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and Julien Ponthus (firstname.lastname@example.org) in London and Danilo Masoni and Stefano
Rebaudo (email@example.com) in Milan.
CLOSING SNAPSHOT: TWO WEEKS FOR NOTHING! (1540 GMT)
This week ends on a gain of 1.8% for the STOXX 600, which is exactly what the pan-European
index lost the week before that!
We stand at about 368 points, which is precisely, (surprise, surprise) exactly where the
index was at end of play on August 28. Pretty heavy stuff uh?
Oh and that was also roughly the closing point on Friday the 14th of August and on July 14th
and so on..Fact is the STOXX 600 has been caught in a tight range for over three months now.
But how was trading today? "Trading has been subdued in Europe as there has been an absence
of major news", was David Madden's answer at CMC Markets. Curb your enthusiasm!
Anyhow, the STOXX 600 was up 0.25% on the day with most of the gains coming from miners
(+2.5%), boosted by Chinese demand for copper notably.
Banks, which are unlikely to get a pay rise in the form of higher interest rates anytime
soon from Lagarde, were today's laggards, down 1.5%.
The sector is still the top loser in this COVID-19 crisis, down 37.4% year-to-date.
Yes, that's even worse than Travel and Leisure, down only (so to speak) 33.4% since the
beginning of 2020.
ESG, IT'S A THING (1342 GMT)
The rise of the ESG has been a long time coming but it's now undisputedly a major structural
trend in asset management.
Some investors have already expressed concerns that the rush to secure ESG-flagged assets
could lead to some market distortions but even if we're not there yet, this chart from SocGen is
"ESG ETF assets topped $100bn at end-August 2020, nearly doubling their size in the last
eight months", SocGen analyst Sebastien Lemaire writes, adding that "even more striking is that
ESG ETFs have contributed to one-third of all inflows into equity ETFs year-to-date".
MAKE EQUITY MOVES SMALL AND THEN GREAT AGAIN
With November's U.S. Presidential election racing closer, analysts at Deutsche Bank have
crunched the numbers on how markets have behaved in the run up to previous ones.
They note that while predictable elections such as 1956, 1964, 1972, 1984, 1988, 1992 and
1996 have always been almost non-events for the likes of the S&P 500 -- who likes boring anyway
-- close ones, like all the last five, tend send equities sideways from around July as caution
kicks in; then up strongly if there's a clear winner, no matter who it is.
"Close elections have typically been followed by strong equity rallies, on average 5% to
year end, independent of which party won," Deutsche says.
Don't rush out and buy just yet though, this time might be different Deutsche goes on:
"We see considerable risks to getting a quick and clear resolution this time around," as
Trump may not concede if he loses having warned that the unprecedented volume of mail-in ballots
this time around due to COVID-19 could be vulnerable to fraud.
The equity vol curve is still pricing in "a traditional election playbook" though they say,
with a sharp kink around the election. The VIX calendar futures curve is sharply upward sloping
through October, then sharply downward sloping through December.
"We would be buyers of November and December vol"
THIS IS NOT A BUBBLE (arguably) (1225 GMT)
As mentioned in an earlier post, there's quite a lot of optimism in the air and last week's
tech rout seems to have left a few scars despite the trillions which have evaporated from stock
For UBS Asset Management, the fears that overhyped tech shares are in dotcom-crash levels
territory are overblown.
"While many tech stocks in the US are on high multiples, we do not see this as a bubble, as
we saw in 1999/2000, and do not see the recent correction as the start of a protracted selloff",
the UBS analysts believe.
Among the reasons that back their stance are:
1) Structural long term industry drivers towards digital transformation
2) Lower for longer yields giving a premium on growth
3) Sound fundamentals
On that note, they stress that the best-performing stocks are indeed those which actually
churn out the most cash.
"The best performing stocks in the S&P 500 Index this year have been the fastest growing in
sales and earnings, and the positive earnings per share (EPS) growth should be looked at in the
context of substantially negative earnings growth for the market as a whole".
See their chart here:
MEANWHILE, ON THE BRITISH STOCK MARKET...
While the Brexit crisis has sent the pound down to lows unseen since March, UK stocks are
doing quite alright thank you very much!
While you would expect the FTSE 100 and its dollar-makers constituents to benefit from their
built-in currency hedge, the outperformance of the FTSE 250 constitutes more of a surprise as it
is typically a good gauge of Brexit stress. And Brexit stress there is!
Anyhow, British blue chips and midcaps are up about 0.2% while the EURO STOXX is down about
One possible explanation is this morning's good GDP data, which, while in line with
expectations, is likely to boost morale somewhat.
But it's not that satisfying as an explanantion as noted by David Page, head of Macro
Research at AXA Investment Managers.
"Financial markets appeared to post only modest reaction to the data, unsurprising with GDP
broadly in line with consensus forecasts", he said.
Another explanation is the UK-Japan trade deal which is brings some positive newsflow.
"UK markets are making tentative gains in early trade today, with a UK-Japan trade deal
agreement providing a rare boost for sentiment in a week that has been dominated by pessimism
over the scope for an agreement by year-end", wrote Joshua Mahony at IG.
"Interestingly, the shift in focus towards Asia for the UK has brought outperformance from
the similarly Asian-focused Burberry, with the fashion firm heading up the FTSE 100 gainers in
early trade", he added.
