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LIVE MARKETS-Southern European banks' risk premium bound to be high

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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)



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)



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)



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)



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)



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)