May 20, 2020 / 11:50 AM / 13 days ago

LIVE MARKETS-European luxury: Less is more

* STOXX turns positive

* Experian jumps to the top of the index

* Real estate shares under pressure 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 (joice.alves@thomsonreuters.com) and Julien Ponthus (julien.ponthus@thomsonreuters.com) in London and Stefano Rebaudo (stefano.rebaudo@thomsonreuters.com) in Milan.

EUROPEAN LUXURY: LESS IS MORE (1147 GMT)

During a economic downturn, even the wealthiest are not willing to show off, past financial crises tend to show.

That doesn’t mean people will stop buying luxury handbags and nice clothing, but they will most likely opt for “understated” styles, essentially meaning they will go for less products with loud logos, says BofA.

“We believe that affluent consumers will want to express their taste in a more understated manner during and immediately after the crisis, as was the case in previous downturns,” the U.S. bank says.

After analysing search queries, social media and website traffic, BofA says that Cucinelli , Prada and Hermès are best positioned to capitalise on this trend.

On the other hand, Kering could underperform because of its brand Gucci’s “louder aesthetic”. But also Versace, “a brand with a relatively ostentatious look,” could be under pressure.

(Joice Alves)

ZERO REBOUND FOR EURO ZONE BANKS... YET! (1050 GMT)

There’s been absolutely no rebound for euro zone banks, which are currently trading at the same level as they were during the coronavirus-induced deepest crash on March 16.

One ray of hope however for investors who didn’t give up on European lenders is that momentum may be building for cyclicals shares, Barclays analysts argue in their weekly strategy note.

“Once activity starts to rebound, it is likely that most cyclical sectors should perform better as they are highly positively correlated to the PMIs”, which are probably close to their bottom, the Barclays team believes.

As you can see from their chart, banking stocks have the biggest correlation to PMIs:

The question is though, will banks catch the cyclical boat when and if it finally gets ready to sail away?

(Julien Ponthus)

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UK DEPARTURE MIGHT DEPRESS EUROPEAN STOCK RETURNS (1005 GMT)

Analysts do not challenge the idea that U.S stocks offer historically better returns than European ones, but some argue that Euro zone shares are so depressed that now they are a good bargain.

Bernstein does not think so and lines up several good reasons to go for Wall Street instead.

“On a sector-adjusted basis (accounting for the lack of a tech sector) Europe trades at a slight discount to the U.S., but not outside the bounds of historical experience,” a research note says.

Lack of mega-cap tech stocks in Europe, something that has been a feature for U.S. versus EU equity performance for 50 years, is not something that can change, not even in the medium term.

The expected departure of the UK could weigh on European equity returns as “it removes a key support for Anglo-Saxon views of shareholder primacy,” it adds. It means that there will be less dividends and buybacks.

The eurozone split between North and South and fears of possible break-up are probably overstated, according to Bernstein.

“We do think that there are good reasons that mean Germany will eventually acquiesce to some form of a fiscal union. Such an outcome would be bullish for European risk assets and remove a strategic hurdle. But this would require a great deal of patience by investors,” it argues.

(Stefano Rebaudo)

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OPENING SNAPSHOT: STOXX DOWN, EXPERIAN AND M&S SHINE (0740 GMT)

Stocks are edging lower as investors continue to worry about the economic impact of the pandemic and digest another batch of earnings reports.

The pan European index is down 0.6% with banks leading the losses, down more than 2%. The healthcare sector is the best performer, up 0.8%.

Shares in Marks & Spencer jumped 3.8%, after the company said it would accelerate its turnaround programme.

Experian shares are up 5.4% to the top of the STOXX, after it forecast Q1 organic revenue to decline just by 5% to 10%.

AstraZeneca shares are also in positive territory after the U.S. Food and Drug Administration approved its Merck’s Lynparza as a treatment for a form of prostate cancer.

(Stefano Rebaudo)

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ON THE RADAR: ROLLS ROYCE, RABOBANK, TOTAL, EXPERIAN (0646 GMT)

European stocks are expected to open lower as investors are still uncertain about how deep the impact of the coronavirus outbreak on the economy will be in the medium term.

On the corporate front we have the second large oil and gas deal to be revised in the wake oil price slump after BP delayed some payments to, and received vendor financing from, Hilcorp last month.

Total revised a previously agreed deal to sell its British North Sea oilfields, which would result in Oman’s Petrogas pulling out of the transaction.

Rolls-Royce will need to lay-off at least 9,000 of its 52,000 staff to make annual cost savings of 1.3 billion pounds.

Dutch lender Rabobank foresees around 2 billion euros ($2.2 billion) in additional loan provisions in 2020. HSBC Holdings expects to achieve double-digit asset growth in its newly combined wealth business in Asia Pacific in the next three years.

World’s biggest credit data company Experian expects first-quarter organic revenue to decline by 5% to 10% if coronavirus-related restrictions continue.

The U.S. Food and Drug Administration approved AstraZeneca and Merck’s Lynparza as a treatment for a form of prostate cancer.

Marks & Spencer said it would accelerate its latest turnaround program, after reporting a 21% fall in annual profit.

Lufthansa is bracing for hundreds of aircraft to remain grounded due to the coronavirus pandemic well into 2022 and that further job cuts.

Renault has sealed a deal with banks on a 5 billion-euro ($5.47 billion) state-guaranteed loan to help the company to cope with the coronavirus outbreak.

Shares in Aareal Bank up 4.2% in premarket after it invited bids for minority stake in its Aareon unit.

(Stefano Rebaudo)

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MORNING CALL: STILL WORRIED ABOUT THE IMPACT OF THE VIRUS (0635)

European futures are pointing to an open slightly in the red, but with no clear direction as investors continue to swing between optimism over some easing in lockdowns and anxiety about a worse than expected impact over the economy.

Wall Street lost ground overnight after a report said the Moderna experimental COVID-19 vaccine did not provide the critical data needed to assess its effectiveness.

Asian stocks were mostly flat but a soft yen supported the Japan blue chip index Nikkei which closed up 1.2%.

Crude futures are in positive territory, amid signs of improving demand.

(Stefano Rebaudo)

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

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