* European shares rise, tracking recovery in China equities
* STOXX 600 scores best day in nearly 4 months, up 1.5%
* Denmark's Ambu shares surge 26% after Q1 beat
* Hyundai to suspend S.Korea production on coronavirus impact
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 Thyagaraju Adinarayan
(thyagaraju.adinarayan@tr.com), Joice Alves (joice.alves@tr.com), Julien Ponthus
(julien.ponthus@tr.com) in London and Danilo Masoni (danilo.masoni@tr.com) in Milan.
CLOSING SNAPSHOT: EUROPEAN BOURSES BOUNCE BACK (1701 GMT)
European bourses bounced back today scoring their best day since early October as China's
central bank intervention has calmed investors' nerves.
The pan-European STOXX 600 index is up 1.64% and the UK blue chip index gained 1.55%.
Resource and mining stocks rallied, supported by the stimulus from China, a big
metal buyer, and after heavyweight miner Glencore maintained its 2020 production
outlook.
In terms of single stocks, Danish medical equipment manufacturer Ambu jumped to
the top of the STOXX after reporting better-than-expected quarterly revenue.
(Joice Alves)
Write to Joice at Joice.alves@thomsonreuters.com or https://twitter.com/joiceal
*****
AUTO SECTOR: THE STORM BEFORE GROWTH (1558 GMT)
After the UK said today it plans to ban the sale of new petrol, diesel and hybrid cars from
2035, shares of electric car maker Tesla jumped 16%, but with 98.5% of global vehicles
still running on gas what's the deal for the overall auto sector?
Scotiabank analysts think in the long run there is still significant growth opportunity in
emerging markets where per capita vehicle ownership is still very low.
However, 2020 is going to be extra hard for automakers and it anticipates another decline in
sales for a mix of global factors including coronavirus epidemic in China, more regulatory
headwinds in Europe and political uncertainties particularly in the lead up to the U.S.
presidential elections.
"European markets will confront more regulatory headwinds, while other markets will face a
'holding pattern' as they await an abatement of global (and sometimes domestic) uncertainty
before an anticipated recovery takes hold in 2021," it writes.
(Joice Alves)
Write to Joice at Joice.alves@thomsonreuters.com or https://twitter.com/joiceal
*****
IS ESG A VALUATION BOOSTER? (1534 GMT)
Credit Suisse has looked into whether high scoring ESG companies are more expensive than low
scoring peers and the simple answer is: mostly not.
While on a regional level the Swiss bank found no support for the view that higher ESG
scoring stocks are more expensive, on a sectoral level this holds true only in a handful of
cases.
According to CS, these are business services, consumer services, healthcare equipment and
semiconductors in Europe and consumer durables and consumer services in the U.S..
".. one cannot claim that ESG scores are correlated with high or low valuation levels", they
conclude. "Nevertheless our conversations with investors clearly show an interest in finding
companies that match strong ESG scores with strong operational and even valuation support".
(Danilo Masoni)
*****
TESLA BUZZ: WITH A LITTLE HELP FROM JOHNSON? (1409 GMT)
What's happening with the Tesla is just simply spectacular!
The crazy short squeeze has thrusted the stock on a high-speed lane towards more than double
the infamous $420 price tag (remember Musk's "funding secured"?).
If gains from premarket trading sustain (+15%), Musk's baby will have a whopping $160
billion+ in market value -- that's as much as GM + Ford + Daimler + Fiat
Chrysler combined.
It's often hard to get what's exactly behind the skyrocketing Tesla share price. We're
wondering whether Elon Musk is getting a bit of spreading the buzz around his company from Boris
Johnson who wants Britain to ban the sale of new petrol, diesel and hybrid cars from 2035, five
years earlier than planned.
Now, we're obviously not saying Johnson's announcement is behind the latest frenzy on the
stock but there's definitely some tailwind blowing into the stock's sails.
With a massive 98.5% of global vehicles still running on gas, there is a huge potential for
electric cars to grow multi-fold with Tesla having an early entrant advantage having sold more
electric cars than any other company in the world.
On twitter, the new 2035 deadline is making quite a buzz among Tesla fans:
(Thyagaraju Adinarayan and Julien Ponthus)
*****
WHAT DIP? (1350 GMT)
Lots of notes out there from sell and buyside about buying the coronavirus dip but so far
the damage to broader indexes in Europe and the U.S. is rather limited.
The STOXX 600 is down just 1.7% since its closing level on Jan 17, the last trading
session before the virus outbreak on Jan 20. The S&P 500 instead is down 2.4%.
Clearly the much-talked-about buying opportunity is something that may have show up only for
stock pickers. More broadly, worth checking out this post again: The harder the fall, the bigger
the bounce
(Danilo Masoni)
*****
GIVE TELCOS A CHANCE (1228 GMT)
Investing in telcos is not for everyone as fierce competition, big debt piles and
the need to carry out costly network upgrades have often resulted in poor company performance
and unattractive investor returns.
