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LIVE MARKETS-The bond sell-off banking paradox

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.




THE BOND SELL-OFF BANKING PARADOX (1257 GMT)

There's been no shortage of market anomalies these last few days but here's one for you:

There's a massive sell-off on European sovereign bond markets, notably Italy, yet these countries' bourses are outperforming the markets.

It's quite counter-intuitive but Milan is down 'only' 3.2% and Madrid 3.8% while the EURO STOXX index is down 4.9%.

During the euro zone sovereign debt crisis, there was a direct link between Spanish or Italian banks and the debt issued by their respective governments.

This time, for whatever reason, it's different, at least for now.

Looking at the constituents of the IBEX or the FTSE MIB, banking shares are having very different trading sessions, showing that there's no indiscriminate move against them as a whole.

For instance in Madrid, Bankia is down a small 1.7%, BBVA 2.9% and CaixaBank 3.5%. Sure other banks like Banco Santander are suffering with a 4.5% fall but that's still below the European average for the sector.

Have a look at Milan, it's roughly the same story for the banks:


Having a look at euro zone banks, there's no clear trend here on the euro zone periphery:



(Julien Ponthus)

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THE DIVIDEND DEBACLE (1115 GMT)

One of this morning's lessons is that dividend payouts have become all but completely uncertain for shareholders.

A flurry of companies have suspended, scrapped or put under review their dividend policy.

The list is long and includes notably Inditex, Micro Focus, Tarkett, Ferrexpo, Air Partner, Wintershall Dea, Pub operator Marston, Sonsensus Asset Management, Firefly and the list goes on.

It's not only dividends but buybacks with Van De Velde, for instance.

As things stand now however, the dividend yields of Europe Inc. do look too good to be true, especially for these sectors:

Euro zone banks: 10.3%

STOXX 600 Oil and Gas: 10.2%

STOXX 600 Insurance: 7.9%

STOXX 600 Autos: 6%


(Julien Ponthus)

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10 PILLS OF GOOD NEWS AND POSITIVE THINKING (1002 GMT)

Amid the coronavirus doom and gloom, why not treat yourself with 10 positive facts or headlines?


1) In a clinical trial in Shenzhen involving 80 participants, patients who took anti-flu drug Favipiravir (first developed by Fujifilm Toyama Chemical) showed greater chest improvement and took less time to test negative for the genomic trace of the virus, compared with patients not given the drug.


2) Yesterday, Sanofi and Regeneron Pharmaceuticals started a clinical trial of their rheumatoid arthritis drug Kevzara as a treatment for the coronavirus.


3) "The plateauing number of new cases in China shows drastic containment measures can work and suggests the situation in Europe and US could improve during the Spring". (Barclays note)


4) "If we take the Chinese pattern as a guideline (and assuming there is no second Covid wave), the shock – while deep – should prove temporary".

"The very strict containment measures that are being taken should show their first positive results in the coming weeks". (Candriam note)

5) The ECB says it still has a vast supply of fire power to tackle the crisis.


6) "Banks are in a better capital and liquidity position to weather the storm this time around" (Same Barclays note)


7) While the big stimulus pledges didn't trigger a rebound so far, they may very well help to limit the fall, argues Jasper Lawler at LCG.

"As far as short term investors psychology. You know that no government policy can stop the fallout from the coronavirus so you’re not ready to buy but if the blow can be cushioned a little you’re not in quite such a panic to sell".


8) Possible $1,000 checks for American adults


9) If you live outside the U.S. and don't get the check, you still get to witness 'Helicopter Money' going from theory to practise.


10) Millions of California's Bay area residents can still legally light up as cannabis facilities are exempt from a cornonavirus lockdown that has shuttered most businesses in San Francisco and nearby cities.


(Julien Ponthus)

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OPENING SNAPSHOT: IN THE RED (0840 GMT)

European stocks opened well into red but less than what futures suggested just an hour or two ago.

The STOXX 600 was nevertheless down 2.8% despite Wall Street pulling off a 6% jump yesterday thanks to the hundreds of billions of dollars pledged in the U.S. and worldwide to cushion the hit of the coronavirus pandemic.

