Last checked at 
* Healthcare, telecom stocks on the rise
* Logitech shares jump on upbeat outlook
* Extended warm welcome for Stellantis (ex PSA/Fiat
Chrysler)
Jan 19 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
thoughts with us at markets.research@thomsonreuters.com
EVs: TESLA COMPARABLES CAUSING THE WRONG SORT OF BUZZ? (1350
GMT
How can an electric vehicle (EV) company with no revenue be
potentially valued at $100 billion?
That's the question asked by Morgan Stanley analysts led by
Adam Jonas in a recent note, pointing to "increasingly
aggressive and creative valuation methodologies" they have
encountered in recent talks with investors, especially in
valuing revenue-less EV start-ups.
The key issue? Tesla's current FY21 EV/Sales
multiple of about 20 times providing "a very large and
frequently-used ‘comp.’", they write, with too many EV start ups
using that multiple to value themselves.
To use an example, an EV start-up recording $5 billion in
revenues (i.e. 100,000 units of deliveries sold at $50,000 each
on average), using Tesla's 20x revenue multiple to suggests an
enterprise valuation as high as $100 billion.
"Auto investors aren't accustomed to valuing companies that
have 50%+ top line growth ...there is a seemingly irresistible
tendency to apply valuation metrics from any reasonable publicly
traded ‘best fit’ precedent," Adam Jonas and his colleagues
write, cautioning that the EV business could become a highly
competitive, low margin business over time.
EV stocks have had a good ride - Nio went up 12
times in 2020, Tesla more than 8 times, while Fisker
rose about 44% in that time.
"Such ‘non-disprovable bull case’ valuation techniques can
be both enticing and concerning at the same time," the analysts
conclude.
(Aaron Saldanha)
*****
FEAR (GAUGE) FACTOR (1220 GMT)
A well known rule of thumb in markets is that the VIX
volatility index - also known as Wall Street's "fear
gauge" - rises in times of market stress, and declines when
stress subsides.
During the COVID-19 stock market crash of March 2020 for
instance, the VIX shot up to a record high of above 80% as the
S&P 500 fell. As policymakers stepped in with
unprecedented support, in typical fashion, the VIX declined as
the S&P stabilized.
With central banks helping suppress volatility, one would
expect the VIX to reclaim the previously low levels seen in
preceding years. But it hasn't: the gauge has remained above the
20% mark since March last year.
Turns out, equity markets and volatility can rise in tandem.
Man Group explains that this can happen as a result of sector
weighting in indexes.
"Sectors like technology are typically more volatile than
others, such as consumer staples," said Sandy Rattray, Man Group
CIO and Peter Van Dooijeweert Managing Director of Multi-Asset
Solutions at Man Solutions.
"When volatile sectors dominate the index, we get more
instances of simultaneous increases in equity markets and
volatility, notably during the tech bubble of the late 1990s.
Indeed, we see a similar make-up of the S&P 500 today".
So what could pull the VIX lower? The only way for that to
happen is if the tech sector has a "gentle rebalancing", they
said.
If, however, the S&P 500 remains concentrated with tech and
these stocks experience 'normal' volatility, then volatility is
"much more likely to stay elevated", Man Group says, with
"consequences for position sizing, portfolio construction and
option pricing, amongst others."
(Ritvik Carvalho)
*****
THE HASSLES OF BREXIT (1200 GMT)
Despite the deal with the European Union ahead of Christmas,
Brexit disruptions are making things tougher for some UK
businesses.
One of the spaces that has struggled big-time as the UK left
the bloc is manufacturing, as "rules of origin and VAT changes
are creating a headache", says James Smith, an economist at ING.
Additionally, major logistics firms have paused deliveries
to or from the UK, ING notes, because a rising number of
consignments were failing to meet the new requirements after
Brexit.
"It's pretty clear that trade between the EU and UK has
slowed noticeably since the start of the year. New ONS (Office
for National Statistics) data shows fewer visits by ships to UK
ports, while there have also been fewer lorries crossing the
Channel".