It could be different this time, at least in France! And, according to Exane BNP Paribas
it's worth giving the sector a chance.
"Barely a year has gone by in the last 7 when there haven't been bold predictions about
consolidation or an improving French telecom market. The reality has generally failed to live up
to the hype," they say.
"That was until the second half of 2019, which arguably was the best period for French
telcos in recent memory; with signs of price rationality and lower promotional activity", they
add.
Now the big question is whether the trend is sustainable and Exane does believe so.
Why? Well, the French bank says competition and demanding capex requirements have forced
operators into a series of asset sales, off balance sheet financing, whose costs will need 1-2%
annual price increase as an offset.
Hence, they upgraded Iliad, Altice Europe and Bouygues all to
"outperform".
(Danilo Masoni)
*****
"CONTRARIAN BUY SIGNAL": IT'S A BTD PARTY! (1217 GMT)
It's already midday and European bourses are cruising at double (+1.2%) the speed futures
were trading prior to the open. Stock pickers, bargain hunters seem be gearing up for what is
morphing into a pretty straightforward buy-the-dip session.
Last week's losses are proving to be an attractive entry point if one believes that stronger
economic growth is on its way.
"It usually pays to buy when others are panicking, so we are starting to add to equity
positions in our multi asset funds in anticipation of stronger growth later in the year", writes
Trevor Greetham at Royal London Asset Management.
"Intensifying concerns over the impact of the coronavirus outbreak triggered the worst week
for stocks since August 2019 with China particularly hard hit", he also said.
"As a result, our investor sentiment indicator is registering its first contrarian buy
signal since that time", he added.
You can see below that it has actually been a while since the MSCI World Index posted such a
big weekly loss:
Do you think the BTD party is going to last or is this just a temporary moment of respite
before markets realise how serious the situation is?
Drop me an email to share your thoughts: julien.ponthus@tr.com
(Julien Ponthus)
****
MORNING RESEARCH ROUNDUP: 'WE-NO-VIRUS-EXPERTS-BUT'... (1038 GMT)
It's a difficult and speculative exercise which often begins with a humble disclosure on the
lines of "we're no virus experts but..."
It's usually followed by something about SARS not being that useful as a precedent given
China's exponential growth since 2003.
Got it? Yes, we're talking about coronavirus research notes from banks which are proving to
be quite a challenge for sell-side and buy-side analysts given the highly speculative nature of
the subject.
Many strategists are obviously working hard to help their clients go beyond obvious
conclusions such "if it's nothing serious it's all right, and if it's really serious then it's
not".
Here's a round up of interesting points from this morning's research batch:
UBS
"Our projections assume that the virus will be controlled by 1Q, China's growth to rebound
back to 6% by 2H. Thus, the supply chain disruptions are more temporary.
We see risk of Korea and Taiwan GDP growth falling below 1.5% and 1.2% if China's growth
falls to below 5% under the scenario that virus is only controlled by 2Q".
Black Rock
"Positive corporate earnings have limited equity losses triggered by worries about the
coronavirus outbreak in China and its potential economic impact. Moderating trade tensions,
signs of economic stabilization and still accommodative financial conditions are supportive of
growth".
Jefferies on insurers:
"Some of the most costly consequences could affect the non-life industry, where business
interruption and event cancellation risks are rising.
Lloyd's of London and Swiss Re could be most at risk - In terms of the most exposed
insurers, we highlight Hiscox and Beazley, as we expect that bespoke cover such as event
cancellation is most likely to be written in Lloyd's of London".
Sentix
"(...) anyone who is afraid of a portfolio contagion has probably already reacted in the
previous week.
So, is the worst over? In view of the sentix data and the resulting statistical properties
of the current data constellation, we would say: probably yes."
S&P
Our base case projection assumes the coronavirus crisis will stabilize globally in April
2020.
Our worst-case projection holds that the virus stops spreading in late May, and
optimistically in March.
In turn, this suggests that the peak impact on economic activity across Asia-Pacific will be
in the first and second quarters. Growth should stabilize later in 2020 and recover through
early 2021 as the temporary effect on activity wanes.
Here's UBS' chart on growth in China, Hong Kong, Korea and China:
(Julien Ponthus)
*****
CARS, PHONES AND THEIR CHINA DEPENDENCY (1026 GMT)
Auto stocks have started 2020 on the backfoot due to worries of potential tariffs by
Washington and supply chain disruptions due to coronavirus. Of late, it has been more about the
bottlenecks in parts supply as the world's second biggest economy is on sick leave.
