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LIVE MARKETS-Closing snapshot: lower for longer blues, retail hymn

Thu, 17th Sep 2020 16:59

* European shares open lower: STOXX down 0.6%

* Fed fails to cheer investors

* BoE briefed on negative rates

* Unibail-Rodamco drops on capital strengthening move
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


The Fed-BoE combo didn't do much for European stocks today, particularly for banking stocks
which see no light at the end of the tunnel in terms of interest rate hikes and inflation.

The banking sector scored the worst performance with a 1.4% fall and at one point during the
session was back to lows not seen since May.

The STOXX 600 closes down 0.4% at about 372 points, right in the trading range it has been
stuck in since June.

Tech lost 0.8% but that's arguably not that bad given that the pressure currently piling on
the Nasdaq which, at the time of writing, was down 1.3%.

On the bright side, retail made it into positive territory thanks notably to the UK's Next
which raised its outlook and demonstrated yet again the unexpected resilience of some key
companies in the sector.

Because it's certainly not rosy for the industry just as a quick look at the shares of
shopping mall owner Unibail-Rodamco shows.

The real estate group fell 10% after announcing its plans to raise 3.5 billion euros to
shore up its balance sheet and cope with the fallout from the COVID-19 pandemic.

Anyhow, Retail is among the happy few sectors in the black (0.1%) year to date with Tech
(+8.5%), Chemicals (+5.2%) and Healthcare (+0.8%).

Here's a chart of European retail bouncing back to the black in 2020:

(Julien Ponthus)



Nothing is certain except death and taxes, that old sage Benjamin Franklin apparently said.
For one group though it's not always true -- multinationals who stand accused of exploiting a
multitude of loopholes to hand over as little as possible to the taxman.

For years, countries have also vied with each other to lure companies by cutting corporate
tax rates. Some have cut rate so far they are effectively tax havens; academics from the
Universities of Berkeley and Copenhagen calculate that in 2015, multinationals shifted $600
billion -- 40% of their overseas profits -- into such havens. The figure, five years on, will be
far higher.

But even if we leave out the havens, the fact remains that statutory corporate tax rates
have fallen steadily since 1980 - the Tax Foundation, a non-profit, calculates corporate tax
rates currently average 24% -- down from an admittedly high 40% in 1980.

Deutsche Bank analyst Jim Reid highlights this problem in a note, describing falling
corporate tax rates "the ultimate expression of inequality, as it's been a huge boost for
capital over labour." It may also be why huge budget deficit have become a near-permanent
feature in many countries, he suggests.

Now though, governments desperate for cash after COVID spending binges, will be eyeing up
the corporate cash piles, especially as ending profit-shifting and tax evasion will take time.

"As we try to pay for the cost of the pandemic, and de-globalisation slowly reduces the risk
of companies moving jurisdiction, the likelihood is that low corporate tax rates will come under
increasing scrutiny," Reid writes.

(Sujata Rao)



The FTSE 100 is currently the best performing blue chip index in Europe with a 0.4% dip at
the moment and it's got someone to thank for it: the BoE!

The pound took a big blow after the central bank said it had been briefed on how a negative
interest rate could be implemented effectively.

That led to a good old 'pound down, FTSE 100' kneejerk reaction as you can see below:

The policy statement was otherwise bang in line with expectations:

(Julien Ponthus)



The Fed didn't exactly lift spirits in the banking universe which really needs to make its
peace with the 'lower for longer' state of play.

The sector in Europe touched a May low this morning, which says quite a lot about the total
inability of its shares to bounce back from the COVID-19 March crash.

Year-to-date, European banking stocks are down over 38% (yes that's the worst sector) and
only managed to recoup 11% after seeing their market value nearly halve in March.

With banks down 2% in morning trading, we asked Jerome Legras at Axiom Alternative
Investments what he made of the latest price action.

"There no light at the end of the tunnel, in terms of interest rates", he told us, noting
that the sector was still trapped in a downward trend.

Also, while earnings expectations have bottomed out for this year and next, there's still
angst out there we could have nasty surprises on COVID-19 triggered loan losses.

"Models are just that, models", Legras said, adding that forecasting the cost of risk in
this unprecedented pandemic was a tricky business indeed which made many investors

Anyhow, if you're wondering whether banks are a great value bet or a doomed value trap,
here's a decision tree from UBS which might help:

(Julien Ponthus and Danilo Masoni)



Delivery Hero shares are doing nicely morning after it announced a 230 million
euro acquisition that will boost its footprint in Latin America.

The deal is relatively small but highlights the industry's dealmaking potential, which looks
to be intact despite consolidation already driving growth in this tech-based sector for years.

"We welcome this move and have flagged several times in our research that M&A is just at the
beginning in the food delivery space with plenty of optionality," say JPMorgan analysts.

There's no certainty about which deal is coming next, but looking at this summer, a couple
of big transactions stand out. Uber agreed to Postmates for $2.65 billion in July, just
one month after Just Eat Takeaway sealed a $6 billion deal to buy U.S. peer GrubHub

(Danilo Masoni)



High-yield credit spreads have managed to tighten even as banks tighten their lending
standards, Goldman Sachs says in a research note.