Even if consumers will likely help a sharp GDP rebound in
2021, trading difficulties will likely prevent "a full recovery"
of the British economy before late next year, Smith adds.
"Trade disruption will deliver a sizable hit to UK
manufacturing output this quarter, while lingering uncertainty
and potential instability surrounding the UK-EU trade deal will
keep a lid on investment," he says in note to clients.
(Joice Alves)
EZ BANKS? BET ON LAGGARDS (1131 GMT)
Banks stocks had underperformed for a decade and during the
pandemic crisis they spent a significant amount of time hovering
around their all-time lows.
Then in November 2020, they had their sunny days on hopes of
an economic recovery, effective vaccines and more U.S. stimulus.
Since then, banks seem unable to further upside.
So Berenberg suggests betting on “well-scoring laggards best
placed to benefit from a favourable economic outlook”, which
are: ABN, CaixaBank, ING,
Liberbank and UniCredit.
It is worth also taking a look at those with U.S. exposure,
namely Barclays (33% of revenues), UBS (31%),
Santander (15%), HSBC (15%).
Generally speaking, Berenberg sees growing risks for bank
stocks as valuations are back in line with long-term averages
and warns about pinning hopes in reflationary forces “and
readacross from the U.S.”
Dividends are unattractive in a global context as “eurozone
banks may yield 1.2% until September 2021. This compares to 2.0%
for UK banks, 4.6% for Swedish banks and 9.4% for US banks.”
Outperformance of the U.S. banks has been driven by a
steepening yield curve and a reflationary narrative, while
European yields continue to fall.
(Stefano Rebaudo)
*****
AIRLINES: ON A WING AND PRAYER (1122 GMT)
EasyJet's announcement that its summer holiday bookings are
up 250% on last year won't surprise the millions of people
desperate for some sea and sun after months of lockdown.
It's a hopeful sign too for the airline industry ravaged by
COVID-19.
A Bofa survey offers the sector mixed news.
First, the positives: the poll of 25,000 people in United
States, China, Japan, Britain Germany, and France does flag a
travel recovery once vaccines take effect.
Almost half the respondents planned to take a flight to go
on vacation; a further 16% said they would travel to visit
friends and family.
In Europe, two-thirds expected a leisure trip by summer.
The downside? The BofA survey implied an approximate 15%
decline in global business travel post-COVID and a "permanent
disruption" in some areas.
Unsurprising perhaps -- after a year of interacting for free
over Zoom and Teams, companies may balk at shelling out
thousands of dollars for executives' trips.
It all gels with other findings. The CAPA Centre of Aviation
for instance, described business travel "an endangered species"
whose collapse could completely undermine long-haul flying
routes.
Environmentalists might cheer the news. After all, business
travellers occupying far more space than those in economy,
contribute more environmental damage.
But it's a blow for airlines whose business and first class
seats, can provide three times more revenue than other classes,
according to industry body IATA.
BofA predicts the divide to drive a wedge between airlines
focused on leisure and those that relied on business and
long-haul travel.
"The (survey) results continue to support our positive
stance on domestic, leisure carriers across the US, Europe and
Asia," the bank said.
BofA's "Buy" rated U.S. airlines are leisure-oriented
Southwest, Alaska Air and JetBlue.
It grades United Airlines and American Airlines as
"underperform" for their high corporate and international
exposure.
But so far this year a global airline index has made little
headway after slumping 36% last year. Clearly investors are
waiting to see if the anticipated holiday travel rush actually
materialises.
(Sujata Rao)
*****
EUROPE'S ANTIDOTE AGAINST RISING U.S. YIELDS (1034 GMT)
Many investors watch rising U.S. rates like milk on fire,
fearing they could reach a tipping point which would trigger a
brutal rethink of stocks valuations.
But for Morgan Stanley analysts, there's really not much to
be afraid currently, at least for European shares with the U.S.
10-year benchmark around 1.1%.
"U.S. yields could rise to ~1.7% before they become more
problematic for EU equities", they assess in a note this
morning.
