Live Markets: Ten European best in class stocks in coronavirus times
22/04/2020 15:20
* European stocks up 1.3%,
* Crude futures still under pressure
* Wall Street rises at the open
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 and Stefano Rebaudo
(stefano.rebaudo@thomsonreuters.com) in Milan.
TEN EUROPEAN BEST IN CLASS STOCKS IN CORONAVIRUS TIMES (1410 GMT)
What do the hottest European stocks have in common?
They are naturally benefiting from long-term trends and have show the resilience to survive
such unpredictable and volatile pandemic-induced crisis.
Here is the list of the ten European overweight rated "stocks to own" by Barclays.
ASML ASML.AS supported by its "clear 2025 outlook"
Schneider Electric SCHN.PA for which Barclays expects a further rerating
Roche ROG.S , UCB UCB.BR with very good pipeline of treatments
RWE RWEG.DE , Neste NESTE.HE in the very strong renewables energy industry that will see
investments of up to $3.7 trillion by 2050
Munich Re MUVGn.DE relationships with local brokers and primary insurers will ensure
growth in emerging and traditional businesses
Nestle NESN.S , Delivery Hero DHER.DE , DSM DSM.L will benefit from a very sustainable
structural growth related to a consistent portfolio rotation in the long term, with modest
cyclical risk.
(Stefano Rebaudo)
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"I’M FROM THE GOVERNMENT, AND I’M HERE TO HELP" (1348 GMT)
There was a time Ronald Reagan was cheered when he said the most terrifying words in the
English language are "I’m from the government, and I’m here to help".
But in the brave new world shaped by the coronavirus pandemic, capitalism icons such as
Thatcherism and the Chicago boys are irrelevant, argues Sam Theodore, managing director at
Scope.
The state is back in the driving seat and has taken an unequivocal lead in the fight against
the pandemic and the financial catastrophe it has unleashed on the global economy.
Not only governments are currently indispensable in preventing an economic and financial
collapse but they most certainly keep occupying the centre stage for the foreseeable future.
In that sense, Theodore believes investors in banks should quickly understand that paradigm
change.
"What the banks are being asked to do now is to distribute public-sector financing, provide
temporary financial relief to their clients who need it while continuing to stand on their
feet", he writes in a note.
In that sense, "the European banking sector moving into this new direction, in-between
market dynamics and a quasi-public mission, will probably require investors and analysts to
adjust their assessment lenses".
The recent decision of most European banks to freeze or scrap dividend payouts has indeed
already forced investors to manage their expectations towards a sector which has lost about 40%
of its market value in a quarter or so.
"The banks will need to re-balance their strategic priorities away from first and foremost
meeting bottom line-related shareholder expectations", Scope's Theodore also said.
(Julien Ponthus)
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LOADS OF E-MEETINGS, NO GAME-CHANGING DECISION (1205 GMT)
Busy week for European leaders. They are meeting tomorrow to discuss a joint plan to fight
Covid-19, meantime the EU is also holding their second negotiating round with the UK via
videoconference on their future partnership following Brexit.
Neither are expected to be game changers as parties are seen deferring any final decision.
"Despite the delays, the Japanese authorities appear to have finally begun doing what they
need to do. Unfortunately, the same cannot be said of the eurozone," Richard Koo, chief
economist at Nomura Research Institute says.
PM Giuseppe Conte said yesterday Italy is working on a minimum 50 billion euro stimulus
plan, but did not expect a solution at the European Union summit.
The internal EU divisions over Italy is feeding euro scepticism: Nomura says that the
Eurozone membership prevents Italy from saving its own people.
Peter Garnry, Head of Equity Strategy, Saxo Bank says that "it looks increasingly like the
pro-Europeans are only pro Europe in good times when trade is flowing and when redistribution is
needed to save the system the wealthy countries hold on to their gains".
People are also keen to know if Brexit will be extended, but under the Withdrawal Agreement
the EU and the UK have until the end of June to agree on a potential extension, if they want
one. So there is time for that.
(Joice Alves)
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BOOHOO VS MARKS & SPENCER: FROM SMALL TO XL (1122 GMT)
British online fashion retailer Boohoo is quickly emerging as one of the winners of the
coronavirus crisis and is one of the session's big winners, rising over 6% after its better-than
expected results and promising lockdown sales data. urn:newsml:reuters.com:*:nL5N2CA1N6
While a 6% share price boost seems like a decent performance this Wednesday, consider that
since its March lows, at the current peak (touch wood!) of the financial COVID-19 crisis, the
firm which sells its own-brand clothing to a target of 16 to 40-year-olds, has bounced back
about 120%!
