LIVE MARKETS-U.S. elections? Implied SPX volatility higher in December

* European shares rise

* H&M, STMicro deliver strong updates

* But Bayer sinks on impairment hit

* Wall St futures up
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 Stefano Rebaudo
(stefano.rebaudo@thomsonreuters.com) and Danilo Masoni (danilo.masoni@thomsonreuters.com) in
Milan.

U.S. ELECTIONS? IMPLIED SPX VOLATILITY IS HIGHER IN DECEMBER (0957 GMT)

Very little has changed about the pricing of U.S. presidential election risk after the
unruly and basically uneventful debate between the two candidates, Biden and Trump, according to
analysts.

UBS expects the risk pricing to maintain its current profile, highlighting SPX December
implied volatility is above November, with strikes ranging from 3100 (-7%) to 3800 (+13%).

Republican President Donald Trump has questioned the validity of mail-in votes, raising
concerns that the results of one or more states will be decided in the courts.

The legislation's Dec. 11 end date will require Congress to return to the government funding
question after what is likely to be a bruising fight over whether to confirm Trump's third
Supreme Court nominee, Amy Coney Barrett.

But what about the outcome of the elections.

According to UBS, “A split government may result in the most post-election day tension,
although this is highly subjective and fluid.” Let’s see in detail.

It’s true that a Democrat sweep will be a challenge for equity fundamentals as higher
corporate taxes and more regulatory overhang is expected but it will also reduce the chance of a
protracted disagreement over the outlook.

Status quo “could be tactical positive” given the amount of risk priced into markets, but it
may still be contested.

A Biden win with a Republican Senate suggests a tightly contested election while “it might
read positively over the medium term,” as major policy shift will be less likely along with
“daily Twitter/headline risks.”

(Stefano Rebaudo)

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THE M&A CARRY TRADE EXPLAINED (0858 GMT)

After a record third quarter that saw $1 trillion deals globally, the outlook for M&A
remains sound.

A recovering economy and possible good vaccine news that boosts CEOs' confidence will likely
drive an acceleration over the coming quarters.

And the monetary backdrop also remains extremely favourable for companies to build up their
cash buffers on the bond market and engage in the M&A carry trade, especially in Europe.

"The economics of debt-financed M&A look compelling. European companies can borrow at 1% in
the bond market to buy an earnings yield of 6% in the equity market," Citi says.

Out of the 10 biggest recent deals, 7 of them were financed primarily via Cash/Debt, it
notes.

In regional differences, Citi says the M&A carry trade is even more attractive in the UK and
less so on pricey Wall Street.

(Danilo Masoni)

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OPENING SNAPSHOT: H&M, STMICRO AND BAYER (0740 GMT)

European shares surged after Sweden's retailer giant H&M and chipmaker STMicroelectronics's
results beat forecast.

Hopes for a new stimulus package from the U.S. and data showing Spanish factory activity
picked up in September also helped sentiment.

Having shrunk the previous month amid a resurgence of coronavirus infections, IHS Markit's
Purchasing Managers' Index (PMI) of Spanish manufacturing companies rose to 50.8 in September
from 49.9 in August. A reading above 50 denotes growth.

The pan European index is up 0.7% in early trade, touching a 10-day high, with
retailers and banks leading the gains.

In terms of single stocks, H&M shares jumped 6.3% to the top of the STOXX and
hitting its highest level since June after the company reported Q3 profit beat estimates.

The Paris index is outperforming the European market after chip maker
STMicroelectronics said its preliminary Q3 net revenues were higher than forecast, at $2.67
billion.

Meantime, shares at Bayer sank 11.7%, touching its lowest point since March, as
the drug maker announced plans for more cost cuts and said it will take impairment charges on
its agricultural business amid low commodity prices.

(Joice Alves)

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ON OUR RADAR: STMICRO, ROLLS ROYCE, BAYER (0645 GMT)

Futures are pointing for European shares in positive territory at the opening as hopes for
more U.S. stimulus measures are helping risk appetite.

In the corporate world, semiconductor manufacturer STMicroelectronics reported
preliminary Q3 revenue exceeded its expectations, boosted by a sharp rise in demand for
automotive products and microcontrollers.

Britain's Rolls-Royce would raise 2 billion pounds ($2.6 billion) in a rights issue,
1 billion through a bond offering and gain loans support to recapitalise its balance sheet.

Shares in Bayer are down 4.7% after the company announced plans for more cost
cuts, impairment charges.

Meantime, the U.S. FDA has broadened its investigation of a serious illness in AstraZeneca
Plc's COVID-19 vaccine study and will look at data from earlier trials of similar
vaccines developed by the same scientists.

On the M&A front, shares in Swiss contract drug maker Lonza are seen up 3% after
the company launched the sale of its Lonza Specialty Ingredients (LSI) unit, which could be
worth 3-3.5 billion Swiss francs ($3.25-3.79 billion).

French utility Engie moved closer to selling its stake in waste and water group
Suez to Veolia after a 3.4 billion euro offer ($4 billion).

KLM, the Dutch arm of Air France-KLM SA, has reached an agreement with its flight
staff, excluding pilots, over cost cuts needed in return for state aid.

British retailer Halfords raised its first half profit outlook as it continued to
benefit from a cycling boom during the coronavirus pandemic.

Meantime more bad news for the battered banking sector from the U.S., where the FED will
extend big bank buybacks, dividend curbs through end of year.

(Joice Alves, Danilo Masoni, Stefano Rebaudo)

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MORNING CALL: MORE STIMULUS, TOUGHER LOCKDOWN (0536 GMT)

European shares are seen in positive territory as hopes for more U.S. stimulus measures help
risk appetite.

U.S. House of Representatives Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin
both said they hope for a breakthrough on a coronavirus relief package, as the House postponed a
vote on a new $2.2 trillion Democratic coronavirus bill.

But growing uncertainty ahead of November's U.S. presidential election and rising
coronavirus cases in Europe capped the optimism.

British PM Boris Johnson urged people to obey rules imposed to tackle an accelerating second
wave of the pandemic outbreak, adding that otherwise a tougher lockdown could be implemented.

Investors will also be watching EZ and UK manufacturing PMI data due to be out this morning
at 8 and 8.30 GMT.

Financial spreadbetters at IG expect London's FTSE to open 25 points higher at 5,891,
Frankfurt's DAX to open 56 points up at 12,817 and Paris' CAC to open 27 points higher at
4,830.

(Joice Alves)

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