LIVE MARKETS-What's worrying: U.S. vote or valuations?

* European shares up

* U.S. stimulus hopes offer support

* DAX tops 13,000 points

* Wall Street futures rise
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.

WHAT'S WORRYING: U.S. VOTE OR VALUATIONS?(1151 GMT)

Two major worries weigh on equities these days: stretched valuations and risks of a
contested outcome of the U.S. election.

Saxo Bank analysts sound less worried about P/E ratios and more cautious on the vote.

They say implied 30-day forward volatility is pricing in some risks about the U.S. ballot,
but in the event of a contested outcome “it could very well turn out that volatility was in fact
cheap prior to the election.”

“Only the elections in 1916, 1932 and 2008 have seen higher realised volatility: implying
that current VIX pricing discounts a true tail-risk scenario.”

Then, on valuations, global equities have fully recovered their losses during the pandemic’s
first wave, “despite global corporate earnings collapsing by 56%, catapulting the P/E ratio to
27.7x at current price levels.”

Estimates suggest a “106% jump in quarterly earnings, which will then continue to climb
until reaching a new all-time high in the fourth quarter of 2021," Saxo Bank research note says.

"If the corporate sector delivers this rebound in earnings, the global equity market will be
valued at 19.3x earnings in 2021. Not an unreasonable valuation given the alternatives in
bonds,” it adds.

(Stefano Rebaudo)

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M&A: Q3 GOOD FOR BANKERS AND INVESTORS TOO (1110 GMT)

Record dealmaking activity last quarter was surely a boon for advisers and investment
bankers alike but research shows that Q3 was also an unusually good period for stock investors.

Acquiring companies saw their shares beat the MSCI World Index for the first time in three
years with a 1.5 pct points outperformance, data from Willis Towers Watson shows.

The move was driven primarily by European acquirors which beat their regional index by 20.4
pct points, scoring four consecutive quarters of positive performance.

"Buyers who act decisively and with robust due diligence to exploit opportunities during
this period of uncertainty could see higher returns than their industry peers and drive
long-term growth," says Jana Mercereau, head of corporate M&A consulting, Great Britain at
Willis Towers.

North America continued to lag, while Asia maintained its positive trend, the data shows.

(Danilo Masoni)

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EU RECOVERY FUND DELAY RISKS (1101 GMT)

A delay in the approval of a EU recovery fund shouldn’t be much of a problem for the
stability of financial markets while the ECB is active, but Europe’s peripheral government bond
yield spreads might be in trouble if investors think that it could be scuppered.

A BofA research note which assesses “the intricacies behind” a possible delay, says that
“although a rejection cannot be fully ruled out, we assume a compromise will be struck.”

There’s no doubt the announcement of the EU recovery fund coupled with the ECB in a
‘whatever it takes’ mode kept spreads under control.

The official timeline sees its implementation starting in January 2021.

A delay would matter also for the macro outlook, but the fund “cannot fix long-term
imbalances or structural deficiencies in the region. It can only help steer structural changes
by incentivising the transition to more digital and green expenditures,” BofA says.

The European package is a big deal from the political point of view, since it is regarded as
a game changer towards the mutualisation of debt and therefore the stability of the euro area.

So the real issue is that “a long delay could also force the market to rethink the
probability of success, and this would not be good news for market sentiment.”

The central bank’s action plus the EU recovery fund “was the minimum necessary to keep
markets calm,” according to BofA analysts.

The ECB “could not replace every single foreign investor in the periphery; a political
message/signal was needed to keep them there.”

(Stefano Rebaudo)

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COULD THIS BE THE TURNING POINT FOR EUROPEAN BANKS? (1028 GMT)

European banks fell to their lowest level ever on the 25th of September but have bounced
back 10% in the last 10 sessions.

That just begs the question: are banks safely off the floor now?

Well there's obviously no way of being certain but there sure are a lot of encouraging signs
out there, Oddo strategist Sylvain Goyon explains in a note published today.

First of all, the equity risk premium, which spiked following during the COVID-19 March
crash is not showing any signs of going back to its past highs despite the resurgence of
infections or events like Trump testing positive.

ERP remains high compared to historical levels but as it is no longer tracking the curve of
the pandemic, there could be hope it has now plateaued.

Goyon says it's too early to make that call but that's encouraging, particularly for value
stocks and among them banks.

Another potential boost for listed European lenders is the fact that yields on U.S. treasury
bonds have risen with the prospect of a possible Democratic sweep in November leading to a broad
fiscal stimulus.

The spread between 10- and 30-year Treasuries, a closely watched indicator of future
inflation expectations, on Monday grew to its widest since November 2016, according to Refinitiv
data. (Check our story out here:)

What's important here Goyon stresses is while the bund is obviously driven by the ECB's QE
and rates, it also typically moves along U.S. treasuries.

Which means there's a potentially a bit of light at the end of the tunnel in terms of
interest rates for European banks, plagued by the lower for longer trend.

Another interesting point made by Goyon, is that investors have been arguably quite
pessimistic about the level of defaults and NPLs the banking sector will have to endure due to
the pandemic.