All in all, the shares are less than 14% down from the market's February highs as you can
see below:
Boohoo's UK rival ASOS ASOS.L , which has yet to give a further update for April, has made
a similar comeback - up 120% - but there's clearly not as much love in store for good old high
street fashion retailers.
Specifically, the UK lockdown has hit Marks & Spencer hard. While the institution founded in
1884 was still twice as much as Boohoo less than two years ago, it's the online retailer which
is now close of doubling Marks and Spencer in terms of market cap:
(Julien Ponthus and Thyagaraju Adinarayan)
*****
GOLD COULD REACH $3,000 THRESHOLD IN 18 MONTHS (1105 GMT)
No doubt the current scenario is something we couldn't even have imagined a few months ago:
with most of the world population in lockdown, interest rates doomed to stay at or even below
zero, expected double-digit GDP contractions and exploding budget deficits, gold could rise as
high as $3,000/oz.
That threshold for gold, seen as the ultimate store of value, is cited by BofA. The U.S.
bank raised its 18-months target from $2,000 to $3,000/oz.
In addition to interest rates and nominal GDP, "central bank balance sheets or official gold
reserves will remain the key determinants of gold prices," BofA says in a research note.
Since governments and central banks will see their spending increase dramatically to fight
the economic impact of the pandemic, targets on gold are on the rise.
Bofa also forecasts an average gold price of $1,695/oz in 2020 and $2,063/oz in 2021.
(Stefano Rebaudo)
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EARNINGS: HANG ON IN THERE AND BRACE FOR Q2 (0901 GMT)
While there's a lot of hope out there that many European countries currently are at or past
peak coronavirus infections, when it comes to peak corporate pain, Europe's blue chips clearly
need to hang on in there a while longer and brace for Q2.
The latest Refinitiv data shows that earnings are expected to collapse by a whopping 37%
between April and June.
That's after a dire -24.6% in Q1 and before a gloomy -27.6% in Q3.
As you can see below, there's no significant rebound before 2021 and that's largely due to
what's likely to be a horrid comparison base year-on-year.
For nostalgic readers, here's what earnings expectations looked like while global markets
were trading at record highs in February and that Europe was expected to finally put an end to
its 2019 corporate recession (Refinitiv report dated 18/02/2020).
Seems like a parallel universe now.
(Julien Ponthus)
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EUROPEAN BANKS: MORE PROVISIONS IN Q1 DUE TO OIL COLLAPSE? (0802 GMT)
Already saddled by possible pandemic-induced growth of NPLs, banks will now be worried about
the oil & gas sector too after the historic collapse in oil prices.
Credit Suisse foresees banks setting aside more money for the expected damages from exposure
to the oil industry. European bank shares are the worst sectoral performers in Europe, YTD.
Expect provisions "to be visible in Q1 results, and more disclosures about ad-hoc exposures
to struggling commodity traders could follow," Credit Suisse says in a research note.
In Europe, the ones with higher lending exposure to oil-related names are ING Groep
INGA.AS and Natixis CNAT.PA which are both between 5% and 6% according to their 2019
statements. DNB DNB.OL is at the 5% threshold.
In a lot more comfortable zone, below 1% exposure, UBS UBSG.S , Lloyds Banking Group
LLOY.L and KBC Group KBC.BR are the safe plays.
(Stefano Rebaudo)
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OPENING SNAPSHOT: A BREATHER IN THE CRUDE OIL ROUT (0738 GMT)
This ain't no rebound but many investors will be glad to take it! With a 0.8% rise, the
STOXX 600 is taking a breather in the middle of this historic oil glut rout. Tech, telcos, banks
and real estate sectors are rising 1% and even oil and gas share are pulling off 0.1% gains.
Sure, they are still down close to 40% year-to-date but bear in mind that with oil prices
in total collapse mode, there's surely always room for worst.
A few hours ago, brent crude touched $15.98 a barrel, its lowest since June 1999 while West
Texas Intermediate traded a dire $10.89 a barrel.
Many believe the oil glut has put an end to the 20%+ rebound enjoyed by global stocks since
the peak (touch wood on that one!) of the coronavirus financial crisis mid-March.
