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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 Thyagaraju Adinarayan
(thyagaraju.adinarayan@thomsonreuters.com), Joice Alves (joice.alves@thomsonreuters.com) and
Julien Ponthus (julien.ponthus@thomsonreuters.com) in London.
SOUTHERN EUROPEAN BANKS' RISK PREMIUM BOUND TO BE HIGH (1020 GMT)
Risk premiums on Southern European banks is bound to remain high, unless a European deal to
share the burden of public debt due to the coronavirus takes place, Jefferies analysts say.
No doubt, COVID-19 is putting pressure on public finances and many countries will see soon a
spending increase coupled with falling tax revenues.
Jefferies economists forecast (even assuming that everything will be back to normal by 2021)
a eurozone debt to GDP ratio 6% to 16% higher than today.
The situation will be worse for heavily indebted countries. For instance, Italy's public
debt could rise from the current 137% closer to 150% in 2021, after spiking as high as 180% in
2020, due to a possible collapse of GDP.
In such a situation the topic of sovereign default risk will come up again in the eurozone
and, according to Jefferies estimates, even "a modest sovereign haircut would have substantial
implications for CET1" of Southern Europe lenders.
On the other hand, any "step towards debt mutualisation in the Eurozone would likely drive a
sharp reduction on the market-implied cost of equity."
So it's up to politics. Spain and Italy have repeatedly said that a debt sharing deal is
necessary and without it even Europe itself is at stake.
Germany and Netherlands do not seem willing to put up with it and want any lending from the
European Stability Mechanism to come with conditions. But any additional request is
a pill that Southern European countries are not ready to swallow in current coronavirus times.
(Stefano Rebaudo)
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WHAT BREXIT? (0950 GMT)
Since the referendum in 2016, the UK's process to leave the European Union was a top concern
for investors, until Covid-19 happened. Today investors are rather focusing on the news that the
number of new infections in Italy and Spain is at the lowest in three weeks and two weeks
respectively.
The sentiment is still fragile in London due to Boris Johnson's hospitalisation but stocks
meanwhile are riding on the global risk-on wave as infection/death rate slows. The pan-European
index is up 2.4% and Britain's blue chips is gaining 2.3%.
The British pound has steadied after the recent selloff. Here's how the currency has
performed against the dollar in the past 30 days:
Foreign Secretary Dominic Raab, who will deputize for Johnson for now has plenty on his hand
before thinking about Brexit.
"Raab must make life-or-death decisions for the UK, including the duration of the lockdown,
investment in medical equipment, government aid for those who have lost their revenues, and/or
their jobs and so on," says Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
A delay in the Brexit talks could lead to an extended period of uncertainty for the UK, but
also allows the country to gain time to "start healing the coronavirus-led economic slowdown
before it starts dealing with a EU-divorce-induced economic shock," says Ozkardeskaya.
(Joice Alves)
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HIGHLY LEVERAGED EU COMPANIES ARE MISSING THE REBOUND PARTY? (0858 GMT)
The coronavirus outbreak raised the risk of default by some of the worst-hit companies.
The Markit iTraxx Europe Crossover index of five-year credit default swaps - which measures
the cost of insuring exposure to a basket of junk-rated companies - exploded in early March but
has now come down quite a bit.
Today the index has dipped to two-week lows.
But shares of some constituents in this index such as Air France, ThyssenKrupp
, Fiat Chrysler and Marks & Spencer have still not rebounded as much
as the broader indexes.
Here's a quick look at their share price performance versus the broader STOXX 600 index:
(Thyagaraju Adinarayan)
*****
OPEN SNAPSHOT: CARNIVAL, CINEWORLD AND AMBU RALLY (0730 GMT)
European shares open sharply higher as new COVID-19 cases continue to slow across the
region. The pan European index is up about 2.5%, with shares in the travel and leisure
space jumping as much as 8.5%. Cruise operator Carnival tops the index rising 25%.
Battered shares of Cineworld gained more than 20% after the world's second-largest
cinema operator said it suspended dividend payment for the fourth-quarter as well as upcoming
2020 quarterly dividends.
Shares in Ambu jumped 23% in early trade, after the Dutch company, which makes
life-supporting devices raised its full year revenue guidance. The mood in London is somewhat
better than expected with blue chips gaining 2.8%.
Other British-listed companies doing well include EasyJet, Meggitt and
Rolls Royce.
(Joice Alves)
*****
ON OUR RADAR: AIRLINES, OIL AND MORE DIVIDEND CUTS (0640 GMT)
Futures are pointing to an open in the black for European bourses on hopes the coronavirus
crisis may be receding in some of the worst hit countries across the region. But the mood in
London is still sour as Boris Johnson battles with the virus.
The pan-European STOXX 600 closed yesterday 19.54% above its March 16 low, so it
could technically establish a bull market if it gains more than 0.5% today.
Energy companies could get a boost as oil prices rose on hopes the world's biggest producers
of crude will agree to cut output as the pandemic crushes demand.
On the corporate front, more dividend cuts are on the way in response to the coronavirus
crisis. France's Edenred says it is cutting its dividend and the pay of some top
managers to help finance a solidarity fund for workers hit by the coronavirus crisis. Another
French company Thales is also slashing its dividend and suspending profit guidance.
Airlines continue their fight for survival: Lufthansa will discuss permanently
grounding its Germanwings low-cost airline unit at a management board meeting today
, while the CEO of Air France-KLM SA told French newspaper that the
company will soon need support from the French and Dutch governments.
British retailer WH Smith said last evening it is placing shares of about 13.7% of
the company's ordinary share capital to get it through the coronavirus crisis.
In the corporate world, there's one company raising its outlook, Life support devices maker
Ambu.
Eyes will be also on the euro zone meeting scheduled to discuss a joint political response
to the COVID-19 crisis.
(Joice Alves)
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SECOND DAY RALLY? (0543 GMT)
Futures are pointing to an open in the black for European bourses as signs the coronavirus
crisis may be levelling off in New York and receding in Europe are giving investors some hope
even as analysts warn a deep global recession and Boris Johnson's personal battle with the virus
is shaking the British government.
The British PM is fighting worsening coronavirus symptoms in an intensive care unit, leaving
his foreign minister to lead the government's response to the outbreak.
Financial spreadbetters at IG expect London's FTSE to open flat at 5,583, Frankfurt's DAX to
open 47 points higher at 10,122 and Paris' CAC to open 16 points higher at 4,181.
Meantime, Asian stock markets rallied for a second day and oil prices rose too on hopes the
world's biggest producers of crude will agree to cut output as the coronavirus pandemic crushes
demand.
(Joice Alves)
*****
(Reporting by Joice Alves, Julien Ponthus and Thyagaraju Adinarayan)