Among the sectors worst hit are industrials, with notably airplane makers or equipment makers Airbus, Safran, Rolls Royce, MTU Aero Engines losing all more than 10%.

Not surprisingly, oil and gas stocks are also getting hammered with oil prices tumbling again and its the same story for miners as prices of metals also slump.

Among other sectors worth noting today are autos, down 3.5% with new announcements of plants suspending production.

Data showed this morning that passenger car sales were already falling sharply in Europe's major markets in February.

Telecoms are seen like a perfect safe havens today, with the sector up 3.5% as home working takes mainstream. Ocado, up 3.5% also shows how online shopping is a safe place to be on March 18 2020.

Among individual stocks, H&M is down 10%, after announcing it would temporarily closing all its 460 stores in Germany and all its 590 stores in the United States.


(Julien Ponthus)

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ON THE RADAR: SCRAPPED DIVIDENDS, PRODUCTION CUTS...(0752 GMT)

Can “whatever it takes” not be enough?

If even talks of helicopter money doesn’t make it, then what?

That question seems to be eating European markets this morning with futures deep into the red despite Wall Street’s 6% jump overnight.

For all the hundreds of billions pledged to cushion the blow of the outbreak in the coming weeks or months, the damage the virus is inflicting on the economy is massive and immediate as this morning’s headline show.

French catering and services group Sodexo said the coronavirus crisis could impact its annual sales by 2 billion euros.

Like in 2008/9, the auto industry is on the frontline while passenger car sales already falling sharply in Europe's major markets in February, as data showed this morning.

Volkswagen is the latest group to announce drastic measures, halting the production of commercial vehicles at its plants in Poznan, Swarzedz and Września in Poland.

Retail is facing devastating sales with H&M temporarily closing all its 460 stores in Germany, its number one market for sales, and all 590 in its second largest market the United States.

Hard to see as well how say UK retail investors would go back into the markets with real estate funds managed by Kames Capital and Janus Henderson temporarily suspended or supermarket group Morrison warning it faced "unprecedented challenges and uncertainty".

Counting on companies to pay dividends for 2019, let alone 2020 also seems a foolish gamble: British IT company Micro Focus International says it not pay a final dividend.

Even the cash rich Zara-owner Inditex said it may channel the cash destined for the payment of the 2019 dividend into reserves.

In Germany Wintershall said it would cut investments and suspend its dividend until further notice despite posting strong results for 2019.

While airlines have already sustained an equity wipe out, there’s no sense of a bottom with the International Air Transport Association saying the total government support needed worldwide could reach $200 billion.

With the French government saying nationalisations are an option, such as for Air France, investors might not want to come back before a possible state-only rights issue.

Decisions such France to ban shorting for a month are not seen helping that much either.

(Julien Ponthus)

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EUROPEAN STOCKS SET FOR A 4% FALL (0730 GMT)

Futures point to a lower open for European bourses with all main indices down around 4% as investors weigh how the stimuli package from the U.S. and Europe will help to cope with falling demand and prolonged supply chain disruptions.

"With supply chains disrupted since February, countries hit one after the other and businesses closed in many leading economies, it is not a question of if, but a matter of how bad and how long the coronavirus-induced recession will be," writes Ipek Ozkardeskaya, senior analyst at Swissquote Bank.


(Joice Alves)

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MORNING CALL: WHAT A DIFFERENCE A NIGHT MAKES (0626 GMT)

A European investors could have been excused last night to feel somewhat reassured by Wall Street's 6% jump.

After all, it was reasonable to assume that the pledge by the Fed and by governments across the world to pump up hundreds of billions of dollars to cushion the effect of the coronavirus outbreak would calm markets down.

Not anymore. Whatever positive sentiment was around last night faded away and European futures are deep into the red. Like over 5% into the red.

Which makes sense because Asian bourses fell and U.S. futures hit their daily limit outside U.S. trade.


(Julien Ponthus)

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(Reporting by Joice Alves, Julien Ponthus and Thyagaraju Adinarayan)