Anyhow, all regional bourses are rising and there's little to spoil the mood at the
exception perhaps of Kering, one of the 2010s shareholder darlings, down 6.5%.
The French fashion and luxury group reported that its Gucci sales were already hit hard
early in the coronavirus crisis due to their reliance on Chinese customers.
What's obviously worrying as a trend for the likes of the French group is that with most of
Europe on lockdown, Kering said it was still premature to say how quickly China sales would
rebound.
Among risers, Dutch paints and coatings maker Akzo Nobel AKZO.AS is doing well after
reporting 31% jump in first-quarter core earnings. urn:newsml:reuters.com:*:nL5N2CA0UG
(Julien Ponthus)
*****
ON THE RADAR: INVESTORS BACK TO THE STOCK MARKET (0650 GMT)
Another day in risk-off mood as concerns about coronavirus impact on the economy are keeping
oil prices under pressure, but investors are back to the stock market after yesterday's selloff.
Futures on European bourses are in positive territory (Euro Stoxx 50 up 1%), while on the
corporate front caution is the key driver as analysts expectations continue to deteriorate.
Companies listed on the pan-European STOXX 600 STOXX are now expected to report a 37%
decline in earnings in Q2, down from a 34.2% drop forecast the week before, according to
Refinitiv data. For the third quarter, analysts see now a 27.6% fall in earnings versus 25.5% a
week ago.
Banks are expected to have to set aside billions for potential loan losses and profit hits
when they report Q1 results. urn:newsml:reuters.com:*:nL8N2C92W6 Unicredit CRDI.MI said it would write down loans for
900 million euros. urn:newsml:reuters.com:*:nL5N2CA16S
ASM International ASMI.AS widened its second-quarter sales outlook range, citing risks of
possible disruptions to supply chains and logistical operations. urn:newsml:reuters.com:*:nL8N2C5614
Fiat Chrysler Automobiles FCHA.MI has drawn down on a 6.25 billion euro ($6.79 billion)
credit line to buffer its cash reserves. urn:newsml:reuters.com:*:nL3N2C91WG
Gucci, whose sales in Asia were hit hard early in the coronavirus crisis, said it was
premature to forecast how quickly China sales would rebound. urn:newsml:reuters.com:*:nL5N2C92R2
More than 70% of small and medium-sized British businesses have put at least some staff on
leave and are waiting for government funds. urn:newsml:reuters.com:*:nL5N2C92ME
More signs of weakness from UK's economy, from the retail side. John Lewis Partnership
warned that sales at its department stores division could crash by 35% this year in a worst-case
scenario. Primark owner Associated British Foods ABF.L will not pay an interim dividend and
has booked a 284 million pound ($352 million) charge to reflect an expected lower value of stock
when its stores reopen.
Then the batch of earnings reports: Akzo Nobel AKZO.AS says sales decline will accelerate
in Q2, Randstad RAND.AS sees tougher Q2, Telia TELIA.ST Q1 lags forecast urn:newsml:reuters.com:*:nA5N28R01M, Roche
confirms sales and profit outlook, STMicrolecetronics STM.PA is affected by declining
automotive demand; Ericsson ERICb.ST bucks the trend by beating Q1 estimates.
Back to banks, ten of the world's largest banks, including Deutsche Bank, Barclays, Credit
Suisse, Royal Bank of Scotland Wells Fargo & Co as well as major U.S. banks, have been sued for
allegedly conspiring over nearly 14 years to rig prices in the $9.6 trillion U.S. corporate bond
market.
(Stefano Rebaudo)
*****
MORNING CALL: EUROPE ON PAUSE AFTER CRUDE SELLOFF (0548 GMT)
No clear trend is emerging so far this morning, but European stocks seem to be willing to
pause for a breather after Wall Street and Asia stocks came under renewed selling pressure
overnight.
The crude oil rout continues to weigh on markets though, sapping risk appetite out of it.
Investors are deeply concerned about the impact of the coronavirus pandemic on the global
economy and are looking further into safe-haven bonds or currencies such as the dollar.
European futures are close to 1% up at the moment with Wall Street future also slightly in
positive territory (+0.6%-0.7%).
So while there's currently no rebound in sight, there's also no further fall on the
immediate horizon.
(Stefano Rebaudo)
*****
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(Reporting by Thyagaraju Adinarayan, Joice Alves, Stefano Rebaudo and Julien Ponthus)