March 26 - Welcome to the home for real-time coverage of European equity markets brought toyou by Reuters stocks reporters and anchored today by Julien Ponthus. Reach him on Messenger toshare your thoughts on market moves: julien.ponthus.thomsonreuters.com@reuters.net FACEBOOK, RECKITT, UTILITIES: "SELECTIVELY BUYING THE DIPS" (1418 GMT) Banor SIM has been "selectively buying the dips" during recent waves of selling pressure, beit the last tech regulation or trade war worries, the jitters over faster interest rate hikes orthe nuclear tensions in the Korean peninsula, its head of equities Angelo Meda just told us. "There's always a dominant theme that's scaring everyone on markets but in practice theeffects have been limited and there's nothing so far that can derail global growth," Meda said. And even though "we're not going to see a revival of the perfect year that was 2017",continued strength in business activity makes him broadly upbeat about prospects for the equitymarket. But what has Meda been buying during the recent dips? Here are his examples. * FACEBOOK: "We had been reducing our tech exposure as the sector continued to makefresh record highs but now with Facebook we're bringing back our exposure to the weight it had afew months ago. We see again a buying opportunity. [The privacy scandal] is a speed bump." * RECKITT, NESTLE: "Defensives bore the brunt of interest rate worries inJanuary. Shares in consumer staples like Reckitt have lost like Facebook. They have returned tointeresting valuations and interest rates have meanwhile stabilised." * ITALIAN UTILITIES: "There is a concern that a 5-Star-League government(could enforce adverse regulation) but we don't believe much will change. They are a goodinvestment: priced at a discount and offering a good dividend." (Danilo Masoni) ***** BREXIT STILL A TOP BOGEYMAN FOR EURO ZONE COMPANIES (1317 GMT) The main things keeping Euro zone companies up at night are the future of the EU, the Trumpadministration's policies, and, of course, Brexit, finds UBS in a survey. While more corporatesare concerned about the political situation in
Spain and
Germany, they're relatively unfussedabout
Italy. Here's the survey's breakdown of Brexit fears: - The share of firms anticipating Brexit will lead to cuts in investment increased to 39%from 35% in Q3 2017, but the level of cuts to
UK capacity lessened somewhat: - Of companies with
UK operations (82% of those surveyed), 12% anticipate pulling all theircapacity out of the
UK as a result of Brexit - that's down from 15% in the previous survey - 24% said they would remove "a large amount" of their capacity (down from 28%) - Key beneficiaries would be the Euro zone (41%) and EU countries in
Central Eastern Europe(29%) - Consumer companies show the lowest sensitivity to Brexit, while industrials companies aremore sceptical and materials companies are the most bearish - Firms are granting themselves more time to respond to Brexit than previous surveyssuggest; 39% of firms anticipate responding immediately or within 6-12 months, significantlyless than the 56% a year ago, in a sign of anticipation of a transition deal. (Helen Reid) ***** "GOLDILOCKS ON STEROIDS" NO MORE (1224 GMT) Hawksmoor's head of research reckons trade wars are just an easy excuse for an equitysell-off which has deeper, economic roots.
China's holding of around
$1.2 trillion of
U.S.Treasuries precludes the Trump administration from doing anything to hugely upset
Beijing, saysJim Wood-Smith in a note to clients. "The reality is that after an amazing first three weeks of January, equity markets havebecome skittish... my suspicion is that what we are seeing is the re-pricing of the risk of aneconomic slowdown as the year progresses," he says. The impressive gains in equities last year were based on stronger economic growth with noinflation - a situation he labels "Goldilocks on steroids". But now, "some of the less momentum-driven market players are questioning how sustainablesteroid treatment can be," he adds, and moving to take some profits from equities and shift intotreasuries. (Helen Reid) ***** TRADE WARS: MOOD SWINGS, CYNICISM AND HEADACHES (1215 GMT) The speed at which market sentiment about the possibility of a full-blown trade war canshift was obvious this morning, with Asian shares closing down on escalation fears only a fewhours before European stocks opened comfortably in positive territory. With
U.S. futures now cruising above one percent ahead of the opening bell on Wall Street,it's proving quite a headache for analysts to consistently tell their clients what to do whenthe weather forecast is saying "partly sunny with a chance of trade wars" (JP Morgan headline). Sarcasm and cynicism about the Trump's administration willingness to actually go for aconfrontation is growing amid a sense of frustration about not being able to call it a bluff. "The trade war is increasingly looking like a phoney war. Even if
