* STOXX 600 up 0.5%
* Basic materials, auto stocks lead gains
* Tech hits highest since Feb 2001
* ASML, Richemont up after results
Jan 20 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
thoughts with us at markets.research@thomsonreuters.com
NO SALES, NO PROBLEM (1318 GMT)
A clear sign that investors are betting the latest COVID-19
wave will be followed by a strong rebound can be found in the
share price of Wetherspoon.
The British pub operator has had no sales since shutting all
its pubs from Dec. 31 and yet its share price is up over 10%
since the beginning of 2021.
Today's 4% jumps comes after it raised 93.7 million pounds
issuing new shares, quite a performance as raising capital ain't
usually exactly stock boosting material.
"Typically an equity raising story would knock a company’s
share price but Wetherspoon seems to be doing it for cautionary
reasons, rather than being strapped for cash", commented David
Madden at CMC Markets.
The company said on Tuesday it expects pubs to remain shut
until March and that the fresh funds would provide enough
liquidity to deal with very low sales after reopening.
You can take a look at Wetherspoon's share price since the
COVID-19 market crash last year here below and notice the recent
uptick which took place during the lockdown:
(Julien Ponthus)
*****
WHAT TO EXPECT FROM EUROPE'S Q4 RESULTS? (1151 GMT)
As earnings season kicks in, it is time to get a picture of
the impact on corporates of the wave of lockdowns in Q4 2020.
After the first lockdown in March brought European companies
to their knees, there might be "room for positive surprises"
this time around, even because estimates are low, writes
Barclays, which expects Q4 "earnings to be resilient".
"Estimates have been cut despite a steady recovery in global
activity, which offers room for beats," the UK bank says.
In terms of guidance, Barclays expects "the tone of the
reporting season to be generally constructive," as vaccine
rollouts are in its way, as well as "massive stimulus
supporting demand".
For dividend updates, the story will depend on the sector as
performance varies as shown in the chart below:
(Joice Alves)
*****
BUILDING MATERIALS STOCK UPSIDE (1130 GMT)
Joe Biden’s $1.9 trillion stimulus plan has turbocharged the
reflation trade and, accordingly, the STOXX 600 index is in
positive territory with basic materials shares leading gains.
But it might be worth narrowing the focus to specific
sectors to see what the risks are.
UBS analysts are positive on building materials and see a
10% upside to price targets.
The bank warns about possible headwinds such as
non-residential markets, where lead indicators are pointing to a
down-cycle; rising energy/raw material costs which could weigh
on margins after strong margin performance during 2020; forex
headwinds, especially for EUR/CHF reporters.
"The challenge of 2021 will be cost inflation, in our view:
with most energy costs up 30-40% (spot versus 2020 average),
pricing will be the key", they say in a research note.
Generally speaking, they expect a modest growth in the U.S.
in 2021 while they look “to a better 2022 and beyond.” In Europe
they see “a much less severe downturn in 2021 than previously
expected” and a modest growth in 2022.
(Stefano Rebaudo)
*****
ITALY NOT OUT OF THE WOODS YET (1020 GMT)
Italy's government won a confidence vote in the Senate and
averted a collapse yesterday, but political instability risk in
the country stays high.
Italian Prime Minister Giuseppe Conte narrowly won the
confidence vote, allowing him to stay in the job after a junior
partner, former PM Renzi's party Italia Viva, quit his coalition
last week.
But even though the confidence vote is out of the way, Conte
failed to secure an absolute majority.
Analysts say many lawmakers played it safe this week and
helped Conte stay in office as they wanted to avoid an early
ballot, fearing they would not be re-elected.
"His (Conte's) government is not yet in a secure position,"
writes Morgan Stanley. The "support from independent and a
couple of opposition senators may not be forthcoming once the
lockdown is lifted and the immediate crisis has passed".
"President Martarella has made it clear that he will not
accept such a minority government indefinitely," MS notes,
adding that Conte needs to solidify his support in the Senate in
the coming days for its government to survive.
An earlier election in Italy is not on ING's radar.
"Conte’s preferred path at this stage is to look for new
allies in parliament to secure a stable majority, possibly
offering some cabinet roles in exchange. Should this option
prove unviable, he may still resign as PM", ING writes in a note
to clients.
(Joice Alves)
*****
GOOD NEWS FOR EUROPE'S CREDIT QUALITY (1005 GMT)
While the European economy continues to be resilient in the
face of new coronavirus restrictions, corporate debt is in the
spotlight as some risks are still looming.