Neil Wilson at Markets.com also looked at the bright side of things.
"The good news is there is UK-Japan trade deal ‘in principle’ – hopefully that means cheaper
THERE, THERE... IT'S GONNA BE ALRIGHT (1102 GMT)
There's been some burst of optimism in the last 24-48 hours with big banks saying the recent
selloff is "temporary". The tech unwind has wiped off about 3 trillions of dollars from stock
markets, raising worries if the quick bear-to-bull switch was a bit overdone.
GOLDMAN SACHS: Raised its global equity allocations to "overweight" and said: "We still
think there is potential for a broader procyclical shift across and within assets in the rest of
Indeed, see this chart:
BANK OF AMERICA: The bank doesn't see a bear market coming, with the U.S. central bank "so
easy" and Wall Street "flush with cash". It sees laggard rotation happening with EM already
attracting chunky flows.
Why not, after this extreme underperformance versus Nasdaq:
BARCLAYS: "In a sense, we see the US sell-off as a 'healthy' development, that could
ultimately give legs to the bull market and bring a larger breadth. Excessive bullishness in
some parts of the market is being unwound, and investors may consider more options to diversify
their portfolios going forward, as well as taking a closer look at fundamentals."
See what this rally has done to index weightings:
WELLS FARGO: ""While the last couple of days of trading ... have no doubt left some
investors feeling uneasy, if you look under the hood, there are some underlying positives to
Some reading for you:
- In 'laggard rotation', emerging market equity funds turn winners - BofA
- LIVE MARKETS U.S.-Don't be rattled by selloff, Wells Fargo says
WHO CARES ABOUT MARKETS? THE ECB
A day after the ECB took an unexpectedly relaxed stance on growth and inflation at its Sept.
meeting, chief economist Philip Lane and French central bank chief Francois Villeroy de Galhau
are today both highlighting risks from a strong currency, noting that it clearly mattered for
policy because it curbed price pressures.
Perhaps the ECB was watching yesterday as the euro and bond yields in the currency bloc rose
during ECB chief Lagarde's news conference and didn't like what they saw.
With the euro almost half-a-percent firmer against the dollar today and heading back towards
$1.20, more jawboning on the currency could follow in the days ahead. And judging by
the tone from economists this morning, many are sticking to forecasts for the ECB to increase
its emergency bond buying scheme by 500 bln euros in December.
OPENING SNAPSHOT: SIDEWAYS (0720 GMT)
A mixed open for Europe with a slight bias towards risk-off as telecom, utilities and
healthcare stocks are performing a tad better than travel & leisure, oil and banking stocks.
In single names, Altice Europe's shares soar 25% after it agreed to be bought by
its founder Patrick Drahi. That, pan-European exchange Euronext's discussion with LSE
on buying Borsa Italiana and Aryzta's talks with Elliott Advisors over an M&A deal are some of
the major movers this morning.
As expected, Accor is dropping 2% on CAC 40 exclusion, while Alstom is
riding higher on its inclusion into CAC 40.
Among fallers, Knorr-Bremse is down 7% on cash call. While airlines and airport
operators are down 2% to 3% amid rising coronavirus cases in Europe.
ON OUR RADAR: EXCHANGES' M&A, BLUE-CHIP EXITS, CASH CALLS (0641 GMT)
So, the UK's July GDP data came in somewhat in line with estimates and markets continue to
point to a small loss at the open as the U.S. tech selloff hangover and souring Brexit talks
keep investors away from making risky bets.
Switching from macro to micro, Rio Tinto in focus after it parted ways with its CEO
and two senior executives, bowing to shareholder criticism of the destruction of two significant
Aboriginal rock-shelters and the miner's limited initial response.
In another executive-related move, shares in Bayer are rising 1.7% after Werner
Baumann won an extension of his contract until 2024 and the company said a settlement over the
Roundup cancer claims would be settled within weeks.
In M&A, pan-European exchange Euronext says it is in dicussions to submit an offer
to the LSE to buy the Milan stock exchange, Borsa Italiana. Also on the deals front, Swiss
frozen baked goods maker Aryzta is seen rising 5-15% after it said it was in advanced
talks with PE firm Elliott Advisors over an M&A deal.
Shares in Knorr-Bremse, which makes braking systems and other subsystems for rail
and commercial vehicles, are tanking 7% in early trade after a key investor sells 10 million
shares in the company.
Coronavirus-hit hotels group Accor's deletion from the French blue-chip index CAC
40 and Ence's exit from Spain's IBEX 35 is seen hitting their shares, according to
traders. Alstom will replace Accor and Pharma Mar will take Ence's place.
The biggest faller in Europe is likely to be Solocal after its 336 million euro
cash call. A trader expects the stock to fall 50%.
MORNING CALL: TODAY IS NO DIFFERENT (0549 GMT)
ECB's less dovish message, the Brexit fatigue, a U.S. tech selloff and a few other external
factors have been enough to keep European bourses in a rangebound trade for some time now and
today is no different. Another dull session ahead with European stocks seen falling 0.1%.
Spoiling the mood further, the U.S. Senate on Thursday killed a Republican bill that would
have provided around $300 billion in new coronavirus aid, as Democrats seeking far more funding
prevented it from advancing.
Among key data releases, UK July GDP data will give us an insight on the scale of the
bounceback in economy after the re-opening of pubs, restaurants, hairdressers and barbers.