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LIVE MARKETS-Where is the end of the tunnel?
* STOXX 600 starts week on positive note
* Astrazeneca gained on plans to test Calquence in Covid-19 patients
* FTSE 100 slightly down on lockdown extension worries 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.
WHERE IS THE END OF THE TUNNEL? (1450 GMT)
When the global economy started to feel the heat of the lockdown measures implemented to fight the Covid-19 outbreak, quite a few economists stayed optimistic saying that given the unprecedented shape of this crisis, the bounce back would be nice and easy allowing businesses to get to normal as we got rid of the coronavirus pandemic.
The problem is, some are now taking the view that the path to reopen the economy could be tortuous as the lockdown measures will likely be in place for longer than initially anticipated.
"It will require turning on and off various forms of social distancing and will only come to an end when vaccines are available, in the spring of 2021 at the earliest," says Morgan Stanley.
"While we understand the desire for optimism," writes analysts at the bank, "we also caution that the US outbreak is far from over. Recovering from this acute period in the outbreak is just the beginning and not the end". Indeed, the U.S. will likely see "a multiphasic peak", MS says, with coastal regions, led by New York peaking – defined as a sustained decline in new daily cases – over the next 3-5 days. The rest of the country will follow slowly, trailing the coasts by around three weeks.
This means that the U.S. peak will be 4 times longer than China and twice as longer as Italy.
(Joice Alves)
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U.S. STOCKS TO OUTPERFORM, BUT CREDIT... EVEN BETTER! (1255 GMT)
U.S. Stocks will outperform other developed equity markets across the globe over the next 6-12 months, according to the world's largest asset manager BlackRock, which in any case prefers credit to equity.
With a couple of trillion dollars at hand to face the economic impact of the outbreak the U.S. is already "exceeding the scale of policy action in other major developed economies." And there is probably "more to come".
But we have to take into account that we do not know yet how deep the coronavirus induced-recession will be, because there has never been "a systematic attempt to shut down activity on such a scale in modern history".
The fund manager estimates that the initial activity shortfall in the U.S. will be "more than twice as large as the global financial crisis", but then the overall impact will be less severe thanks to extraordinary measures taken by the Fed and the U.S. government.
U.S. companies are stronger and more able to weather the storm.
Bottom line, given the uncertain and dangerous scenario, credit will be better than equity, "given bondholders' preferential claim on corporate cash flows", but stocks are still interesting for investors "with long investment horizon."
(Stefano Rebaudo)
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HOW CORONAVIRUS COULD HURT GLOBAL TRADE LONG-TERM?
Analysts at ING think that if there are lockdown measures in place this Winter, there could be a rise in protectionism, at the expense of globalisation, with long-term implications for the future of world trade.
In the 2008-2009 recession, world trade fell four times further than GDP, but the analysts expect that the 'drastic' fall in GDP will be more closely linked to the decline in world trade due to coronavirus.
Trade and global growth are expected to fall due to disruption to supply chains caused by production outages, people missing work, the hit to travel and tourism, and the knock-on effect of lower demand for durable goods, the analysts said.
While ING's best case scenario sees lockdown measures designed to limit the spread of the coronavirus lifted for good by the end of this quarter, their worst case projection is that the lockdowns in many countries resume in the Winter.
In this case, trade in 2020 would go down 33.9% in 2020, and the hit to demand would last until the second quarter of 2021, meaning it would take a further year to recover to pre-crisis level of growth.
The analysts are worried that this would lead to a rise in protectionism, as has already been seen in some countries where there are export restrictions on medical supplies. ING is worried such restrictions could be extended to other goods if the lockdown was extended.
After the crisis, ING analysts say, politicians might not want to pursue the lessening of trade restrictions, and trade wars, such as the EU and China's attempts to stop the U.S. increasing import tariffs, might be stopped indefinitely.
