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LIVE MARKETS-Target price change blues

Published 30/03/2020, 11:18 pm
Updated 30/03/2020, 11:24 pm
© Reuters.

* China cuts reverse repo rate

* Oil prices tank

* Euro zone banks start freezing dividends

* STOXX 600 down 0.7% 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.

TARGET PRICE CHANGE BLUES (1215 GMT)

It took a while for sell-side analysts to adjust their models and ratings to the unprecedented corona market crash as you can reminisce here: a short while, many recommendations were redundant and had to quickly be updated for a world where a third of humanity is under lockdown and facing a massive recession.

Ratings are now getting in sync but when they do, it can be quite brutal.

Just an example this morning from this update from DB, but it could have been taken from any broker.

Their target price changes are all negative and range from -1.3% to...46% in sectors from luxury to housebuilders to stainless steel makers.

(Julien Ponthus)

*****

A BLIZZARD OF BAD NEWS COMING (1146 GMT)

If you thought we saw the peak of bad news with U.S. jobless claims soaring to 3.25 million, many analysts believe that you're wrong and that there's more to come!

Sure, markets are behaving as if these have been priced-in but that doesn't mean it will stay that way.

"Markets shrugged off the first round of bad data, reassured by the policy response and, perhaps, the reduction in uncertainty from finally seeing some hard data," Goldman Sachs (NYSE:GS) says.

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"But we think that this optimism will be challenged by reminders of the depth of the downturn, and renewed focus on the risks of a longer-lasting containment period."

The U.S. investment bank expects the S&P 500 to dip to a low of 2,000 and 10-year Treasury yields to fall to 0.4% and added that "with luck the virus spread will then slow, economies will reopen, and markets will only spend a short time at those lows."

Here's a quick chart comparing 2008 bottom:

(Thyagaraju Adinarayan)

*****

CORONA CRASH: WHO'S NECK AND NECK BEHIND THE TRAVEL SECTOR? (1133 GMT)

With something like a third of mankind under lockdown and the rest of humanity largely subjected to some form of travel bans, it doesn't take a PhD in finance to guess which sector has suffered the most from the pandemic.

In Europe, shares listed in the Travel and Leisure .SXTP sector have lost over 45% year to date, which constitutes by far the worst performance.

But who comes after as the second worst performer is a 'neck and neck race' so to speak.

At the time of writing, three sectors have clearly being singled out by investors: autos .SXAP with a ytd 40% fall, banks .SX7P with 38.8% and oil and gas .SXEP down 37.6%.

There's bad news for every industry today with oil prices collapsing euro zone banks freezing or scrapping dividend and car makers burning cash while production is halted and sales fall.

Here's how it looks YTD:

Another way to look at it is to see how each of these sectors performed since the February 19 highs. As you can see the race is close:

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(Julien Ponthus)

*****

EZ SENTIMENT PLUNGE TRIGGERS MUTED MARKET REACTION (0950 GMT)

We're all quickly getting used to unprecedented times, unchartered territories, epic volatility and all that jazz.

So when at 0900 GMT, fresh data showed the euro zone sentiment suffered its steepest ever monthly decline in March, traders didn't lose it.

Actually, looking at the STOXX 600 at that time, it's difficult to tell if they even noticed.

(Julien Ponthus)

*****

WHICH UK COMPANIES ARE STILL PAYING DIVIDENDS? (0854 GMT)

A string of euro zone banks have just announced freezing or scrapping dividend payments after the ECB asked lenders to beef up capital cushions.

In the meantime, more than 100 UK firms have postponed or cancelled some 4.2 billion pounds of dividend payments in March alone. more and more firms are delaying or ditching dividend payments, the real question is: which companies do still pay them?

In the UK, only nine companies have maintained dividend payments in the month to last Friday, says AJ Bell. Find below the list:

Company

Dividend payment held

(£ million) SSE (LON:SSE)

582.0 CCH

208.7 Berkeley Group

124.9 Vivo Energy

29.7 Reach

12.1 GCP Student Living

7.2 Supermarket Income REIT

3.5 Mattioli Woods

2.0 Tandem

0.3 TOTAL

970.4

“The businesses involved are all very different, from a pan-European fizzy drink bottler to a housebuilder, from a utility to a media group..." says AJ Bell.

