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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
(danilo.masoni@thomsonreuters.com) and Stefano Rebaudo (stefano.rebaudo@thomsonreuters.com) in
Milan.
SO MUCH FOR TINA! EM RETURNS ALIVE AND KICKING (1135 GMT)
The extent of the demise of real returns in developed world bond markets is a hotly-debated
topic which has pretty much fed the TINA (there is no alternative to stocks) narrative for the
last few years.
But looking beyond developed markets, real returns are very much alive in emerging market.
JP Morgan's Government Bond Index Emerging Markets Global Diversified, which tracks emerging
local currency debt, is up around 2.8% during the quarter to date, compared to 0.1% for one to
three year U.S. Treasury bonds.
South Africa, Turkey, Indonesia and Brazil offer the highest cushion in real carry, as
measured by nominal local government bond yields adjusted for 1-year-ahead inflation
expectations compared to U.S. dollar 3-month Libor, HSBC said in a research note.
Risk-adjusted real carry is most favourable for Indonesia, South Africa and Russia, the bank
noted.
"The Brazil curve is the second-steepest EM high-yielding curve, but this analysis suggests
that there is little compensation for extending along the curve," André de Silva, HSBC's head of
global EM rates research, wrote in the note.
"We prefer having exposure to Russia (buy 5yr OFZs) and Indonesia (i.e. buy 5yr IndoGBs)
rather than South Africa or Brazil."
Carry after being risk-adjusted relegates Turkey to being among the emerging market
high-yielders providing the least cushion, the bank said, outlying concerns about the recent
acceleration in FX depreciation and backdoor policy tightening.
India was the least favourable on a risk-adjusted basis, the bank added. HSBC advised
positioning for higher rates in India and a steeper curve, as well as an easing in the potency
of the bond buying via the central bank's auctions.
(Tom Arnold)
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VALUE IS A EUROPE THING (1041 GMT)
Though it has not been working much lately, more analysts are still advocating a call for
value, but mostly in value-heavy Europe.
The value/growth rate has been essentially flat since April while it has staged a small
resurgence recently with value outperforming growth by around 3% since September 2, according to
Credit Suisse data.
Here are the reasons to believe that it is value time: It tends to follow PMIs with a
three-month lag; the euro seems to be under control with the ECB worried about its
strengthening; the price to book of value relative to growth in Europe is now two standard
deviations below its average, a Credit Suisse analyst note says.
“We believe that in Europe, the absence of megacap tech will allow European value to
outperform, and thus we remain overweight,” it adds.
While “we see scope for the equity risk premium to decline, underpinning the attractions of
the big cap tech.”
Credit Suisse highlights Brenntag, Siemens and Smiths Group,
while shares in CRH, Lafarge, Enel, Smurfit Kappa RWE
appear cheap.
(Stefano Rebaudo)
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WHAT’S IN A CORPORATE EARNINGS DATE? (1007 GMT)
Plenty, if data analytics firm Raven Pack is to be believed.
Advances or delays in earnings announcement dates can be predictive of positive or negative
results and investment strategies based on such date changes can deliver sizeable returns,
according to Peter Hafez, chief data scientist at Raven Pack.
Investors have long used traditional fundamental methods to forecast company earnings.
Intensifying competition and the alternative data explosion over the past decade have led to
rapid adoption of novel approaches in forecasting stock performance.
Company executives often use strategic timing to distribute earnings results. Some studies
have shown that earnings delays may signal weak performance, while advancing the date may be a
sign of good news.
Using earnings calendar change records for over 8,000 stocks globally since 2006 with a
central focus on the U.S. stock market, data scientists at the firm found portfolio investment
strategies that bought after advances, and sold after delays, produced annual excess returns of
8.4%, for portfolios of mid to large-cap stocks and 18.6% for small-caps.
However, mid-to large cap companies are more prone to deeper losses for earnings date delays
while small cap gains are more amplified for earning dates advances. Typically, the
outperformance ebbs quickly within a few days, the study found. For a link to the study, see https://www.ravenpack.com/research/trading-earnings-calendar/
(Saikat Chatterjee)
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NOT ALL MERGERS FALL APART (0928 GMT)
Let's face it: completing merger deals has become more challenging in this new COVID-19
world.
Take LVMH/Tiffany in luxury and Fiat Chrysler/PSA in the automotive sector. Both deals were
bigly challenged by the turmoil created by the pandemic but while LVMH resolved to call off the
deal (with political interference playing crucial part in the decision), the merger to create
the world's No. 4 carmaker is nevertheless going ahead.
But that comes with a cost, which seems investors are willing to pay, and may raise further
hopes that M&A could recover after activity collapsed in the second quarter of 2020.
To preserve cash, FCA will nearly halved its pre-merger special dividend to 2.9 billion
euros and France's PSA will in turn postpone the planned spinoff of its 46% stake in parts maker
Faurecia until after the merger's closing.
The decision might have been a tough one to take but after all that will result in a
financially stronger group, which combined with sharp increase in the synergy target explains
why their shares reacted positively at the start of trading.
