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LIVE MARKETS-Real Brexit countdown

Tue, 6th Oct 2020 11:33

* European shares slightly lower

* Tech top fallers, banks shine

* Trump returns to the White House

* Asia shares hit 2-week high
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
Milan.

REAL BREXIT COUNTDOWN (1030 GMT)

Much has been written on the chaos that could run over businesses when a Brexit transition
period ends in December as the UK and the EU have yet to set the terms of their future trade
relationships.

Three months to the deadline, more and more bankers are now pointing that they do expect at
least a 'skinny deal' because amid the economic distress caused by the pandemic the two parts
just can't afford a no-deal Brexit.

"We believe the mutual determination to avoid compounding the economic challenges posed by
the COVID-19 pandemic should ultimately ensure that disruption to trade and economic activity at
the end of the transition period is minimal," UBS writes.

The UK and the EU have said recently that they have made progress but not yielded a
breakthrough.

But what are the main hurdles?

The Swiss bank compared the proportion of the time negotiators employed discussing main
areas in the first round of conversations in March and now, finding out that state aid and
fisheries "are two of the most significant remaining bones of contention".

See in the chart below other areas that are taking up a large share of negotiators' time.

(Joice Alves)

*****

BEWITCHED BY THE BANK SIRENS (1009 GMT)

They may not be as bewitching as the mythological sirens that Ulysses tried (and managed) to
resist but bank valuations are so low that indeed you can't just pass by and ignore them.

Among those being tempted this time are Barclays analysts. And today's price action, with
European banks up 1.9%, would suggest they are not the only ones.

"We find valuations hard to ignore," they say. "The market appears to be discounting either
dilution or profitability remaining at 2020/21 levels indefinitely."

To be sure risks remain in a sector often seen as a value trap and Barclays suggests that
investors be selective.

Check out this chart showing how European banks are trading at record cheap valuations.

(Danilo Masoni)

*****

MARKETS ARE IMPROVING BUT THE ECB IS NOT DONE (0859 GMT)

The latest numbers show a much better situation for financial markets than before the
summer, but that doesn’t mean the ECB has completed its job.

A Unicredit research note argues that the ECB has less “need to fight market fragmentation”
though with inflation well below its target it will “continue buying assets in large size also
next year.”

The Pandemic Emergency Purchase Programme (PEPP) was at 67 billion euros in September up
from 59 billion in August but well below the pre-summer pace.

Unicredit expects “another 220-275 billion euros of purchases until the end of the year, so
total purchases of public security assets this year should amount to almost 1 trillion euros.”

It also calculates that ECB purchases should be enough to cover net supply in most countries
this year, while in Germany and the Netherlands net government bond supply is likely to exceed
ECB purchases.

The ECB bought less Italian and Spanish government debt in the past two months as market
pressure on both indebted countries stayed low despite a resurgence of COVID-19 cases.

(Stefano Rebaudo)

*****

BREXIT: REMEMBER THE HUNDRED YEARS’ WAR? (0825 GMT)

Seems quite far-fectched to compare Europe's longest military conflict with the current
Brexit fishing rights row but there is an understandable case in managing investors' sudden
optimism on the UK securing a comprehensive trade deal with the EU.

The pound is currently displaying a fresh sense of optimism about the current negotiations
and the FTSE 250, a typical gauge of Brexit market stress, is easily outperforming most of its
peers with a 0.4% rise.

But according to Commerzbank FX analyst Antje Praefcke, the fishing rights issue opposing
Paris and London, however secondary it might seem, shouldn't be underestimated.

"History has shown that any disagreements on matters of sovereignty between the two
countries can take a very long time – just remember the Hundred Years’ war", she wrote in the
German bank's morning note today.

Not that it's the only sticking point.

"Even without this issue there are still a number of other contentious matters, such as the
Irish border, that have to be solved quickly", she noted as the deadline for a deal by mid or
end October (depending on who you listen to) looms.

Some issues however, as Praefcke reminds us do take some time to settle. Like 116 year...

(Julien Ponthus)

*****

OPENING SNAPSHOT: EUROPE OFF TO MUTED START (0730 GMT)

Equities in the old continent are trading around parity with the STOXX 600 regional
benchmark dipping below the two-week high reached during the previous session as optimism about
Trump's health progress and a new U.S. fiscal package fades.

Among top movers are shares in Suez, up 4.3%, after the French waste and water
firm vowed to fight Veolia's $13 billion takeover project.

Logitech is the top faller, down 4.8% from yesterday's record high, on reports Apple will
stop selling rival earphones, speakers ahead of launches.

Moves in sectors are muted too with price changes ranging from -0.6% of healthcare to +0.9%
of telecoms.

Here's your opening snapshot:

(Danilo Masoni)

*****

ON OUR RADAR: M&A MUSIC, LUFTHANSA'S CASH BURN, UK PUBS (0643 GMT)

European shares are set for a muted open today as the Trump-returns-to-the-White-House
rebound looks to be losing steam with Euro STOXX 50 futures now trading just above parity,
having earlier gained as much as 0.2%.

In corporate news developments, M&A headlines will continue to keep traders' somewhat busy.

France's Veolia succeeded in its bid to buy a 29.9% stake in waste and water
management rival Suez, paving the way for a full takeover offer despite an attempt by
the French government to stall the deal.

Among banks, Deutsche Bank CEO told Bloomberg the bank could consider a merger or
acquisition as early as next year if its profitability and share price recover, though for now
it remains focused on implementing its turnaround plan.

Meantime from the COVID-hit airline industry, comments from Lufthansa are a stark reminder
that the pain is far from being over. Its CEO said the German airline is burning cash at a rate
of 500 million euros per month and is far from breaking even.

Traders also say UK pub stocks could get a lift after as dozens of Conservative MPs are
reportedly set to vote against 10pm curfew on Wednesday night.

Back to M&A, K+S has signed an agreement to sell its North and South American
salt business to Stone Canyon Industries Holdings and affiliates for $3.2 billion, the German
minerals miner said in a statement on Monday.

Milan-listed Newlat Food has made a non-binding offer for Hovis, the 134-year old
British bread maker, which is owned by Premier Foods and The Gores Group.

Kering said it would sell part of its Puma stake.

Premier Oil has reached an all-share merger deal with oil exploration and production
company Chrysaor that will result in a cash payment of $1.23 billion to creditors of the
debt-saddled British firm.

(Danilo Masoni)

*****

MORNING CALL: EUROPE SEEN UP BUT GAINS LOOK FRAGILE (0537 GMT)

Markets got the headline they were expecting -- Trump leaves hospital to return to White
House -- and although the upbeat mood looks set to spill over to today's trading,
there is no big rally in sight with Euro STOXX 50 trading up just 0.2%.

Meantime U.S. futures are down slightly, suggesting that if losses accelerate there, Europe
too could reverse course. Over in Asia, Trump's return to the White House and brighter prospects
for a fresh stimulus sent stocks to a two-week high.

(Danilo Masoni)

*****

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