LIVE MARKETS-No signs of V-shaped German recovery, yet

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 ([email protected]) and Julien Ponthus ([email protected]) in London and Stefano Rebaudo ([email protected]) in Milan.

NO SIGNS OF V-SHAPED GERMAN RECOVERY, YET (1344 GMT)

Germany is probably among the first economies showing signs of rebound from the pandemic-induced deep recession, but a solid and quick recovery is unlikely to be at hand.

The Ifo index posted the strongest monthly increase in May, but it is still the second weakest reading since reunification, an ING research note says.

It talks and walks like a V-shaped recovery but it is not, ING added.

Even barring a second wave of infections, the “German economy is unlikely to return to its pre-crisis level before 2022,” they said, citing capacity utilization in the industry at its lowest since 2009 and the challenge of accessing finance.

But the truth is that in the current situation it is impossible to assess the impact of the crisis on the economic outlook and today’s Ifo index basically confirmed signals that activity has started to pick up since the first lifting of the lockdown in late April, ING says.

Ifo’s chief economist said German companies can see the light at the end of the tunnel, but the institute expects a double digit contraction in Q2.

(Stefano Rebaudo)

ITALIAN PUBLIC DEBT: CONCERNS OVERBLOWN (0941 GMT)

While most analysts worry about the sustainability of Italian public debt, pointing to its rise as a potential threat to the euro zone, others say this danger is widely overstated.

Unicredit chief economist Erik F. Nielsen lists several reasons why markets shouldn’t be too worried about Italian debt and explains “how wrong markets have been on Italy’s financial capabilities.”

Concerns about Italian debt usually affect the yield spread between Italian and German Treasury bonds, shares in Italian banks, and ultimately the financial sector across Europe.

Too much emphasis is placed on Italy’s debt/GDP ratio, while we should “be more concerned about flow/flow concepts,” he says. Nielsen says it is important to notice that Italy’s sovereign debt interest payments amounted for 7.2% of its fiscal revenues last year, only one percentage point higher than those of Spain and the UK.

According to the latest numbers available, almost half of Italian sovereign debt is held by Italians, so that portion is a “pure circulation of financial resources inside the Italian economy.”

“Italians showed with their money that they suffer no confusion about sovereign debt sustainability”, Nielsen said, referring to the country’s sale of 22.3 billion euros of inflation linked bonds last week.

Of the total amount on sale, 14 billion euros worth of BTPs were bought by the Italian retail sector, according to Unicredit, and the potential is huge given the total financial assets of Italian households is worth about 4.4 trillion euros, of which one third is in bank deposits.

(Stefano Rebaudo)

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OPENING SNAPSHOT: STOXX 600 POSITIVE, BAYER AND LAGARDERE SHINE (0730)

European stocks are higher after a mixed session in Asia and with the U.S. and the British markets closed for public holidays.

The Stoxx 600 index is up 0.4%, with healthcare leading gains, up about 1%.

Bayer shares are among the best performers, up 4% after a press report said the company reached verbal agreements to resolve a substantial portion of an estimated 125,000 U.S. cancer lawsuits over use of its Roundup weedkiller.

Shares in Lagardere Capital & Management (LCM) are up 5% after Bernard Arnault, the billionaire behind luxury fashion group LVMH, agreed to buy a stake in the group. LVMH stocks rise by a modest 0.2%.

Abivax shares rise 8% after German regulators approved a trial to test ‘ABX464’ product to help COVID-19 patients.

(Stefano Rebaudo)

ON THE RADAR: LVMH, LAGARDERE, BAYER, CREDIT SUISSE

European stocks are set to open higher but on thin trading volumes with U.S. and British markets shut for public holidays.

On the corporate front, Bernard Arnault, the billionaire behind luxury fashion group LVMH, has agreed to buy a stake in Lagardere Capital & Management (LCM).

Bayer shares are up 3.8% in premarket trade after a press report said the company reached verbal agreements to resolve a substantial portion of an estimated 125,000 U.S. cancer lawsuits over use of its Roundup weedkiller.

Credit Suisse expects to get by with fewer staff in coming years as the bank positions itself towards more digital interactions and remote working in the post-COVID-19 world, Chief Executive Thomas Gottstein told Swiss newspaper NZZ.

German regulators approved a trial to test French biotech group Abivax ‘ABX464’ product to help COVID-19 patients.

Travel group TUI is planning to resume flights to main holiday destinations in Europe by the end of June, its chief executive told a German newspaper.

Air France will have to “drastically” reduce its domestic air traffic, while Renault will have to stop developing production capacity abroad in exchange for state support, French Environment Minister Elisabeth Borne said on Sunday.

Lufthansa will resume flights to 20 destinations from mid-June.

Japanese beer maker Asahi Group Holdings said it would borrow 1.185 trillion yen ($11 billion) to pay for its acquisition of Anheuser-Busch InBev’s Australian subsidiary.

Italy’s Economy Minister Roberto Gualtieri said on Friday he was confident the government and Fiat Chrysler would be able to complete a deal over a 6.3 billion euro state-backed loan for the carmaker.

(Stefano Rebaudo)

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MORNING CALL: HIGHER OPENING IN A SUBDUED MARKET (0530 GMT)

Futures are pointing to a higher opening for European bourses in a session expected to be subdued with U.S. and British markets shut for public holidays.

There is no clear medium-term trend as the outlook of the economy hit by the coronavirus pandemic remains uncertain and tensions between U.S. and China continue to weigh.

Asian stocks were mixed overnight with Japan’s Nikkei up 1.4%, while Hong Kong shares fell 1.4% on mounting fears about future stability in the city as China on Friday proposed imposing national security laws on the former British colony.

(Stefano Rebaudo)

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