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LIVE MARKETS-Biden, the European value candidate?

Mon, 12th Oct 2020 13:58

* European shares up 0.8%

* KPN rallies on reported takeover interest

* Utilities and autos lead gains, travel & leisure top fallers

* Nasdaq futures up over 1%
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 (
and Julien Ponthus ( in London and Stefano Rebaudo
( and Danilo Masoni ( in


As acknowledged by JP Morgan analysts, there's a big gap over the value trade between
buy-side and sell-side analysts.

The latter "have been unsuccessfully pushing for a Value rotation for a while now", while
many investors have stuck to their fairly successful bet on growth and tech.

In a strategy note, JP Morgan analysts say they believe that in order for a rotation towards
value to settle in, a number of catalysts need to kick in and among them, a victory of Joe Biden
against Donald Trump could be one.

"Out of the two candidates, we believe a potential Biden victory could be much more
supportive of the Value rally", they write.

As noted by other analysts, a rise in U.S. bond yields is supportive of European value
stocks, particularly for European banks. Biden's stimulus plan could potentially provide that
with its reflationary effects.

Here are two charts from the report, showing the correlation between U.S. bond yields and
European value stocks.

(Julien Ponthus)



This reference to the anti Vietnam war slogan (Suppose They Gave a War and Nobody Came)
pretty much sums up the thinking within the financial world about the UK-imposed Oct. 15
deadline for a post-Brexit EU trade.

There's been so many 'make-or-break' or 'endgame' moments in the Brexit saga which turned
out to be nothing more than not-so-elaborate horse trading that cynicism levels are currently
sky high.

At over $1.30 and on a month high, sterling certainly doesn't feel under much pressure.
"The FX market sees no reason to take the approaching deadline seriously," writes Commerzbank
analyst Ulrich Leuchtmann, who wonders however if there's not a bit of complacency among

"I would consider a little more respect of the Brexit risk to be opportune", he says while
many of his colleagues just simply don't expect Oct. 15 to materialise as a key moment.

"Frankly it could be even be in December when some compromise deal is finally struck - and
even then effective negotiations are ongoing deeper into the 2020s", Chris Bailey, a European
strategist at Raymond James.

For Gilles Moëc, chief economist at AXA Investment Managers, Oct. 15 isn't "necessarily a
binary event".

"We do not necessarily think that an absence of deal with the UK this week would signal the
end of the negotiations – we think the pressure on London continues to build, as the rising
probability of a Biden victory would leave a no-deal UK quite isolated internationally".

Let's give the final world to UBS' Paul Donovan who on Thursday gave a somewhat
disillusioned take on the issue:

"Remember, for all the talk of deadlines, Brexit never actually ends. It is not called
interminably tedious for nothing."

Here's sterling against the dollar since its 2007 peak:

(Julien Ponthus)



Central banks in a ‘whatever it takes’ mode to support the economy and markets has been
boosting stocks, but also a broad hunt for yields.

A UBS analysis suggests emerging markets could be a possible hunting ground for yield
hunters as Europe and the U.S. are not very profitable places right now.

First stop Asia, which offers “some of the highest yields in the credit world at 7.7%.”

Asia spreads "have widened back above 700bps recently due to an increase in risk aversion
and idiosyncratic risks," a UBS research note says.

They are expected to tighten and reach around 600 basis points by June 2021, as economies
reopen and defaults remain limited, according to the note. That should lead to attractive total
returns over the next 12 months.

Then we have 5% yields on emerging market U.S. dollar sovereign bonds, and on green bonds
also outside Western countries.

UBS underlines that the JP Morgan Index of emerging market bonds "has over 70 issuers in it,
making it more resistant to the risk of an idiosyncratic shock."

(Stefano Rebaudo)



The Q3 season is about to start and even though investors are cautions ahead of the U.S.
presidential elections and given ongoing macro uncertainty, Jefferies is particularly upbeat.

Its global equity strategist Sean Darby expects the quarter to mark the largest global
profit turn-around on record or, in other words, "the mother of all profit turnarounds".

