May 21, 2020 / 3:14 PM / 11 days ago

LIVE MARKETS-A new wave of consolidation in oil services?

* Stoxx 600 flat

* Sweden, Denmark, Norway stock markets closed

* Dow Jones up 0.3% Welcome to the home for real-time coverage of European equity markets brought to you by Reuters stocks reporters. You can share your thoughts Joice Alves ( and Julien Ponthus ( in London and Stefano Rebaudo ( in Milan.


The oil services sector could show a new wave of consolidation after 15 years of mostly pro-cyclical M&A activity, which changed the industry driving diversification and creating new business models.

The story might continue even if in a different way. Now it could be the pandemic-induced recession to trigger new possible moves.

A BofA research note, after stating that the current downturn “could incentivise inorganic actions”, summarizes some high-profile possible M&A moves, 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, BofA says. Anyway, “given its subdued cash flow outlook” Saipem may consider the M&A step, it adds.

Before Covid, Vallourec announced a possible rights issue, that might not be enough to bring debt “to an acceptable level.” A real value accretive move “could be the divestment of VK’s ‘Crown Jewel’ - its Brazilian asset base,” the bank says.

Tenaris is the only player with a sizeable cash position and there are some areas “where is yet to establish or strengthen its presence”, including China and Brazil.

TGS has balance sheet capacity and appetite for counter-cyclical moves.

(Stefano Rebaudo)


What does the slightly improved UK PMI data tell us?

Not much actually.

There has been a bit of an improvement from April’s record low, but Britain’s May fresh PMI still shows a super dire picture with the service sector, in particular, continuing to be well below capacity.

“Admittedly these numbers are an improvement on the shocking April data, although this provides little comfort,” says ING.

PMI surveys are made by asking people whether they are seeing things improving/deteriorating. As last month was a disaster, “it’s perhaps not surprising to see some ‘improved’ responses this time,”, ING says.

But, don’t expect anything more than this, “don’t expect a fast UK economic recovery,” ING says.

(Joice Alves)


Buy-the-dip mantra is possibly not being applied to European banks at all even after the sector index hit an all-time low last week, while other severely battered sectors such as travel & leisure and energy sectors saw some relief.

Euro zone banking index is still close to the same level as it was during the coronavirus-induced deepest crash on March 16, missing the supposed bear-market rally that helped the overall market to bounce back and cut virus losses by half.

While Berenberg says investors should remain cautious and selective on European banks, a Morgan Stanley research note argues that Euro zone lenders are trading on average 27% below their “fair value based on the current level of fixed income markets.”

The investment bank updated valuations against a regression analysis based on Bund yields, inflation breakevens and CDS prices, even if “when we compare European banks to those from other countries on the traditional metrics they do not look particularly mispriced,” MS says.

But things will change if the EU recovery fund program agreed by France and Germany will make progress, considering that Euro zone equity valuations “have been positively correlated to BTP spreads over the last decade.”

In its base case Morgan Stanley sees Italian bond spreads “tightening to 125 basis points” by end 2020, thanks to the EU recovery fund. And this will be a boost for European equities, with a possible 10% rise in P/E ratios, but probably even more for European banks.

(Stefano Rebaudo)



The coronavirus crisis has seen car sales plummet, with sales in China falling by a record 79% in February and drastic drops in new car registrations in countries like the UK, Italy and Spain, which were hardest hit by the virus.

As one of the most logistically complex industries in the world, with more than 10,000 suppliers involved in a vehicle’s value chain, it’s perhaps unsurprising that the automotive sector took such a hit.

For many, the positive effect on the environment is a small silver lining of coronavirus, as we produce less, consume less, and make fewer journeys, if any, by car.

But for the auto industry, the silver lining is the idea that social distancing measures could encourage more people to own their own car, reversing recent car-sharing trends, according to economists at ING.

“We definitely do expect the crisis to leave its mark on mobility behaviour and some of the trends that have been going in the direction of ride-sharing and not owning a car might be reversed somewhat, if only temporarily,” ING’s Senior Economist Joanna Konings said.

“Demand to own a car has increased during the COVID-19 crisis so far. We can’t see that in vehicle sales obviously but we can see it in searches for vehicles and also in survey evidence,” Konings said.