There's a quite a few points they make to support the idea
that European stocks are not in a bad spot even if U.S.
risk-free money gets more attractive.
First of all is that by their own very nature, being value
and cyclical heavy, European bourses tend to benefit from rising
yields.
Second point, made in the Morgan Stanley note, is that
"despite a record cut in dividends, the gap between Europe's
dividend yield and bond yields is still close to a record high".
Another reassuring point is that while valuation for stocks
are historically very high, they don't look "unduly rich" when
compared with bond yields.
Also, not to forget that earnings are expected to be on the
road for a steady rebound from the COVID-19 shock and that
should in itself, limit the pressure on multiples.
Here's a chart from the note showing how dividend yields
are currently well over what they usually are against bond
yields in Europe:
(Julien Ponthus)
*****
LOGITECH LIFTS TECH, TECH LIFTS STOXX 600 (0837 GMT)
The STOXX 600 has opened quite clearly into positive
territory, up 0.4%, with the tech sector leading the way thanks
to very encouraging results by Logitech.
The Swiss computer peripherals maker was the best performing
stock with a 6.6% jump and there's a nice read-across going on
with the tech index rising 1%.
For once tech isn't at odds with risk-on and cyclical
sectors such as banks - with HSBC up a handsome 3%-, or miners.
Rising oil prices are also helping energy stocks carry on
higher.
On the downside, CTS Eventim shares were down over 5% after
a rating cut by Berenberg.
All regional bourses are making gains at the moment.
(Julien Ponthus)
*****
EARNINGS TO THE RESCUE? (0808 GMT)
As the rising COVID-19 caseload overshadows recent investor
enthusiam and keeps buoyant share markets from reaching new
highs, traders are hoping for positive news this week from a
raft of corporate earnings.
Analysts at JPMorgan reckon the coming earnings season could
brighten the mood, given the consensus in Europe is for a fall
of 25% year-on-year -- a very low bar indeed. They note that
projected earnings-per-share growth in Europe stands at the lows
of the crisis, which they say seems too conservative.
European companies reporting on Tuesday include BHP Group,
Lindt and Experian. Lindt reported a drop in 2020 sales but
improvement in the second half of the year.
The U.S. season is in full swing meanwhile, with positive
surprises anticipated from BofA, Morgan Stanley, Goldman Sachs
and Netflix.
The mood on markets was broadly optimistic on Tuesday after
widespread dumping of riskier assets on Monday.
European shares opened higher after Asian shares rallied as
investors bet China's economic strength.
Futures also point to a Wall Street rebound.
Still, investors remain cautious ahead of U.S.
President-elect Joe Biden's inauguration. There are doubts too
about how much of his $1.9 trillion fiscal stimulus package will
pass Republican opposition in Congress.
The dollar, which had bounced off more than 2-1/2 year lows
in the past week as more fearful investors bought back into the
greenback, steadied.
Oil prices dipped while U.S. Treasury yields hovered below
recent 10-month highs.
(Tommy Wilkes)
*****
RISK-ON BREEZE RISING FROM THE EAST (0636 GMT)
China's economic resilience seems to be the source of a
risk-on breeze lifting many asset classes this morning, from
Asian shares to oil and from copper to European and U.S. stock
futures.
In Europe, bourses are expected to open well into the black
and the derivative for Frankfurt's DAX is currently rising 0.7%.
There's a lot of moving pieces in the puzzle of the global
economy to be watching however with all eyes on the future
economic policy of the Biden administration.
The dollar has edged down notably with Janet Yellen, Biden's
nominee to run the Treasury, expected to make clear today she
will not seek a weaker dollar and that the government must "act
big" with its next coronavirus relief package.
In Europe, the political situation in Italy will be closely
watch as Conte's government fights for survival in the Senate.
The beginning of the earnings season on Wall Street will
also be of interest with Bank of America, Goldman Sachs, and
Netflix on the radar notably.
(Julien Ponthus)
*****