What do they have in common?

Here is AJ's view:

* Relatively predictable and stable revenues streams or businesses that supply basic needs(food, utilities)

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* Plenty of cash at hand (net cash or robust balance sheets)

* Good levels of interest cover and earnings cover

* Interesting debt structure in terms of covenants, maturity (several years away), headroom for the firm to tap existing loans

(Joice Alves)

******

OPENING SNAPSHOT: A MORNING BURST OF VOLATILITY (0743 GMT)

Futures and cash markets are riding an early roller-coaster this morning with volatility all over the place!

There were solid gains at the open but that just fizzled out in thin air in less than 10 minutes, showing that the Chinese repo move ain't gonna save the day after all.

Oil prices tanking on the other hand are spooking investors out.

Another 10 minutes later most European bourses were deeply in the red and so were most sectors at the exception of chemicals and healthcare.

At 0720 GMT, the STOXX 600 was down 1.3%, Milan losing 2%, Paris 1.8% and the DAX 1%.

Among individual stocks, a lot of British blue chips led by cinema operator Cineworld after the British authorities said it could take months before the economy could go back to 'normal'.

(Julien Ponthus)

*****

ON THE RADAR: THE WINTER DIVIDEND IS COMING (0640 GMT)

It's a bit a song of ice and fire this morning: blue chips are burning cash like Daenerys Targaryen her enemies and investors have to come to terms with one of the only certainty of these troubled times: the dividend winter is coming!

UniCredit CRDI.MI became the first Italian bank to comply with the ECB call to put dividend and buybacks on hold to preserve beef up capital and support the economy.

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It was followed this morning by Dutch lenders ING INGA.AS and ABN Amro ABNd.AS which said they would follow the advice of the ECB and suspend any payment of dividends until at least Oct. 1.

One exception outside the EU in the banking sector is UBS Group UBSG.S which maintained its 2019 dividend.

Apart from lenders, the pay-out freeze is still doing its thing with Sweden's SSAB SSABa.ST dropping its dividend for 2019,a move that came less than a week after the steelmaker had halved its original payout proposal.

In terms of fire, Volkswagen (DE:VOWG_p) Chief Executive Herbert Diess told German TV channel ZDF his company was burning through $2.2 bln a week with production halted by the coronavirus pandemic.

On that note Nissan just announced that its global vehicles sales fell by 24.2%.

British fashion chain Next just cut off its remaining source of revenue and shut its online business, bowing to pressure from workers worried about their health.

More companies joined in to warn investors about the recession with ABB saying all of its businesses would suffer in the first quarter.

Other coronavirus led headlines for European equities include:

* British accounting firm KPMG's chairman testing positive for the coronavirus

* A new version of a breathing aid has been developed in less than a week by a team involving Mercedes Formula One, and is being tested at London hospitals.

* Sanofi SASY.PA and Regeneron Pharmaceuticals have expanded a clinical trial of their rheumatoid arthritis drug Kevzara as a coronavirus treatment to patients outside the United States.

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(Julien Ponthus)

*****

MORNING CALL: STEADY AS SHE GOES (0533 GMT)

European futures are trading in the black pre-market despite a difficult session in Asia where shares slipped and oil prices tanked as fears for the global economy lingered on despite the many fiscal and monetary stimulus plans implemented or pledged around the world.

China on Monday became the latest to join in with a cut of 20 basis points in a key repo rate.

U.S. futures have also cut their losses and are now firmly in positive territory.

While investors were hoping that stock markets had reached a bottom in the coronavirus crisis, many analysts warn that the economic damage is likely to be deep and long-lasting.

Sunday, a senior medical official said lockdown measures to combat coronavirus in Britain could last months and only be gradually lifted.

(Julien Ponthus)

***** .

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