LIVE MARKETS-What about a PE ratio of 100?

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 and Stefano
Rebaudo (stefano.rebaudo@thomsonreuters.com) in Milan.

WHAT ABOUT A PE RATIO OF 100? (0955 GMT)

These days more than ever stock valuations seem to be a matter of how much cash is lying on
the sidelines as central banks are in a "whatever it takes" mood to pour liquidity in order to
avoid the adverse impact of the virus.

Jeroen Blokland, portfolio manager at Robeco, crunched some numbers to measure the
relationship between excess liquidity -- as the difference between money supply and nominal GDP
growth -- and the PE of the S&P 500 stocks.

He concludes that the PE ratio should be at a whooping 100, from around 28 these days.

"Obviously, this is not going to happen, also because nominal GDP growth is expected to
bounce back sharply," he says in a research note. "But it does point out that from a liquidity
perspective, valuation looks far from stretched".

The idea behind this is that if there is more money than needed for economic growth, excess
liquidity will find its way into the stock market.

(Stefano Rebaudo)

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BREXIT TURBO-CHARGES UK RISK PREMIA (0850 GMT)

Risk premia on UK assets are rising and will continue to do so as investors fear a messy
divorce with the European Union when Britain finally disentangles at the end of the year.

The European Union could take legal action under its divorce treaty with Britain if today’s
emergency talks do not reassure Brussels sufficiently that a proposed new British law will not
break previously agreed commitments.

An ABN Amro research note recalls that, inside the bond bank index, NatWest Group
over the last seven days staged "the largest underperformance, with their bail-in senior bonds
moving over 30bps wider."

Other names, such as Lloyds and Barclays have only performed a few basis
points better while HSBC, Santander UK and Standard Chartered have suffered a
20 basis points hit.

ABN Amro analysts anticipate that the Brexit negotiations will continue to produce negative
headlines with little achieved in the forthcoming weeks. "UK risks premiums are likely to stay
elevated for the remainder of this year," they say.

The bank index is at 79 basis points (bps) above the swap, roughly 29 bps wider than before
the coronavirus crisis and 158 bps tighter than the pandemic highs experienced in March.

(Stefano Rebaudo)

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OPENING SNAPSHOT: EUROPE WAVERS BEFORE THE ECB (0725 GMT)

We're off to an uncertain start in Europe this morning with investors awaiting for the ECB
to provide fresh direction with hints of more stimulus to soften the strength of the euro
against the dollar.

Major regional benchmarks were down slightly, following mild initial gains. The STOXX 600 is
last down 0.15%.

Pandemic-hit travel and leisure stocks are up 0.7% with British Airways owner IAG
up over 2% after launching a fully underwritten 2.7 billion euros capital increase to beef up
its balance sheet.

Games Workshop is up an outstanding 18% after saying trading in the three months to
end August topped its expectations.

UK listed housebuilders are doing well after an upbeat RICS survey showed that the
post-lockdown surge in the housing market intensified in August with prices hitting a 4-year
high. Taylor Wimpey and Barratt are both up more than 2%.

Italy's Nexi is up 5% after a report said the payment firms and SIA are close to
clearing a major hurdle to a potential merger.

Weaker oil and basic material stocks weighed. Tech was lower too.

(Danilo Masoni)

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ON OUR RADAR: EURO, IAG CAP RISE AND DEALMAKING (0644 GMT)

As we said the European Central Bank's policy meeting and any signals from the central bank
about future easing measures will be the key highlight for investors today.

The euro and bond markets are likely to be most sensitive to ECB news, but we'll be
keeping an eye on stocks too, especially on rate-sensitive sectors like banks.

Besides that, on the corporate front, it doesn't look there is any earth shattering news out
there so far.

This will be the first full session for investors to digest LVMH's decision to
walk away from its planned $16 billion takeover of Tiffany. LVMH was little changed on
the news yesterday.

Airlines, which have been heavily hit by travel restrictions adopted to fight the COVID
pandemic, continue to be under pressure. British Airways owner IAG launched a heavily
discounted 2.7 billion euros capital increase to beef up its finances. The good news here is
that it's fully underwritten.

GlaxoSmithKline said the U.S health regulator approved its lung disease drug Trelegy
Ellipta for expanded use, making it the first inhaler delivering three drugs at once to be
prescribed for uncontrolled asthma in the country.

In M&A, Equinor raised $1.1 billion by selling stakes in offshore wind power
development projects to BP, while in Italy, the government said it's ready to use its
vetting "golden" powers to ensure the Milan exchange is not sold to an unacceptable bidder.

Meanwhile in France, utility Suez reiterated its opposition to Veolia’s
offer for Engie's stake in Suez, saying it undervalued Suez.

Among smaller companies, share placement are expected to put under pressure Ferroamp
, Carasent, and Kojamo.

In earnings news, an upbeat outlook from Akzo Nobel could lift its shares, while Dixons
reported a 56% drop mobile phone in the 17 weeks to end-August.

(Danilo Masoni)

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MORNING CALL: IT'S ECB DAY (0530 GMT)

Regardless of whether it's going to have any big impact on markets today the focus is
squarely on the European Central Bank's policy meeting.

The consensus is that rates will remain unchanged although investors expect signals from the
central bank which could possibly weaken the euro.

On the background are still worries over rising Brexit risks and possible further turbulence
in tech stocks, and it may be little surprise that following yesterday's rebound in Europe and
the U.S., futures are giving mixed signals at the moment.

The Euro STOXX 500 futures are up 0.3%, FTSE 100 futures are down 0.3% and Wall Street
futures are moving flat to slightly higher.

(Danilo Masoni)

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