With the Q3 earnings season about to start, a reassuring trading update on the cost of risk
from leading European banks could definitely be another upward driver.

That being said, given their awful track record as an investment over a decade, investors
might not be ready to jump in that train before PMIs really start to improve again.

(Julien Ponthus)

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TALKTALK: ANOTHER SIGN OF THE M&A BOOM (0840 GMT)

It may be a small stock after all with a market cap of around 1 bln pounds but TalkTalk
is getting front-page attention today after the UK broadband provider received a buyout
offer from Toscafund Asset Management that sent its shares rallying more than 17% at one point.

The offer is not just about TalkTalk but also underscores a broader boom global M&A activity
that has seen deals climb to a record $1 trillion in Q3. And the outlook for the coming quarters
looks promising.

"Despite Covid and the upcoming U.S. presidential election take-overs and mergers are going
ahead and not only that but decent premiums are being paid also," says Markus Huber, trader at
City of London Markets.

Last week Citi highlighted that M&A activity had already started to recover in the U.S.
while Europe offered scope to catch up, as the economics of debt-financed M&A look compelling
but also because valuations are much cheaper than in the U.S..

Back to TalkTalk, the stock trades at a PE of 6.3 times and Huber says "the premium offered
(is) not necessarily on the high side". Its shares surged above the price tag offered but later
aligned to it.

Toscafund, which is TalkTalk's No. 3 investor, has made a 97 pence per share offer to take
the company private.

(Danilo Masoni)

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OPENING SNAPSHOT: DAX BREAKS ABOVE 13K (0750 GMT)

In a risk-on morning, a combination of positive results and hopes for more U.S. stimulus
boosted investors' appetite for European equities.

The pan European index surged 0.6% to a three-week high, with the German DAX
hitting the highest level since mid September and breaking above 13,000 points.

Online gaming got a boost from GVC results. Shares in the Ladbrokes and bwin owner
reached a two-year high, up 6.7% after the company raised annual core earnings estimates and
reported stronger Q3 revenues.

In terms of sectors, travel and leisure shares were the best performers up 1.8% with
British Airways' IAG owner jumping 4%.

Shares in British broadband operator TalkTalk surged 17% after it said it had
received a preliminary offer of 97 pence per share from asset manager Toscafund Asset Management
to take the company private.

(Joice Alves)

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ON OUR RADAR: AMS, SUEDZUCKER, GVC, MEDIOBANCA (0645 GMT)

Renewed hopes for more U.S. stimulus are pushing European futures up after House Speaker
Nancy Pelosi disparaged Trump for backing away from talks on a deal with lawmakers.

In the corporate world there is a mix batch of results. For instance, sensor maker AMS
unexpectedly reported 13% drop in revenue, and announced new measures to secure long-term
financing after the takeover of Germany's Osram.

While Suedzucker, Europe's largest sugar refiner, posted a 142% surge in
second-quarter earnings but a disappointing sugar beet crop expected in Europe this year, weaker
trend in world sugar prices and COVID-19 are still creating uncertainty for the sugar sector, it
said.

Ladbrokes and bwin owner GVC Holdings raised its estimates of annual core earnings
after posting a stronger third-quarter revenue, helped by a surge in online gaming and as sports
events such as the English Premier League resumed.

British airline easyJet warned it would report a loss of as much as 845 million
pounds in its last financial year.

Meantime, British fund supermarket Hargreaves Lansdown took in 800 million pounds
of net new business in the quarter to Sept. 30, despite what it described as weakening investor
sentiment arising from COVID-19 and Brexit uncertainty.

Flavour and fragrance maker Givaudan said like-for-like sales growth accelerated to
3.1% in the third quarter as demand for items like toothpaste and soap held up and sales of
perfume improved slowly.

In Italy, eyewear tycoon Leonardo Del Vecchio said he is ready to support ambitious plans
for Mediobanca after raising his stake in Italy's top investment bank to just above
10%, according to an interview with daily Il Messaggero.

In M&A, U.S. business analytics firm Dun & Bradstreet Holdings said it will acquire
European data and analytics firm Bisnode from Swedish private equity firm Ratos.

(Joice Alves and Danilo Masoni)

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MORNING CALL: STIMULUS HOPES (0540 GMT)

Expectations of more U.S. stimulus measures are boosting global appetite for risky assets.

As a result, European shares are seen opening high, following a gauge of Asian shares, which
climbed to a one-month high.

After the U.S. President Trump shut down the negotiations with lawmakers in Washington on a
coronavirus package, he wrote on Twitter that Congress should pass money for airlines, small
businesses and stimulus checks of $1,200 for individuals.

All eyes will be on U.S. employment data due later in the day, which will likely show the
recovery in the country is losing steam.

Financial spreadbetters at IG expect London's FTSE to open 13 points higher at 5,959,
Frankfurt's DAX to open 49 points up at 12,978 and Paris' CAC to open 20 points higher at 4,902.

(Joice Alves)

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