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* U.S. stock futures 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 Joice Alves ([email protected]) and Julien Ponthus ([email protected]) in London and Stefano Rebaudo ([email protected]) in Milan.
HOW CORONAVIRUS COULD ACCELERATE SHIFT TO ELECTRIC CARS (1000 GMT)
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.
PRESSURE ON MARGINS IS GOING TO LAST FOR RETAILERS (1002 GMT)
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.
OPENING SNAPSHOT: RISK-OFF, LUFTHANSA SHINES ON RESCUE PLAN (0734 GMT)
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.