U.S. trade policy is morespin than substance, increasing uncertainty does have implications for markets," writes UBSWealth Management's economist Paul Donovan. For Oxford Economics, "the wedge between Trump's initial announcement and actual policy canbe large. We think this reality will dawn on the markets in the coming weeks". Still, the risk of unexpected escalation is keeping a lot of analysts on their toes. "Given how badly equities reacted last week a failure of negotiations would likely promptanother ugly sell-off," says IG's Chris Beauchamp, while French asset manager LBPAM says marketswouldn't be able to switch to a clear upward trend without the strong belief that trade warswill definitely not happen. (Julien Ponthus) *****
ITALY UNDERPERFORMS (BUT NO DRAMA) (1059 GMT) Italian stocks (and bonds) are falling in positive markets after the anti-establishment5-Star Movement hooked up with anti-immigrant League on Saturday to elect the speakers of bothhouses of parliament. Is this the embryo of
Italy's next government? Possibly. "History suggests the majority [that appointed] the speakers is usually the same one the government. Hence, there is enough for the market to start pricing inincreasing chances for the feared yellow-green... coalition government between Lega and FiveStar taking shape," says Mediobanca Securities in a note. But they add: "Last three governments took birth on average two months from the beginning ofthe consultations with the Head of State. We sense this time could take longer, offering ampleroom for surprises that could still change what at this stage appears as the new base casescenario." Losses however are rather small, with banking stocks falling the most and ledlower by a 2.5 percent drop in UBI Banca following media reports - which the mid-sizedlender denied - that its CEO had discussed a potential tie-up with Monte dei Paschi .
Italy's FTSE MIB is down 0.2 percent, still comfortably up year to date and stillthe best performer among main European markets. (Danilo Masoni) ***** LIBOR-OIS SPREAD NOT A SIGN OF CRISIS (1126 BST) The blow-up in Libor has been on everyone's lips the past few weeks, as concerns grow overthe potential impact on financing and banks, but analysts are quite sanguine about it. The premium of three-month
London interbank offered rate (Libor) over the overnight indexedswap rate (OIS), seen as a gauge of money market stress, has surged in recent months. Some 53% of
U.S. corporate loans, 12% of consumer loans as well as nearly
$1.8 trillion ofbonds are referenced to Libor, according to the Fed, meaning the rise in Libor translates toincreased funding costs for consumers and banks. "We believe the widening is purely technical and is no indication of any systemic risksfacing the financial sector," write Credit Suisse strategists. Libor widened mainly due to an unusual amount of
U.S. Treasury bill issuance, and
U.S. taxreform driving a repatriation of cash. "A likely slowdown in the issuance of bills from thesecond half of April onwards should reduce upward pressure on the spread," they note. And there's not been much impact from Libor to other parts of the market. "While Europeanbanks have underperformed since the widening in Libor-OIS spreads, we believe this is largelydue to the fall in bond yields and rollover in PMIs." For more check out our explainer: (Helen Reid) ***** RECORD WEEK FOR BLOCK TRADING (1033 BST) The impact of MiFID II is certainly being felt: just two weeks after the implementation ofdark pool caps on a wide swathe of European stocks, the volume of "large-in-scale" (LIS) blocktrades (exempt from the caps) has shot up, Fidessa data shows. Last week was the busiest ever for LIS trading on block venues, with a record number oftrades on Turquoise, Cboe LIS, Cboe Dark and Euronext Block platforms. A record value was traded on Liquidnet, Turquoise, Cboe LIS and Euronext Block. Overall the proportion of block trades to the whole dark trading volume rose to 44 percentlast week, from 42 percent the week before. The stock with the most block trades was Land Securities, with a total of 156. British American Tobacco meanwhile traded
367 million euros in blocks - an all-timerecord block value traded in a single stock in a week. (Helen Reid) ***** FINANCIALS: EARNINGS BACK IN THE SPOTLIGHT (0955 BST) While some analysts are warning to turn down exposure to cyclical parts of the market, Citiare taking a closer look at the financial sector. They say 70% or more of financials' returnsare driven by macro factors, but the importance of non-macro factors such as earnings anddividend delivery is rising, just as the macro outlook starts to look a little more uncertain. The stellar gains in financials over 2017 have left relatively few bargains, though. "While valuations are unstretched, few stocks are outright cheap and future performanceseems more geared to earnings delivery than re-rating," Citi strategists write. While highlighting near-term earnings risks, especially for European banks, as investorswait for rate rises to boost revenues, they say patches of weak economic momentum can bebalanced by robust EPS growth and attractive dividend yields. They reckon Swiss and