This would lead to an increase in trade costs, whether that's due to increased tariffs, export controls, or damaged relations between countries. "Increasing protectionism was already a threat to global value chains before the Covid-19 outbreak, and countries’ responses to the virus have included protectionist actions," ING analysts write.
"The spread of the virus has made it is clearer than ever that global value chains make production and livelihoods in one country vulnerable to shocks in others. But managing these risks does not have to involve abandoning globalisation."
(Elizabeth Howcroft)
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THE HOTTEST STOCKS IN THE WORLD! (1110 GMT)
Here are the top ten most traded stocks in Q1, according to Saxo Bank:
* Tesla
* Apple
* Microsoft
* Danske Bank
* Amazon
* AMD
* Boeing
* Novo Nordisk
* NVidia
Now let's see what could come next for some of these companies (courtesy Saxo):
- Tesla's future is pretty uncertain as its outlook mostly depends on Chinese production. The U.S. company "could end up stuck in the mud of a recession".
- Apple announced it couldn't meet its quarterly expectations mainly due to lockdowns in Asia. Since Asia was just the beginning of the pandemic story "it is hard to guess whether this will trend into Q2 as well".
- Microsoft is expected to be in a much better shape than the fellow most traded stocks, because its cloud-based revenue jumped by 59% in the first quarter and "could improve even further" since everyone now is working from home.
- For Danske Bank it is not just a matter of pandemic-induced selloffs. After an extensive white washing scandal the lender has "to re-establish trust between the bank and its customers".
- Amazon was one of the most resilient stocks during le Covid-19 pandemic. Its end-quarter share price was in line with the beginning of 2020. The company also set out to hire an additional 100,000 employees to accommodate orders from quarantine customers.
(Stefano Rebaudo)
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NORTH-SOUTH DIVIDE AND RISK-SHARING (1045 GMT)
The coronavirus crisis impact on the European labour market will vary significantly from country to country, with analysts saying that southern countries will be hardest hit by unemployment.
Goldman Sachs expects a 9% fall in GDP this year and the unemployment rate to increase to 11.5% by the middle of the year. But joblessness is seen rising to as much as 23% in Spain and 17% in Italy, versus only a limited increase in Germany (5%), the UK (8.5%) and France (10%), the U.S. banks adds.
"This north-south divide highlights the importance of an area-wide risk-sharing mechanism that allows southern European economies to provide sufficient fiscal support to their economies during the coronacrisis," GS analysts write in a note to clients.
No further details on the risk sharing mechanism were given, but GS adds part of the reason for the north-south divide is that Southern European countries have "limited policy support" and greater reliance in the hard-hit tourism sector.
The analysts used the increase in unemployment rate relative to the contraction in GDP per country during the 2008-2009 financial crisis as the basis of their calculations. But they warned the coronavirus-induced crisis is not like a typical recession and the hit to employment is likely to be larger because labour-intensive sectors, such as services, are particularly affected by the lockdown measures. These sectors have more employees and a higher proportion of temporary contracts. There wasn't a pattern like this in the financial crisis.
On the other hand, short-term work schemes are likely to limit the increase in unemployment compared to last time, the analysts added.
(Elizabeth Howcroft)
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FLYING BLIND AFTER Q1 EARNINGS (0947 GMT)
As the Q1 earnings season kicks off today with big U.S. names JPMorgan, Wells Fargo and Johnson & Johnson reporting earnings, investors are least concerned about the past and are more worried if they will have visibility on what is coming next.
As countries have put their economies under lockdowns in a bid to halt the coronavirus outbreak, very few companies provided any guidance in March and many scrapped their full year guidance.
If companies aren't giving outlook, how are investors able to take investment decisions?
"Investors are hungry for outlooks," writes Saxo Bank’s Peter Garnry. "The big question is whether investors will get outlooks from companies in order to navigate the equity market".
One strategy could be look at the past: Based on historic ranges of dividend yield, earnings yield and payout ratio Saxo estimates that the S&P 500 has a 20% downside risk from current levels. "In other words, sentiment is too optimistic against fundamentals," writes Garnry.
