* European shares rise: STOXX 600 +1.2%
* PMIs point to stalled recovery
* Adidas, Puma shares jump on Nike's upbeat forecast
* Weaker pound pushes FTSE 100 higher
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RISK-ON: WHEN BAD NEWS IS GOOD NEWS (1305 GMT)
With gains of 1.2%, the best performance in two weeks, Europe is clearly enjoying a risk-on
day but that looks to be at odds with the tepid Asian gains and the poor PMI showings.
Worries that a second wave of COVID-19 infections could derail or slow the recovery had
became somewhat more real after the European surveys, but for markets these numbers may just be
another case of bad news being good news.
"It seems a W-shaped economic projection might be developing... What this means is that
continued stimulus across the euro zone will be hopefully forthcoming -- or at least that's what
markets are placing their bets on," notes Charles Hepworth, Investment Director at GAM
And similarly, Fawad Razaqzada, analyst at ThinkMarkets says: "... the soft data also raised
the prospects of more stimulus, which is presumably why stocks rallied".
The return of the stimulus narrative comes a couple of weeks after the latest ECB meeting,
which left rates unchanged, and five weeks before the next one, so there's little immediate risk
of that hopes being contradicted.
Of course ECB speakers will be highly scrutinised in the coming days.
EUROPEAN STOCKS FARE BETTER IN THE RUN UP TO U.S. ELECTIONS (1220 GMT)
European equities tend to outperform U.S. shares as presidential elections get closer.
Continental Europe shares have outperformed in 6 of the last 7 U.S. presidential elections
three months prior to the day of voting, and 4 out of 7 elections after the vote takes place,
Citi analysts wrote in a note.
"This time round, Europe has finally started to outperform the U.S. since 1st September,
both in local and US$ terms. Continued dollar weakness, perhaps associated with increased
election uncertainty, could further help European relative performance in US$ terms," analysts
Citi names health care, industrials, energy and tech among
the most exposed European sectors to the election outcome.
Among healthcare and industrials, those with market cap of over 10 billion euro and at least
half of their revenue coming from North America would suffer the most if U.S. corporate tax cuts
were reversed post elections, according to Citi.
STOXX EARNINGS: A PREOCCUPYING TREND (1208 GMT)
Refinitiv has released its weekly STOXX 600 earnings expectations and the latest trend seems
to somewhat match today's disappointing PMIs. (see: Euro zone economic recovery in danger as
Looking at the chart above, earnings expectations from Q4 2020 to Q3 2021 have been revised
down from last week which kinda undermines the V-shaped recovery narrative.
ECB WEAPONS ARE BLUNTED AGAINST A STRONG EURO (1048 GMT)
Analysts are wondering what the European Central Bank can do to weaken a strong euro which
might dampen the economic recovery as well as preventing equities from rising.
But according to UBS, the ECB weapons are blunted on this matter, as even the expected
increase and extension of the Pandemic Emergency Purchase Programme (PEPP) won’t be enough.
“So in sum, and notwithstanding the fact that the euro's risk premium now has less scope to
compress, PEPP is unlikely to halt euro appreciation in its own right,” a UBS note says.
“It leaves deeper rate cuts as the ECB's last and limited resort, or exogenous factors like
Brexit and a second COVID wave,” it adds.
This is because euro term premium compression which has been in place since pre-pandemic QE
from the ECB in 2014-15 “seems to have lost its statistical significance in the EUR/USD
equation, even as rate differentials appear to have made a comeback.”
This likely reflects the “much reduced term-premium differential, as both central banks are
expanding their balance sheets with no end in sight.”
Interestingly, the Fed still has more space to compress term premium than the ECB.
Some analysts argue that the EZ currency became more appealing as a reserve currency after
the EU recovery fund and strong commitment by the ECB reduced the risk perception of a break-up.
PLANS FOR SUMMER 2021? (0940 GMT)
The most battered sector from the coronavirus pandemic, the travel and leisure space
, has very little to cheer about as people are still ditching holidays and bars
preferring DIY activities, according to a recent survey.
Jefferies surveyed more than 5.5k people in 11 countries finding out that half of U.S. and
European respondents don’t feel happy booking a holiday for next year.
Additionally, more than 20% of people who went to bars and restaurants pre-crisis have not
returned after restrictions were eased.
