Live Markets: Target price change blues

Deutsche Euroshop AG

30/03/2020 13:18

* China cuts reverse repo rate
    * Oil prices tank 
    * Euro zone banks start freezing dividends 
    * STOXX 600 down 0.7%

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.
    
    
    
    TARGET PRICE CHANGE BLUES (1215 GMT) 
    It took a while for sell-side analysts to adjust their models and ratings to the
unprecedented corona market crash as you can reminisce here: urn:newsml:reuters.com:*:nL4N2B95GZ.
    For a short while, many recommendations were redundant and had to quickly be updated for a
world where a third of humanity is under lockdown and facing a massive recession. 
    Ratings are now getting in sync but when they do, it can be quite brutal. 
    Just an example this morning from this update from DB, but it could have been taken from any
broker.   
    Their target price changes are all negative and range from -1.3% to...46% in sectors from
luxury to housebuilders to stainless steel makers.
     
        
    (Julien Ponthus) 
    *****
      
    
    
    A BLIZZARD OF BAD NEWS COMING (1146 GMT)
    If you thought we saw the peak of bad news with U.S. jobless claims soaring to 3.25 million,
many analysts believe that you're wrong and that there's more to come!
    Sure, markets are behaving as if these have been priced-in but that doesn't mean it will
stay that way.
    "Markets shrugged off the first round of bad data, reassured by the policy response and,
perhaps, the reduction in uncertainty from finally seeing some hard data," Goldman Sachs says.
    "But we think that this optimism will be challenged by reminders of the depth of the
downturn, and renewed focus on the risks of a longer-lasting containment period."
    The U.S. investment bank expects the S&P 500 to dip to a low of 2,000 and 10-year Treasury
yields to fall to 0.4% and added that "with luck the virus spread will then slow, economies will
reopen, and markets will only spend a short time at those lows."
    Here's a quick chart comparing 2008 bottom:
    
    
    (Thyagaraju Adinarayan)
    *****
    
    
    CORONA CRASH: WHO'S NECK AND NECK BEHIND THE TRAVEL SECTOR? (1133 GMT)
    With something like a third of mankind under lockdown and the rest of humanity largely
subjected to some form of travel bans, it doesn't take a PhD in finance to guess which sector
has suffered the most from the pandemic.
    In Europe, shares listed in the Travel and Leisure  .SXTP  sector have lost over 45% year to
date, which constitutes by far the worst performance.
    But who comes after as the second worst performer is a 'neck and neck race' so to speak.
    At the time of writing, three sectors have clearly being singled out by investors: autos
 .SXAP  with a ytd 40% fall, banks  .SX7P  with 38.8% and oil and gas  .SXEP  down 37.6%. 
    There's bad news for every industry today with oil prices collapsing  urn:newsml:reuters.com:*:nL1N2BM0C4, euro zone
banks freezing or scrapping dividend and car makers burning cash while production is halted and
sales fall. 
    Here's how it looks YTD: 
    
         
     Another way to look at it is to see how each of these sectors performed since the February
19 highs. As you can see the race is close: 
     
     
     (Julien Ponthus) 
    *****
     
          
    
    
    EZ SENTIMENT PLUNGE TRIGGERS MUTED MARKET REACTION (0950 GMT) 
    We're all quickly getting used to unprecedented times, unchartered territories, epic
volatility and all that jazz. 
    So when at 0900 GMT, fresh data showed the euro zone sentiment suffered its steepest ever
monthly decline in March, traders didn't lose it. 
    Actually, looking at the STOXX 600 at that time, it's difficult to tell if they even
noticed.
     
    
    (Julien Ponthus) 
    *****
    
    

    
    WHICH UK COMPANIES ARE STILL PAYING DIVIDENDS? (0854 GMT)
    A string of euro zone banks have just announced freezing or scrapping dividend payments
after the ECB asked lenders to beef up capital cushions. 
    In the meantime, more than 100 UK firms have postponed or cancelled some 4.2 billion pounds
of dividend payments in March alone. urn:newsml:reuters.com:*:nL8N2BK794
    When more and more firms are delaying or ditching dividend payments, the real question is:
which companies do still pay them?
    In the UK, only nine companies have maintained dividend payments in the month to last
Friday, says AJ Bell. Find below the list:
    
 Company                     Dividend payment held 
                                 (£ million)
 SSE                         582.0
 CCH                         208.7
 Berkeley Group              124.9
 Vivo Energy                 29.7
 Reach                       12.1
 GCP Student Living          7.2
 Supermarket Income REIT     3.5
 Mattioli Woods              2.0
 Tandem                      0.3
 TOTAL                       970.4
 