It looks that investors are looking beyond any short term gains, preferring synergies
tomorrow than dividends today.
"The higher value of the industrial synergies more than offset any revision of terms," says
Equita.
PSA shares hit a 6-month high before retreating to trade down 1% on the day, while FCA
shares are up 6%.
(Danilo Masoni)
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STOCK PRICES RANGEBOUND UP TO END 2020 (0910 GMT)
It won’t be all about virus trajectories and macro data for the stock market as there is a
lot going on, starting with the U.S. presidential elections.
After UBS yesterday said the stock market is fragile but it was confident that investors
will turn their focus on the positives soon, JP Morgan analysts sound even more cautious.
They line up risks that equities will face and say that the STOXX 600 index will remain
rangebound by end 2020.
This is in line with our Aug 26 poll which showed investors were on average expecting the
STOXX 600, currently at 370 points, to end the year at 375 points.
On the U.S, presidential election front, the real danger is the vote ending along the lines
of the Bush versus Gore Florida recount in 2000, leading to a ”legislative paralysis for some
time,” a JP Morgan research note says.
Foreign trade is going to be an issue whoever wins as “polls suggest that the unfavourable
views of China have become firmly bipartisan,” it adds.
Technicals are not helping as positioning is far from depressed, with “short interest and
put/call ratios at lows.”
Besides, fundamentals could soften if labour market improvement stalls and if the virus
dampens the recovery; default rates might spike; geopolitical risks are in place with “Brexit,
Russia, Iran and other.”
“We do not think that any of the above risks should necessarily be seen as a clear base
case, but the potential is that some of them might be realized.”
(Stefano Rebaudo)
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OPENING SNAPSHOT: BIG MOVES UNDER THE FLAT SURFACE (0715 GMT)
European shares are off to a cautious start but under the flat surface there are some big
moves.
H&M is rallying 10% after its Q3 profit beat expectations, while in the auto sector
FCA is up 7% and PSA is gaining 1% after they revised the terms of their
merged in a bid to conserve cash. The revision meant that PSA will postpone the sale of its
stake in parts maker Faurecia, which is down 8.6%.
Strong retail sales are pushing online supermarket Ocado up 4.7%.
After initial gains at the open, the STOXX 600 has now pulled back, trading down
0.10%.
(Danilo Masoni)
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PSA/FCA, PAYMENTS DEALS, BANKS AND VACCINE NEWS ON OUR RADAR (0639 GMT)
While rangebound trading looks set to continue in typical pre-Fed fashion -- EUROSTOXX 50
futures are just flat -- on the corporate front some dealmaking headlines could liven up the
session, along with fresh vaccine updates.
PSA and Fiat Chrysler (FCA) have revised the terms of their planned
merger to conserve cash. FCA will cut to 2.9 billion euros the cash portion of a 5.5 billion
euro special dividend, while the French group will postpone to after the merger's closing the
planned spinoff of its 46% stake in parts maker Faurecia.
In the buoyant payments industry, Klarna Bank AB has raised $650 million at a valuation of
$10.65 billion from investors led by Silver Lake, while in Italy la Repubblica
reports that Nexi and smaller rival SIA are nearing a preliminary agreement for a
merger
In banks, one day after talk of a potential tie-up between Credit Suisse and UBS
, the focus may turn to Spain. A source said Caixabank is
considering a bid for Bankia that could value it at around 4 billion euros -- a
premium of between 15% and just above 20% over Bankia's average 3-month share price.
Vaccine news does not seem so bright today with sources saying AstraZeneca's
COVID-19 vaccine trial remains on hold in the United States pending a U.S. investigation into a
serious side effect in Britain even as other trials of the vaccine resume.
Shares in Zurich-lised Siegfried however rose 1.9% in premarket after a contract
with BioNTech to fill and pack a potential COVID-19 vaccine, while Lonza also gained
after unveiling a collaboration deal to expand the manufacturing of Humanigen's COVID-19
therapeutic candidate Lenzilumab.
Meantime in the UK, the pandemic generated huge demand for online deliveries, sending UK
online supermarket Ocado's retail sales in the 13 weeks to Aug. up 52%.
We'll also keep an eye on Daimler after courts documents showed it will pay $2.2
billion violating U.S. clean air laws and to resolve claims from 250,000 U.S. vehicle owners.
(Danilo Masoni)
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MORNING CALL: A CHOPPY DAY AHEAD? (0530 GMT)
European bourses look set for another choppy session today with futures moving between flat
and slightly lower, while spreabetters' calls are pointing to marginal gains.
The main event of this week is the Fed's two-day policy meeting which could help provide
fresh direction, while the German ZEW may draw some attention later today.
The day in Asia saw Chinese stocks rise following data that showed industrial output
expanded for a fifth straight month in August, while the Nikkei pulled back.
Meantime, U.S. futures rose slightly.
Futures for the S&P 500 were up 0.3%, while EUROSTOXX 50 futures eased 0.2%
(Danilo Masoni)
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