With people spending more time in their houses, one of the leisure activities on the rise is
home improvements, with almost half of respondents saying they did more DIY during lockdown and
nearly six in ten intend to keep the habit.
The survey also found out that only 30% of people are keen to return to offices this year.
Here is a chart of travel and leisure shares in Europe this year:
FLASH PMIs A WAKE-UP CALL (0840 GMT)
Today's flash PMI numbers for Sept are a wake-up call that this crisis is far from over and
the excitement we saw during summer was just a temporary re-opening boost. Flash PMIs for
Eurozone came in well below expectations, mainly let down by the services sector.
Quite obviously the second wave of COVID-19 infections is denting the propects of a
sustained recovery. Surprisingly, the UK numbers were a tad better than Eurozone (stats below).
"For several weeks now there has been increasing evidence that the rebound seen in France
and Germany in the weeks after the relaxation of lockdown has started to run out of steam
already," says Michael Hewson, chief market analyst at CMC Markets UK.
ING meanwhile says these numbers will be a "wake-up call" for governments and ECB.
"The impact of second wave related weakness does lead us to think that the recovery is under
more pressure than previously thought," ING adds.
OPENING SNAPSHOT: DIPLOMA AND GENMAB IN FOCUS(0753 GMT)
European bourses are up for a second straight session after Monday's sharp selloff as
Britain sets new restrictions but avoids a second national lockdown.
The pan-European index is up 1% with tech stocks leading the gains with a
In terms of corporate news, shares of technical products and services provider Diploma
rise on deal to buy a U.S.-based wire and cable distributor.
But there was also big moves in negative territory with Danish biotechnology company Genmab
shares down more than 10% after the company started binding arbitration to settle two
license agreement matters with Janssen Biotech.
Meantime, Britain's blue chips and midcaps jumped 1.4% and 1.3%, in a surprise move
after PM Johnson announced new COVID-19 restrictions and told people last evening to work from
home where possible, ordered restaurants and bars to close early, but ditched a new national
ON OUR RADAR: PUMA, ADIDAS, OSRAM AND UK RESTRICTIONS (0651 GMT)
In a data-heavy morning with September flash PMI figures for the EZ and the UK due to be
out, futures are pointing to an open in the black as European bourses are still trying to
recover from Monday's steep selloff.
Adidas and Puma shares take centre stage and are rising 2-3% in early Frankfurt trade after
peer Nike's strong results. While Osram shares are gaining a whopping 11% after the company and
Austrian sensor maker AMS concluded a domination agreement.
Finance firms in London including Barclays, SocGen UK staff and Lloyd's of London are
getting ready to return to work from home as the UK government asked people to do so.
Lufthansa AG plans to start making rapid COVID-19 antigen tests available to
passengers in October and is weighing the option of opening test centres at airports in the U.S.
In M&A, France's presidential palace asked the country's Foreign Minister to write to LVMH
advising the luxury goods company to defer its purchase of U.S. jeweller Tiffany. And Platinum
Equity no longer plans to make an offer for roadside recovery firm AA, it said.
Tesla's Frankfurt-listed shares were down 7.9% in thin volumes after its 'battery
day' led to profit taking by investors after a stellar run this year.
BRIEF-Joules Group Says Revenue For 13 Weeks To August Ahead Of Its Expectations
BRIEF-SSP Group Sees H2 Overall Net Cash Usage Between 250 Mln Stg And 270 Mln Stg
UK's PZ Cussons posts 23% jump in first-quarter revenue
Cellnex close to buying Madrid subway's telecom firm Metrocall - Expansion
MORNING CALL: "HARD WINTER" AHEAD(0540 GMT)
European bourses are seen opening slightly higher this morning, mainly because they are
trying to recover from Monday's sell-off.
Indeed, there is somehow a lack of strong positive news across the region with UK's PM
saying in a prime-time televised plea that the winter will be hard.
Johnson told people on Tuesday to work from home where possible and ordered restaurants and
bars to close early to tackle a fast-spreading second wave of COVID-19, with new restrictions
lasting probably six months.
These measures have raised "the very real prospect of a whole host of businesses which may
not survive until the end of the year," writes Michael Hewson at CMC Markets UK.
Financial spreadbetters at IG expect London's FTSE to open 60 points higher at 5,890,
Frankfurt's DAX to open 105 points higher at 12,700 and Paris' CAC to open 40 points higher at