    “The businesses involved are all very different, from a pan-European fizzy drink bottler to
a housebuilder, from a utility to a media group..." says AJ Bell.
    What do they have in common? 
    Here is AJ's view:
    * Relatively predictable and stable revenues streams or businesses that supply basic
needs(food,
utilities) 
    * Plenty of cash at hand (net cash or robust balance sheets)
    * Good levels of interest cover and earnings cover
    * Interesting debt structure in terms of covenants, maturity (several years away), headroom
for
the firm to tap existing loans 

   (Joice Alves)
    ******

    
    OPENING SNAPSHOT: A MORNING BURST OF VOLATILITY (0743 GMT) 
    Futures and cash markets are riding an early roller-coaster this morning with volatility all
over the place! 
    There were solid gains at the open but that just fizzled out in thin air in less than 10
minutes, showing that the Chinese repo move ain't gonna save the day after all. 
    Oil prices tanking on the other hand are spooking investors out. 
    Another 10 minutes later most European bourses were deeply in the red and so were most
sectors at the exception of chemicals and healthcare.
    At 0720 GMT, the STOXX 600 was down 1.3%, Milan losing 2%, Paris 1.8% and the DAX 1%. 
    Among individual stocks, a lot of British blue chips led by cinema operator Cineworld after
the British authorities said it could take months before the economy could go back to 'normal'. 
    
     (Julien Ponthus) 
    *****
           

    
    
    ON THE RADAR: THE WINTER DIVIDEND IS COMING (0640 GMT) 
    It's a bit a song of ice and fire this morning: blue chips are burning cash like Daenerys
Targaryen her enemies and investors have to come to terms with one of the only certainty of
these troubled times: the dividend winter is coming!  
    UniCredit  CRDI.MI  became the first Italian bank to comply with the ECB call to put
dividend and buybacks on hold to preserve beef up capital and support the economy.
    It was followed this morning by Dutch lenders ING  INGA.AS  and ABN Amro  ABNd.AS  which
said they would follow the advice of the ECB and suspend any payment of dividends until at least
Oct. 1. 
    One exception outside the EU in the banking sector is UBS Group  UBSG.S  which maintained
its 2019 dividend. 
    Apart from lenders, the pay-out freeze is still doing its thing with Sweden's SSAB
 SSABa.ST  dropping its dividend for 2019,a move that came less than a week after the steelmaker
had halved its original payout proposal.
    In terms of fire, Volkswagen Chief Executive Herbert Diess told German TV channel ZDF his
company was burning through $2.2 bln a week with production halted by the coronavirus pandemic.
    On that note Nissan just announced that its global vehicles sales fell by 24.2%. 
    British fashion chain Next just cut off its remaining source of revenue and shut its online
business, bowing to pressure from workers worried about their health. 
    More companies joined in to warn investors about the recession with ABB saying all of its
businesses would suffer in the first quarter.
    Other coronavirus led headlines for European equities include: 
    * British accounting firm KPMG's chairman testing positive for the coronavirus
    * A new version of a breathing aid has been developed in less than a week by a team
involving Mercedes Formula One, and is being tested at London hospitals.
    * Sanofi  SASY.PA  and Regeneron Pharmaceuticals have expanded a clinical trial of their
rheumatoid arthritis drug Kevzara as a coronavirus treatment to patients outside the United
States.  
    
    (Julien Ponthus) 
    *****
    
    
    
    MORNING CALL: STEADY AS SHE GOES (0533 GMT) 
    European futures are trading in the black pre-market despite a difficult session in Asia 
where shares slipped and oil prices tanked as fears for the global economy lingered on despite
the many fiscal and monetary stimulus plans implemented or pledged around the world.
    China on Monday became the latest to join in with a cut of 20 basis points in a key repo
rate. 
    U.S. futures have also cut their losses and are now firmly in positive territory.
    While investors were hoping that stock markets had reached a bottom in the coronavirus
crisis, many analysts warn that the economic damage is likely to be deep and long-lasting. 
    Sunday, a senior medical official said lockdown measures to combat coronavirus in Britain
could last months and only be gradually lifted.    
    
    (Julien Ponthus) 
    *****
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 (Reporting by Danilo Masoni, Joice Alves, Julien Ponthus and Thyagaraju Adinarayan)