* Stoxx 600 flat
* Closing of the Swedish, Danish and Norwegian stock markets
* Dow Jones up 0.3% Welcome home for real-time coverage of European stock markets presented by Reuters journalists. You can share your thoughts Joice Alves ([email protected]) and Julien Ponthus ([email protected]) in London and Stefano Rebaudo ([email protected]) in Milan.
A NEW WAVE OF CONSOLIDATION IN OIL SERVICES? (2:10 p.m. GMT)
The petroleum services sector could show a new wave of consolidation after 15 years of mainly procyclical mergers and acquisitions, which has changed the sector by promoting diversification and creating new business models.
The story could go on even if in a different way. Now, it could be the pandemic-induced recession to spark possible new movements.
A research note from BofA, after declaring that the current slowdown “could encourage inorganic actions”, summarizes some possible high-profile mergers and acquisitions, already discussed in the press.
A combination of Subsea 7 and Saipem would have “several stumbling blocks”, including ownership structures, potential antitrust issues, lack of balance sheet capacity, says BofA. Anyway, “given its prospects for moderate cash flow,” Saipem could consider the mergers and acquisitions stage, he added.
Before Covid, Vallourec announced a possible rights issue, which may not be sufficient to bring the debt “to an acceptable level”. An accretive movement of real value “could be the divestment of VK’s” Crown Jewel “- its Brazilian asset base,” said the bank.
Tenaris is the only player with significant cash flow and there are areas “where it remains to establish or strengthen its presence”, including China and Brazil.
TGS has a balance sheet capacity and an appetite for countercyclical movements.
BETTER BUT BAD (1235 GMT)
What do the slightly improved British PMI data tell us?
Not much in fact.
There has been a slight improvement from the record low in April, but the new British PMI in May still shows a very disastrous picture with the services sector in particular, which continues to be well below capacity.
“Admittedly, these figures are an improvement compared to the shocking data of April, although that brings only little comfort”, explains ING.
PMI surveys are done by asking people if they see things improving / deteriorating. As last month was a disaster, “it may not be surprising to see” improved “responses this time,” said ING.
But don’t expect anything else, “don’t expect a rapid economic recovery in the UK,” says ING.
EUROPEAN BANKS: STILL NO SIGNS OF REBOUND (1221 GMT)
Buy-the-dip mantra may not be applied at all to European banks even after the sector index hit a historic low last week, while other severely beaten sectors such as travel and leisure and energy experienced some relief.
The Eurozone banking index is still close to the same level it was in the deepest crash caused by the coronavirus on March 16, missing the supposed bear market rally that helped the global market rebound and halve virus loss.
While Berenberg says investors should remain cautious and selective about European banks, Morgan Stanley research note says eurozone lenders are trading on average 27% below their “fair value based on current levels” bond markets. ”
The investment bank has updated the valuations from a regression analysis based on Bund yields, breakeven inflation and CDS prices, even though “when we compare European banks to those of other countries on traditional metrics, they don’t seem particularly poorly rated, “said MS.
But things will change if the EU stimulus package agreed by France and Germany progresses, given that eurozone equity valuations “have been positively correlated with construction spreads over the last decade”.
In his baseline scenario, Morgan Stanley sees Italian bond spreads “tighten to 125 basis points” by the end of 2020, thanks to the EU stimulus fund. And it will be a boost for European stocks, with a possible 10% increase in P / E ratios, but probably even more for European banks.
HOW CORONAVIRUS COULD ACCELERATE PASSAGE TO ELECTRIC CARS (1000 GMT)
The coronavirus crisis saw car sales drop, sales in China fell by 79% in February, and drastic declines in new car registrations in countries like the United Kingdom, Italy and Spain, hardest hit by the virus.
As one of the most logistically complex industries in the world, with more than 10,000 suppliers involved in the vehicle value chain, it is perhaps not surprising that the automotive sector has taken such a blow.
For many, the positive effect on the environment is a small silver lining of coronavirus, because we produce less, consume less and make fewer trips, if necessary, by car.
But for the auto industry, the silver lining is the idea that social distancing could encourage more people to own their own cars, reversing recent car-sharing trends, according to ING economists.
“We really expect the crisis to leave its mark on mobility behavior and some of the trends in the direction of carpooling and car ownership may be reversed somewhat, if not only temporarily, “said Joanna Konings, senior economist at ING. said.
“The demand for a car has so far increased during the COVID-19 crisis. We can’t see that in vehicle sales, of course, but we can see it in vehicle searches and also in investigative evidence, “said Konings.