(Joice Alves)
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Q1 EARNINGS: WHO CARES! (0808 GMT)
Even the world's largest financial market regulator doesn't care about first quarter earnings, why would an investor care? Everybody is keenly watching out for outlook on future quarters and 2021.
"Many investors we have spoken with have discounted 2020 earnings altogether, and are focused instead on the outlook for 2021," Goldman Sachs says.
The Jan-March period is done and dusted, and nobody is focused on the past.
GS says it expects investors will mostly "look through" reported results, which will capture only the start of shutdowns that began at the end of the quarter.
The SEC for instance also urged companies to focus their upcoming earnings releases on "where the company stands today, operationally and financially", while noting that historical information such as Q1 financials may be relatively less significant for investors.
In a nutshell, do not expect major price declines from extremely weak Q1 results, but be wary of swings from forward looking comments.
JPMorgan, Wells Fargo and Johnson and Johnson are kicking off the Q1 earnings season in the U.S. today.
(Thyagaraju Adinarayan)
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OPENING SNAPSHOT: HEALTHY RALLY (0754 GMT)
European bourses comfortably in positive territory, mainly boosted by the healthcare sector on a slew of positive corporate headlines.
Astrazeneca leads the pack, jumping 7%, after the British drugmaker said it will start a clinical trial to test Calquence, a drug used to treat cancer, in severely ill Covid-19 patients. The share move added more than $6 billion to its market capitalisation.
The pan-European stocks index was up 1% this morning helped by a 2% jump in the health care sector. Other positive healthcare-related news include, Swedish rare disease drug maker Sobi's stronger than expected Q1 results and Italy's Diasorin seeking authorisation to launch a serology test to detect antibodies against Covid-19.
Meanwhile, the FTSE 100 is still in negative territory as Astrazeneca's jump is not able to offset losses at other British blue chip stocks as signs the country will remain under lockdown for a longer period is denting the mood.
(Joice Alves)
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ON OUR RADAR: NEXT, SWISS ASSET MANAGERS, DIVIDENDS (0656 GMT)
Futures are pointing to a positive open for Europe as some shops in Austria and Spain are opening for business as the countries attempt to restart the economy after weeks of lockdown. British clothing retailer Next will also reopen its online business today.
A new day and a new batch of dividend delays: Julius Baer wants to split its 2019 dividend payment into two halves, and AB InBev says it will revise dividend proposal.
As we get ready to start the earnings season, Swiss manager GAM Holding's plans to cut roughly one-sixth of its staff this year as its AUM fell by more than 20 billion Swiss francs in Q1.
There is also a few changes of heart on deals: Shell dropped a deal with Gazprom Neft on a Russian Arctic oil joint venture and the owner of Poland's airline LOT pulled out of a deal to buy German rival Condor.
(Joice Alves)
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BOURSES SEEN HIGHER AS SOME BUSINESSES GET BACK TO WORK (0543 GMT)
European bourses are seen opening higher this morning as some countries start lifting some of the coronavirus restrictions and signs of peaking in the pandemic help sentiment.
Austria will reopen thousands of shops and some businesses got back to work in Spain yesterday though shops, bars and public spaces will stay closed until at least April 26.
As we start the week after the Easter break, oil prices rose more than 1% after the main U.S. energy forecasting agency predicted shale output would fall by the most on record in April, adding to cuts from OPEC+ agreed over Easter.
Also, better than expected exports and imports number from China are boosting sentiment.
Financial spreadbetters at IG expect London's FTSE to open 71 points higher at 5,914, Frankfurt's DAX to open 167 points higher at 10,732 and Paris' CAC to open 44 points higher at 4,551.
(Joice Alves)
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(Reporting by Joice Alves, Julien Ponthus, Stefano Rebaudo and Thyagaraju Adinarayan)