UK domestic banks are good bets, as well as
U.S. banks and lifeinsurers. Among Citi's top stock picks are
Europe's Credit Suisse, Intesa Sanpaolo,Societe Generale and Standard Chartered while the Europeans on the leastpreferred list are all Swedish: Swedbank, SEB, and SHB. (Helen Reid) ***** EUROPEAN STOCKS STAGE A RECOVERY (0814 BST) Defensives are in the lead today as European markets stage a rebound, with all sectorsmaking gains. Healthcare and utilities are the best-performing, as Roche's lung cancer trial success helps boost it up 1 percent. It's not only defensives enjoying gains though, with financials also rising as sentiment ontrade improves. Fresnillo is enjoying the top position on the STOXX, up 3.6 percent after anupgrade to "buy" from Goldman Sachs, who also added the miner to their "conviction list". Smurfit Kappa meanwhile is slipping 4 percent after refusing a sweetened takeoveroffer from International Paper. WHAT'S ON THE RADAR FOR THE OPEN? (0745 BST) Trade war fears have weighed yet again on Asian shares this morning but there are scarcesigns of a general sell-off in
Europe this morning. Futures indicate the main indexes are toopen slightly down (-0.2 percent for the IBEX) or flat (for the CAC 40).
U.S. futures are also trading in positive territory, suggesting that the latest news on thetrade front (
U.S. exempts
South Korea from steel tariffs, hopes of a negotiated US/
China deal)is not a cause for alarm. Catalonia is back on the front page and could dampen sentiment in
Spain with Puigdemont’sdetention in
Germany. In
France, Macron’s reform agenda received a boost with a lower thanexpected deficit for 2017 (first time it is below 3 pct in 10 years). Rather limited news in the corporate arena this morning but the saga for the control ofTelecom Italia is still at the centre of attention, as is the GKN situation with auto componentsmaker Dana agreeing to increase its offer for GKN's Driveline business. Smurfit Kappa hasspurned a revised proposal from International Paper, while Roche could benefit from results ofone its drugs showing a boost in lung cancer patients' survival. A round-up of company news headlines since Friday:BRIEF-Smurfit Kappa Rejects Revised Proposal From International PaperDana ups cash offer in hotly contested fight for
Britain's GKNBRIEF-Colas And Bouygues Construction Announce Acquisition Of Alpiq EngineeringRoche's Tecentriq cocktail notches another lung cancer successJD Sports to buy The Finish Line of the
U.S. for
$558 millionGivaudan buys
522 mln euro Naturex stake and launches takeover offerRolls-Royce says Trent 7000 engines not affected by turbine blade issuesVivendi ups stakes in Telecom Italia fight with ElliottAtlantia to buy Cellnex stake, granted option to sell it on to Edizione(Julien Ponthus, Tom Pfeiffer) **** BECOMING MORE SUSPICIOUS OF CYCLICALS (0728 BST) UniCredit analysts have downgraded the STOXX 600 Basic Resources and Chemicals toneutral, still rotating away from cyclical stocks and towards more defensive areas of themarket. "The current slowdown in economic growth momentum suggested by leading indicators such asthe PMI indices is leading to materials becoming less attractive compared to defensives," theywrite. Tariffs are, of course, part of the reason as well, with materials stocks likely to be hitby trade tensions. "These developments are negatively influencing the risk premia that investors are takinginto account," adds UniCredit. (Helen Reid) ***** EUROPEAN FUTURES SLIGHTLY DOWN,
U.S. E-MINI RISE (0717 GMT) European futures have opened only slightly in negative territory despite persistent concernsover trade tensions between the Trump administration and
China. Futures for the continent's mainindexes are trading between -0.2 percent and +0.1 percent. As a sign that investors are not in a full-blown "risk-off" mood, E-Mini futures for the S&P500 are up 0.7 percent. (Julien Ponthus) ***** MORNING CALL:
EUROPE SHARES EXPECTED LOWER AS TRADE FEARS HIT
ASIA (0631 GMT) European shares are expected to open lower this morning as fears of a full-blown trade warbetween
the United States and
China battered Asian shares. Financial spreadbetters expect
London's FTSE to open 22 points lower at 6900,
Frankfurt'sDAX to open 21 points lower at 11865 and
Paris' CAC to open 12 points lower at 5083. (Julien Ponthus) *****
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