With factories shut and an entire city locked down, companies dependent on Chinese
industries for components to make cars/phones are either scrambling to find alternatives or
ending up suspending production.
Hyundai Motor was the first suspend production outside China. They temporarily
closed production in South Korea, its biggest manufacturing base.
Foxconn, which makes smartphones for Apple and others, could see a "big" production
impact if a Chinese factory halt due to the coronavirus outbreak extends into a second week,
Reuters reported citing sources.
"China is now a key component of global supply chains. Any sustained outbreak could disrupt
the supply chains of certain industries, with potential for bottlenecks," BlackRock Investment
Institute says.
The bottlenecks could also lead to companies calling off/delaying product launches, such as
5G phones, UBS analysts say.
Apart from the impact from disruptions, analysts also say "companies may feel more optimized
to shift new product launches to when uncertainties from the virus is low and easier to attract
customers' attentions" in the world's largest consumer market.
Here are some readings:
- Coronavirus impact: fragile, handle with care
- The cursed auto sector: coronavirus dents production
- Coronavirus: Who's who in Wuhan
(Thyagaraju Adinarayan)
*****
OPENING SNAPSHOT: A BIG REBOUND SPICED UP WITH BIG MOVES (0840 GMT)
No real surprise in the general direction of the market but the rebound we're witnessing at
the open is a tad bigger than previously expected with the STOXX 600 now up 0.8%.
The FTSE 100 is the lead gainer among European blue chip indexes with a 1.3% rise, thanks to
falling pound, which has been bruised again by renewed Brexit tensions and trading below $1.30.
That being said, there are quite a few wild moves among top movers which weren't all flagged
in pre-market notes.
Denmark's Ambu is clearly the star performer with a 15% surge after its latest trading
update. That said the stock has quite a reputation when it comes to price swings: in November it
skyrocketed 25% after launching a new endoscope. It also posted share losses of 15%, 14% and 20%
between August and May last year.
Second riser in NMC Health which made a 20% fall yesterday with traders still scratching
their heads over the reason for the fall. While the stock is shorted by Muddy Waters, there's no
clear apparent trigger for yesterday's fall and today's 8.5% rise.
It's more straightforward for Micro Focus's 14% fall after the British IT company said its
executive chairman Kevin Loosemore would stand down this month after a "challenging year".
Allied Irish Banks is also sustaining a big hit, down 4.5% after setting aside a
further 300 million euros to cover possible compensation owed to customers caught up in
Ireland's mortgage tracker scandal.
While it's not a huge absolute move, BP's 3.8% jump on its dividend boost, is quite a big
one considering the major's 120 billion dollar market cap.
Here's a list of the top moving shares:
(Julien Ponthus)
*****
ON THE RADAR: BP RISING, LACKLUSTRE CARLSBERG, ENIGMATIC NMC (0753 GMT)
One key performer for the session will be BP which boosted its dividend pay-out after
reporting a Q4 profit beat. The stock is seen rising 2%-4% at the open, gaining further support
from oil prices amid hopes for new OPEC production cuts.
So far pre-market indication give a lacklustre reception to Carlsberg’s trading update with
shares seen dipping 1% after the Danish brewer said it expects to deliver mid-single-digit
organic operating profit growth in 2020.
One of the sharpest move expected is in Swiss inspections group SGS, seen falling up to 10%,
after the von Finck family cut its stake via an accelerated book building process.
Same story roughly for Wizz Air, indicated down, after its largest shareholder private
equity firm Indigo Partners said it would sell shares worth 500 million pounds.
Among the stocks on the rise, Swedish engineering group Alfa Laval is seen up about 3% after
reporting quarterly core earnings above market forecasts.
Pandora is also expected to gain about 3% after its trading update.
NMC Health shares are also expected to rebound sharply after their unexplained fall
yesterday.
(Julien Ponthus)
*****
MORNING CALL: UP WE GO! (UNTIL WE DON'T) (0615 GMT)
European bourses are set to rise at the open, tracking Asia's tentative rebound as fears
regarding the human and economic toll of the coronavirus epidemic seemed to ease somewhat.
There's a good chance the respite will prove very temporary though with the outbreak
continuing to generate concerning headlines with Hong Kong reporting its first coronavirus
death, the second fatality outside mainland China with the total death toll now at 427.
At the time of writing, European futures are up about 0.5% with financial spreadbetters at
IG expecting London's FTSE to open 42 points higher, Frankfurt's DAX to gain 47 points and
Paris' CAC to rise 19 points.
It's also a busy earnings day with results from BP, Carlsberg and Ferrari among others but
not quite yet the Q4 galore expected on Wednesday and particularly Thursday.
(Julien Ponthus)
*****
(Reporting by Danilo Masoni, Joice Alves, Julien Ponthus and Thyagaraju Adinarayan)
Glencore (GLEN)