That's in contrast to the 2001 and 2008-2009 recessions, where credit spreads widened as
lending standards tightened, the bank said.

While lending standards tighten, high-yield issuance in the public markets is on track for a
record year. Nearly $300 billion of debt issued this year is already higher than full year
issuance in every single year since 2014.

One might argue that the pace of issuance demonstrates firms are opting for the public debt
markets given restrictive lending standards. Goldman doesn't buy into that argument, since
credit spreads are tightening despite a heavy pace of issuance, which signals strong demand.

Had the opposite been the case, credit spreads would widen with the increase in issuance.

Goldman sees the disconnect between bank lending and public debt markets as a positive for
credit risk, as it means that companies will become less vulnerable to the impact of an
exogenous shock that could hit commercial banks, since they are relying on a wider range of

And it's not only the public markets that offer companies an alternative to bank lending.
Assets under management by private debt vehicles - which finance firms unable or unwilling to
issue public debt - were up 200% since 2009 by the end of last year, Goldman said.

(Yoruk Bahceli)



The tech bubble dilemma has been the talk of town for months. At the beginning of September
the Nasdaq was at an all-time high but only three weeks later a sharp correction has wiped off
around 1,000 points from the tech-heavy U.S. index.

Software has been Credit Suisse's largest overweight for the last decade but now the Swiss
bank reduced the size of its overweight saying that "excess in tech is high" though "in most
instances not extreme."

Fund managers recently surveyed by BoFA sounded a bit more cautious. For them the "tech
bubble" is now the second biggest tail risk after COVID-19 second wave.

But valuation metrics would suggest we're still far from bubble territory, according to
Credit Suisse. Bubbles have re-rated to a P/E ratio of 45-72 times and the Nasdaq is currently
on 37 times, it says in a research note.

The Swiss bank still recommends being overweight because tech is defensive, cyclical into an
upturn, growth-oriented and will likely benefit from a weak dollar.

Even though it cut software to overweight from strong overweight it remains "very positive"
on Microsoft and SAP. It has a small overweight on semis and likes gaming

Despite the broadly positive stance, Credit Suisse warns that a COVID-19 vaccine "could
cause a short-term reversal in some of the online trends and would help other sectors" such as
financials and leisure.

(Stefano Rebaudo)



Europe is literally painted red this morning with the STOXX 600 and all sub-sectors
posting losses in early deals after the Fed failed to provide fresh reasons to cheer.

Autos, banks and miners are sliding over 2% while tech is down 1.6%.

Despite the undistinguished sell-off, main indexes aren't breaking any new ground, the STOXX
is just giving up two days of gains and it remains anchored within its recent trading range.

Top faller is shopping centres landlord Unibail-Rodamco down 8% after it announced
a 9.0 billion euro plan to strengthen its finances. IG Group and Next are among the few stocks
on the up after well-received trading updates.

Here's your snapshot:

(Danilo Masoni)



Futures in Europe are pointing to falls of more than 1% as investors digest a number of
central bank meetings, starting from the Fed which failed to offer any new reason to cheer, and
fresh heavy falls in U.S. tech stocks.

Earlier this morning the BoJ kept monetary policy steady and slightly upgraded its view on
the economy, while later on the BoE is expected to signal that it is getting ready to pump yet
more stimulus into Britain's economy.

Euro STOXX 50 futures were last down 1.3% and FTSE 100 futures fell 1% following a tech-led
sell off on Wall Street overnight. Nasdaq futures were down nearly 2%.

On the corporate front a few companies are taking steps to strengthen their balance sheets.

Shopping centres landlord Unibail-Rodamco announced 9.0 billion euros plan to
strengthen its finances that includes a 3.5 billion capital increase along with curbs to cash
dividends and non-essential capex.

In the UK, Rolls-Royce said it continued to review funding options, including debt
and equity, to boost its balance sheet, while the world's largest holiday company
TUI is planning a share sale to raise up to 1 billion euros, according to people
close to the matter.

In more upbeat news, Delivery Hero shares could rise after news it will buy the
Latin American operations of Glovo for up to 230 million euros.

Next raised its profit outlook for the second time in two months as the British
clothing retailer reported strong recent trading.

Eyes also on Spanish banks with Caixabank and Bankia set to approve a
deal today that will create Spain's biggest domestic lender.

Meanwhile on the COVID-19 front, there are no signs of the global pandemic slowing
but more positively an Oxford University document said the adverse events that led
to a pause in trials evaluating AstraZeneca vaccine candidate may not have been
associated with the vaccine itself.

(Danilo Masoni)



European shares are expected to open lower this morning with futures on the Euro STOXX 500
falling almost 1% following losses on a tech-led sell-off at Wall Street overnight and after the
Federal Reserve took no new policy action.

The U.S. central bank kept interest rates pinned near zero and promised to keep them there
until inflation is on track to "moderately exceed" its 2% inflation target "for some time."

Over in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan was
down 1.1%, running out of steam after five straight days of gains. Japan's Nikkei shed

(Danilo Masoni)


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