Moody’s sees a small negative impact of lockdowns on credit
quality but warns about risks related to "more infectious or
dangerous variants of the virus, poor management of the eventual
reduction of government support schemes."
In the current scenario, the agency does not expect a
widespread reassessment of European ratings in the near-term as
restrictive measures are less stringent than last year, while
government stimulus coupled with easy financing conditions
support credit quality.
Mobility data shows trips for retail and recreation and to
access workplaces have only slowed by about one-third to
two-thirds of the level they slowed to in the spring of 2020,
the rating agency says.
Moody’s downside scenario, which is not met at present,
involves a decline in consumption similar to the March 2020
lockdown, a significant decline in fiscal aid, a deterioration
in equity prices and a high yield credit spread widening.
(Stefano Rebaudo)
*****
EARNINGS PROP EUROPE UP, TECH AT 20-YEAR PEAK (0826 GMT)
European shares are off to a positive start this morning,
taking cue from Asia where stocks climbed to a record peak and
with Wall Street futures also heading north ahead of Joe Biden
taking office later today.
The STOXX 600 regional benchmark was up 0.3% in early deals,
supported by a number of well-received earnings updates from
heavyweights such as ASML and Richemont.
Sector leadership also indicated investors were in risk-on
mode with autos and basic resources among the biggest gainers,
while defensives such as utilities and healthcare lagged.
Tech was the best performer however, underpinned by
a 2% gain in ASML after the supplier of equipment to computer
chip makers posted stronger-than-expected Q4 earnings growth and
hinted it could upgrade its 2021 sales outlook.
The index of European tech stocks was up 1.3% to its highest
in nearly two decades, as you see in the chart below.
(Danilo Masoni)
*****
STAYING HIGH BEFORE BIDEN (0757 GMT)
Much of an expected vaccine-driven economic recovery is
already priced in, it seems, and the groundwork has been laid
for another fiscal boost for the world's largest economy.
So a few hours before Joe Biden becomes the 46th U.S.
president, global equities are hovering near recent record
peaks.
European stock futures, up 0.2%, are not far from 11-month
peaks while S&P futures are firmer too, at striking distance
from record highs. Asian stocks scaled a new all-time high
overnight, helped by a 0.7% rise in China.
Earnings remain very much on the radar, with investors
waiting to see if Morgan Stanley emulates the strong Q4 showings
from other Wall Street banks. In Europe, ASML and Richemont are
set for stronger openings following their good-looking results.
But posh raincoat maker Burberry saw a 9% sales hit due to
the pandemic in Q3.
Overall, Europe is expected to report a 26% drop in Q4
earnings, a much worse showing than the 7.8% decline expected
for U.S. companies.
As for the dollar, that's backed away from a one-month high
as markets' mood was boosted by incoming Treasury Secretary
Janet Yellen's call to "act big" on coronavirus relief spending
boosted.
Finally, a helping hand to the overall positive tone from
Italy where PM Conte narrowly won a confidence vote that allows
him to remain in office. Italy's 10-year government bond yield
hit a one-week low.
Key developments that should provide more direction to
markets on Wednesday:
* Joe Biden will be sworn in as the 46th president of the
United States
* China held benchmark lending rates for corporate and
household loans steady for a ninth straight month
* British inflation rose 0.6% in December
* Richemont posted a 5% increase in quarterly sales
* ASML posted better-than-expected Q4 earnings and hinted it
could upgrade its 2021 sales outlook
* Canada central bank holds policy meeting
(Danilo Masoni)
*****
STAYING SUPPORTED NEAR PEAKS (0636 GMT)
No big action is expected at the open for European equity
markets as Biden takes office later on today and after Yellen
talked up the need for big fiscal stimulus in the U.S..
Futures on the Euro STOXX 50 index were last trading up just
0.1%, around 1.5 percentage points below the February 2020 high
reached earlier this month. FTSE futures were up by 0.3% but 3
percentage points below their recent peak.
Equities in Asia managed to break new ground overnight
however, as they hit a new record high, while Wall Street also
looks set for a positive start, as the Q4 season progresses.
But again, S&P 500 futures, last up 0.1%, remain a touch
below the record high hit during the first full week of January.
On the earnings watch today are among others, BNY Mellon,
U.S. Bancorp, Morgan Stanley, Procter and Gamble and Alcoa
(Danilo Masoni)
*****
Wetherspoon (J.D) (JDW)