“The evidence from the SARS outbreak was that the fear of risking infection lead to consumers avoiding public transportation and ultimately increased the demand for cars,” she added.

When car sales pick up, auto makers are betting that the crisis will help them accelerate towards electric cars, a shift that was already well underway before the coronavirus took hold.

Lower oil prices are unlikely to make petrol cars more attractive, not least because oil prices don’t translate directly into consumer fuel prices, ING said.

Electric vehicles are continuously improving and are reaching cost competitiveness, ING said, and regulatory pressure on vehicle emissions has not eased.

What’s more, policymakers could use the crisis as an opportunity to change the way we travel, announcing measures to support electric vehicles.

(Elizabeth Howcroft)



In the retailing business, some big unknowns are when gross margins will return to pre-Covid 19 levels and how strong the pressure from stock clearances will be in the near future.

UBS answered those questions with a set of data sources that include a proprietary model built to give estimates about the markdown required to clear unsold stocks.

The bank’s analysts estimate EPS will fall by 40% on average in full year one, as demand is lower than supply online and apparel retailers are likely to be left “with outdated stock to clear” in second half of 2020.

The impact is going to be less severe for companies with greater exposure to the online channels and to favourable product categories. UBS top picks are AB Foods, Next and Inditex.

Gross margins will only return to pre-pandemic levels in the third or fourth year after Covid as demand for discounted products by consumers and excess discounted stock will remain high, according to UBS.

(Stefano Rebaudo)



Today is risk-off after a hope rally yesterday, as investors are still uncertain about the pandemic developments and its longer-term impact over the global economy.

The pan European index is 0.9% lower, with banks leading losses, down more than 2%. Among the best performers utilities and healthcare, down about 0.8%.

Lufthansa among the winners of the session, with shares up 5%, after the airliner said it was in advanced talks with the government over a rescue deal of up to 9 billion euros.

easyJet shares are bucking the trend too, up 2.3%, after the company said a small number of flights would restart on June 15.

Whitbread slumped 10.4% after announcing a $1.2 billion rights issue plan.

AstraZeneca down 0.8%, in line with the broader index, after first agreements to supply at least 400 million doses of the COVID-19 vaccine it is developing with the University of Oxford.

(Stefano Rebaudo)


European equities are set for a risk-off session as worries about the economic impact of the coronavirus pandemic continue to weigh.

Investors are expected to swing between hopes for a full reopening of the economy and anxiety about the longer-term impact of the virus, until the effect of the gradual easing in lockdowns on the infection rates will be clear.

On the corporate front AstraZeneca received the first agreements to supply at least 400 million doses of the COVID-19 vaccine it is developing with the University of Oxford.

GlaxoSmithKline’s consumer health unit has tied up with Mammoth Biosciences to develop a test that uses a technology commonly used in gene editing to detect novel coronavirus infections.

Then the impact of the pandemic over company results: Assicurazioni Generali’s first quarter net profit fell 85% year on year after 655 million euros of impairments due to the impact of Covid-19 on financial markets.

Aviva’s life new business sales rose by 28% to 12.3 billion pounds in the first quarter, and it estimated it would pay 160 million pounds in coronavirus-related claims.

Whitbread set out plans to raise 1.01 billion pounds through a rights issue.

The collapse in oil prices has led potential buyers of oil and gas fields to renegotiate deals.

Lufthansa said it is 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 media reports said the government has agreed on the final details of the rescue package.

Total has secured $14.4 billion funding for its Mozambique liquefied natural gas project in Mozambique.

EasyJet said a small number of flights would restart on June 15, with compulsory face masks.

(Stefano Rebaudo)


European futures and their U.S. peers are trading in the red as investors remain wary of the economic impact of the coronavirus outbreak.

Wall Street’s rise overnight on hopes of a quick recovery with potential more stimulus from the Fed is not enough to prop up equities in European morning trade.

Asian stocks ended flat ahead of a key policy gathering in China that may yield more economic stimulus and on worries of possible escalating tensions between U.S. and China.

(Stefano Rebaudo)

Reporting by Joice Alves, Julien Ponthus and Stefano Rebaudo

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