lower as the COVID-19 pandemic lays waste to deliveries over
the next few years.

Among other single stock movers, Nexi could suffer after its top shareholder
Mercury said it was selling a 13.4% stake, a day after the Italian payments group announced a
merger with rival SIA.

Management reshuffle at Tour operator TUI which named Sebastian Ebel as
its new finance chief, replacing Birgit Conix.

In M&A, German car parts maker Continental plans to sell some of its automotive
operations, including parts of powertrain arm Vitesco Technologies and rubber unit Contitech,
its CEO told daily Frankfurter Allgemeine Zeitung.

(Danilo Masoni)



Trump has called off economic aid package talks with Democrats until after the election and
the decision, which came on Twitter after European markets closed, is set to weigh.

He later urged aid for airlines, small business and Americans, adding to the confusion.

Anyhow, euro STOXX 50 are down 0.3%, having lost as much as 0.9% from yesterday's
close, but remain well within recent trading ranges..

Asian stocks brushed off Wall Street's weaker finish, with MSCI's broadest index of
Asia-Pacific shares outside Japan last up 0.4%.

(Danilo Masoni)


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