“The proof of the SARS epidemic was that the fear of risking an infection led consumers to avoid public transport and, ultimately, to increase demand for cars,” she added.
When car sales resume, automakers are betting that the crisis will help them accelerate toward electric cars, a shift that was already well underway before the coronavirus took hold.
Falling oil prices should not make gasoline cars more attractive, not least because oil prices do not translate directly into consumer fuel prices, said ING.
Electric vehicles are continuously improving and reaching cost competitiveness, said ING, and regulatory pressure on vehicle emissions has not eased.
In addition, policymakers could use the crisis as an opportunity to change the way we travel, announcing measures to support electric vehicles.
PRESSURE ON MARGINS WILL LAST FOR RESELLERS (1002 GMT)
In retail, there are some big unknowns about when gross margins will return to pre-Covid 19 levels and the strength of inventory liquidation pressure in the near future.
UBS answered these questions with a set of data sources that include a proprietary model designed to provide estimates of the markdown required to clear unsold inventory.
Bank analysts estimate that EPS will drop 40% on average in the first year, as demand is lower than online supply and clothing retailers are likely to find themselves “with obsolete inventory to liquidate” at second semester 2020.
The impact will be less severe for companies more exposed to online channels and favorable product categories. The best UBS choices are AB Foods, Next and Inditex.
Gross margins will not return to pre-pandemic levels until the third or fourth year after Covid, as consumer demand for discounted products and excess inventory at discounted prices will remain high, according to UBS.
OPENING SNAPSHOT: RISQUE-OFF, LUFTHANSA BRILLIANT ON THE RESCUE PLAN (0734 GMT)
Today is risk free after a rally of hope yesterday, while investors are still unsure of the evolution of the pandemic and its longer-term impact on the global economy.
The pan-European index is down 0.9%, with banks leading the losses, down more than 2%. Among the best performing public services and health care, down about 0.8%.
Lufthansa among session winners, up 5%, after airliner said it was in advanced talks with government over a $ 9 billion bailout deal euros.
EasyJet stocks also thwarted the trend, up 2.3%, after the company announced that a small number of flights would resume on June 15.
Whitbread fell 10.4% after announcing a $ 1.2 billion rights offering plan.
AstraZeneca fell 0.8%, in line with the broader index, after the first agreements to supply at least 400 million doses of the COVID-19 vaccine which it is developing with the University of Oxford.
ON RADAR: PHARMA, LUFTHANSA, GENERALI (0648 GMT)
European stocks are ready for a risk-free session as concerns about the economic impact of the coronavirus pandemic continue to weigh.
Investors should vacillate between hopes of a full reopening of the economy and anxiety over the longer-term impact of the virus, until the effect of gradual easing of rate blockages of infection be clear.
On the corporate side, AstraZeneca has received the first agreements to supply at least 400 million doses of the COVID-19 vaccine which it is developing with the University of Oxford.
GlaxoSmithKline’s consumer health unit has partnered with Mammoth Biosciences to develop a test that uses technology commonly used in gene editing to detect new coronavirus infections.
Then the impact of the pandemic on the company’s results: the net profit of Assicurazioni Generali fell by 85% over one year after 655 million euros of depreciations due to the impact of Covid-19 on the financial markets.
Aviva’s new life business sales increased 28% to £ 12.3 billion in the first quarter, and it estimated it would pay £ 160 million in coronavirus claims.
Whitbread has planned to raise £ 1.01 billion through a rights offering.
The collapse in oil prices has led potential buyers of oil and gas fields to renegotiate the deals.
Lufthansa said it was in advanced talks with the German government over a rescue deal worth up to 9 billion euros, including the state taking a 20% stake in the company, after the media said the government agreed to the final details of the bailout. .
Total has secured $ 14.4 billion in financing for its liquefied natural gas project in Mozambique in Mozambique.
EasyJet said a small number of flights would resume on June 15, with mandatory masks.
MORNING CALL: THE FUTURES BACK IN RED (0532 GMT)
European futures and their US counterparts are trading in the red while investors are wary of the economic impact of the coronavirus epidemic.
The rise of Wall Street overnight in the hope of a rapid recovery with potential for stimulus from the Fed is not enough to support actions in European morning trade.
Asian stocks ended flat before a key political meeting in China that could generate more economic stimulus and fears of a possible escalation of tensions between the United States and China.
Report by Joice Alves, Julien Ponthus and Stefano Rebaudo