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LIVE MARKETS-"I’m from the government, and I’m here to help"

·11-min read

* European stocks up 1.4%,

* 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.

"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)

*****

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)

*****

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.

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, 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)

*****

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)

*****

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 and Natixis which are both between 5% and 6% according to their 2019 statements. DNB is at the 5% threshold.

In a lot more comfortable zone, below 1% exposure, UBS, Lloyds Banking Group and KBC Group are the safe plays.

(Stefano Rebaudo)

*****

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 is doing well after reporting 31% jump in first-quarter core earnings.

(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 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. Unicredit said it would write down loans for 900 million euros.

ASM International widened its second-quarter sales outlook range, citing risks of possible disruptions to supply chains and logistical operations.

Fiat Chrysler Automobiles has drawn down on a 6.25 billion euro ($6.79 billion) credit line to buffer its cash reserves.

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.

More than 70% of small and medium-sized British businesses have put at least some staff on leave and are waiting for government funds.

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 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 says sales decline will accelerate in Q2, Randstad sees tougher Q2, Telia Q1 lags forecast, Roche confirms sales and profit outlook, STMicrolecetronics is affected by declining automotive demand; Ericsson 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)

*****

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