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LIVE MARKETS-Why is UK's GDP numbers far worse than any other DM?

Wed, 12th Aug 2020 10:40

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) in Milan.

WHY IS UK'S GDP NUMBERS FAR WORSE THAN ANY OTHER DM? (0940 GMT)

Facts:

* Britain's economy shrank by a record 20.4% in Q2 due to the coronavirus lockdowns

* Goldman Sachs says that level of GDP was broadly in line with quarterly GDP in mid-2003

* It's the largest contraction reported by any major economy so far

Now, why was Britain hurt more than other major economies?

"The relatively late imposition of the lockdown in the UK and the relatively slow unwinding
of government containment measures imply that a portion of the mechanical rebound in GDP will
only be registered in the third quarter," Goldman Sachs writes in a note.

It also adds that some government restrictions in the UK are more stringent than those that
remain in place across most of Western Europe.

The other reason for the UK's sharper GDP drop is the relatively large share of UK GDP
derived from social activities.

GS says consumer spending in areas such as cinemas, restaurants and live entertainment,
constitutes around 13% of total output, compared with around 11% in the U.S. and around 10% in
the euro area.

"However bad this morning’s numbers are, from an output point of view the low point is in
all probability behind us, which means that the important focus now is what lies ahead, and on
that the outlook is slightly more positive, though not without its obstacles, as yesterday’s
employment data visibly illustrated," said CMC Markets' Michael Hewson.

(Thyagaraju Adinarayan)

*****

OPENING SNAPSHOT: TELCO LEADS GAINS ON M&A DEAL (0741 GMT)

European stocks is edging higher propped up by a rise in telecom stocks after a multibillion
Swiss M&A deal.

Some Swiss and German shares are soaring after Liberty Global said it was buying Sunrise
Communications in a deal valuing the telecoms group at 6.8 billion Swiss francs. Shares
in Freenet, Sunrise’s largest shareholder, are up 19%, while Sunrise Communications
stocks rise 26.4%.

Futures opened in the red on worries about a weak fiscal stimulus plan in the U.S. but got
overshadowed by hopes of getting off the coronavirus hook quickly after some potential vaccine
began human trials.

Stronger than expected results are also supporting the market. The STOXX 600 is up 0.2% with
telecom sector leading gains up 2%, while banks rise by 1.1%.

Shares in Admiral are up 7.1% as the company reinstated its dividend and posted a
jump in H1 earnings.

ABN Amro shares are up 5% after it said its corporate bank division will retreat
to northwest European markets, exiting the United States, Asia, Australia and Brazil, except for
clearing operations.

(Stefano Rebaudo)

*****

ON THE RADAR: SWISS TELECOMS M&A, ASOS (0643 GMT)

European stocks are set to open slightly in the red as worries about a weaker-than-expected
U.S. stimulus package to fight the impact of the virus weigh on market sentiment.

On the corporate front, a multi-billion Swiss M&A deal is on the spotlight. Liberty Global
is taking over Sunrise Communications in a deal valuing the group at 6.8 billion Swiss
francs ($7.40 billion), creating a significant challenger in the Swiss market, which is
dominated by government-controlled Swisscom.

Meanwhile shares in Freenet, Sunrise’s largest shareholder with a 24% stake, are
up 9.7% in early trade, while Sunrise Communications stocks are up 23.4% in premarket trade.

Evotec shares are down 3.6% in early trader after results.

E.ON cut its outlook for the current year. The company has sold forward 73% of
its 2021 nuclear power generation and 46% of its 2022 output at prices above the current
wholesale market, raising earnings prospects from that segment.

ASOS forecast full year sales and profit significantly ahead of market
expectations.

ABN Amro said its investment bank will end all trade and commodity financing
operations, as the unit's focus turns solely to Northwest Europe and clearing activities to
reduce risks.

Just Eat Takeaway.com reported higher revenue and underlying profit for the first
half of 2020.

(Stefano Rebaudo)

*****

MORNING CALL: A START IN THE RED (0533 GMT)

European stock futures are in the red this morning, as uncertainty about a U.S. fiscal
stimulus package is stealing the stage with investors expected to take some profit after
yesterday’s rally.

Hopes for vaccine developments are still supporting sentiment across the board and might
continue to prompt a rotation into riskier assets after choppy trade during most of the summer.

Asian stocks are mixed with China shares losing ground on a softer growth in bank lending.
Wall Street ended in the red after the S&P 500 came within reach of its all-time high.

Lack of a bipartisan deal on a U.S. package to fight the adverse impact of the virus will
leave the country with the plan proposed by president Donald Trump, which do not measure up to
markets’ expectations.

(Stefano Rebaudo)

*****

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