That said, analyst at the U.S. investment bank have put their heads together, coming up with
10 names with an underestimated recovery potential: Aggreko, Anglo American,
ArcelorMittal, BNP Paribas, Continental, Daimler,
Deutsche Boerse, Maersk, Rentokil and Sanofi.

"... positive real-time data, unprecedented inventory restocking and a sharp recovery in
global trade will allow revenues to inflate while weak oil prices will help margins to expand.
Earnings are still being revised up and companies are surprising the market on the upside.

For a MS basket with stocks having a big catch-up potential:

(Danilo Masoni)



EU and ECB action to fight the adverse impact of the pandemic has been supporting Europe’s
peripheral government bonds, including Italy’s, for months. But according to some analysts there
is not much room to rise from here on.

Momentum for BTPs is positive and we expect the supply/liquidity outlook into year-end to be
favourable, a UniCredit research note says.

“We see any rally below current levels as limited, as BTP yield and spread levels already
look quite stretched,” it adds.

The new 3-year January 2024 BTP will be sold tomorrow with a coupon rate set at 0% and it
“is likely to come to the market at a negative yield and at one of the lowest yield on record at
3Y auctions.”

More flattening of the short end of the curve would occur if BTP yields were to drop
further, according to UniCredit. But on the short term only a moderate drop would be possible.

Following the regional vote which dissipated worries about snap elections in Italy, “BTPs
have continued to rally, with the 10Y BTP-Bund spread reaching fresh lows, at 125bp.”

“While rating risk and political risk for Italy have receded, they have not disappeared, and
macro fundamentals will remain weak.”

(Stefano Rebaudo)



European shares are off to a mildly positive start this morning with speculation about
possible takeover interest for phone group KPN lifting its shares 9% to the top of the
STOXX and helping the telecoms index surge to its highest in more than three weeks.

Banks were also in demand while travel and leisure stocks were the biggest declines,
down 0.4%.

Among single stocks, Rolls-Royce continued its advance as sentiment looks to have
turned after the engine maker launched a much needed capital increase.

(Danilo Masoni)



European shares are expected to rise slightly at the open following gains in Asia overnight
and positive signals for U.S. stock index futures, as it seems investors manage to shrug off
doubts over U.S. stimulus and growing COVID-19 infections.

On the corporate front, more M&A newsflow will keep telecoms in the spotlight. A Bloomberg
report late on Friday said European private equity firm EQT is considering a takeover of Dutch
phone company KPN. KPN shares are seen rising 3-10% at the open.

Eyes also on trade sensitive stocks after a FT report that the EU's new trade chief has told
the U.S. to withdraw tariffs on over $7 bln of EU products or face additional duties on exports
to Europe, as he urged a settlement to the dispute over Airbus and Boeing.

Meantime, according to the same newspaper, EU regulators are making a 'hit list' of up to 20
large internet companies, potentially including Facebook, Apple, Amazon and Alphabet's Google,
that will be facing new and tougher rules aimed at curbing their market power.

The U.S. has signed a deal with AstraZeneca for development and supply of its
COVID-19 antibody treatment, while New Zealand has signed a deal to buy 1.5 million COVID-19
vaccines from Pfizer and Germany's BioNTech, with delivery potentially as early as the
first quarter of 2021.

Back to M&A, a French court ruled on Friday that unions must be consulted on the sale of gas
utility Engie's 29.9% stake in waste and water group Suez to larger rival
Veolia before it can proceed.

In IPO world, HOME Reit begins trading today in London in what will be the biggest
REIT listing in the UK for 3 years.

Meantime in banks, the BoE asked banks for information about their readiness for the
possibility of zero or negative interest rates.

(Danilo Masoni)



European shares are seen rising at the open with euro zone index futures pointing to gains
of around 0.6-0.7%, although FTSE futures are lagging slightly behind, last up 0.2%.

U.S. futures are also in positive territory and shares in Asia were led higher by Chinese
stocks as investors bet on a steady recovery for the world's no. 2 economy, which offset doubt
over immediate fiscal stimulus in the United States.

While negotiations on a broader package ran into resistance, the Trump administration on
Sunday called on Congress to pass a stripped-down coronavirus relief bill.

(Danilo Masoni)


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