European Factors to Watch - European stock rally to pause on U.S. spat

Thu Dec 20, 2012 2:15am EST

LONDON, Dec 20 (Reuters) - European stocks were seen opening a touch lower
on Thursday, with investors using frictions in U.S. budget talks as an excuse to
take profit on some overbought indexes.
    Sentiment turned cautious toward risk assets overnight, hurting U.S. shares
, crude oil and copper, as a conflict in negotiations to
avoid a "fiscal cliff" of planned tax hikes and spending cuts in the United
States grew more heated.
    In the absence of a bipartisan agreement, the Republican leadership of the
House of Representatives plans to move a bill of its own on Thursday, angering
President Barack Obama and threatening to unravel significant progress made over
the last week. 
     At 0709 GMT, futures for the Euro STOXX 50, Germany's DAX 
and France's CAC were down 0.3 percent, while contracts on Britain's
FTSE 100 shed 0.2 percent.
    "Risk appetite dropped overnight amid thin volumes as renewed tensions over
the fiscal cliff weighed on sentiment," Credit Agricole said in a note.
    "The lack of traction in concluding any agreement leaves a limited amount of
time before year end, with markets likely to become more nervous by the day.
This could still threaten the solid rally in risk assets registered over recent
weeks."
    Optimism on a U.S. budget deal had helped the euro zone blue-chip Euro STOXX
50 index rise 0.4 percent to 2,654.69 on Thursday, its highest level
since August 2011.
    The Euro STOXX 50 stepped into "overbought" territory on its 14-day its
Relative Strength Index for the first time since 2009, which meant some
investors could be looking to lock in some profits at this level, with a view to
closing their trading books for the year.
    "Many investors are closing their positions to be flat into the New Year," a
Milan-based trader said. "There's very little interest in opening new
positions."
    The Euro STOXX 50's RSI ended at 72.3 on Wednesday, where a reading of above
70 indicates overbought conditions, Thomson Reuters data showed. The Dax
 and the CAC were also overbought, charts showed.
    But some investors were still expecting new gains in the coming days, data
from financial spreadbetter IG showed.
    More than 70 percent of all open FTSE 100 positions and 57 percent of all
DAX positions on IG's platform are on the "long" side, which means investors
were betting on new advances. 
    The Euro STOXX 50 has been up around 10 percent since mid-November, driven
by fund managers trying to enhance their performance before the end of the
quarter on the assumption that the "fiscal cliff" would be averted. 
    The rally, marked by low volumes, was part of a pattern that has seen the
Euro STOXX 50 record a monthly gain in December nine times in the past 10 years.
    "You always have to be a bit careful at this time of the year because this
is the traditional time for the triumph of hope over experience," Andrew Parry,
chief executive of asset-management firm Hermes Sourcecap, said. "And then you
confront reality."
    Hermes used the recent rally to take some profit on successful larger
positions Adidas, Elekta and Syngenta within its
funds to invest in the relative laggards and smaller holdings such as Porsche
, Valeo and BG Group.
    New names added included Swiss bank UBS, which Parry sees as a
recovery story as the firm embarks on a change of strategy away from investment
banking.
    UBS agreed to pay $1.5 billion to regulators in the United States, UK and
Switzerland on Wednesday, only for the Hong Kong Monetary Authority to say one
day later that the Swiss bank was being probed over its submissions of interbank
rates there, raising the risk it could face more fines.      
    
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    MARKET SNAPSHOT AT 0709 GMT                        
                                       LAST   PCT CHG  NET CHG
    S&P 500                        1,435.81   -0.76 %   -10.98
    NIKKEI                        10,039.33   -1.19 %  -121.07
    MSCI ASIA    <.MIASJ0000PUS               -0.45 %    -2.48
    EX-JP                                              
    EUR/USD                          1.3217   -0.07 %  -0.0009
    USD/JPY                           83.97   -0.51 %  -0.4300
    10-YR US                          1.782        --    -0.02
    TSY YLD                                            
    10-YR BUND                        1.435        --     0.00
    YLD                                                
    SPOT GOLD                     $1,669.19    0.16 %    $2.63
    US CRUDE                         $89.53    -0.5 %    -0.45
 
  
  > Asian shares slip as U.S. budget talks sour, BOJ eases     
  > Wall St falls as 'cliff' talks sour, but hopes remain      
  > Nikkei in partial recovery as investors reassess BOJ steps 
  > Treasuries rally as higher yields lure buyers              
  > Yen keeps slim gains after BOJ eases as expected           
  > Gold inches up, uncertainty over U.S. fiscal talks weighs  
  > Copper hits 3-week low, U.S. fiscal talks eyed             
  > Brent dips as stalled US fiscal talks cloud outlook        
    
    COMPANY NEWS
    
    VOLKSWAGEN 
    VW's commercial vehicles division is aiming for "annual growth of 4-5
percent on average" VW board member responsible for that business, Leif
Oestling, told Handelsblatt newspaper.
    
    UBS 
    U.S. prosecutors charged two former UBS traders with taking part in a
multi-year scheme to manipulate Libor and other benchmark interest rates, making
them the first individuals to be criminally accused in the international
scandal.
    Hong Kong's de facto central bank said it is investigating possible
misconduct by UBS over its submission of interbank rates, raising the
possibility that the bank could face another fine a day after it agreed to pay
$1.5 billion for its role in the Libor scandal.
    
    DEUTSCHE BOERSE 
    IntercontinentalExchange Inc is in talks to buy NYSE Euronext
, the operator of the New York Stock Exchange, according to a source
familiar with the situation. 
    
    DEUTSCHE BANK 
    An Italian court on Wednesday found Deutsche Bank, among others, guilty of
fraud for mis-selling derivatives to Milan that could set a precedent for
hundreds of local governments to pursue. 
    
    GENERALI 
    The Bank of Italy announced officially on Wednesday it would transfer its
4.5 percent stake in Assicurazioni Generali to Italy's state-backed
fund Fondo Strategico Italiano (FSI) in exchange for shares in FSI. The fund has
then agreed to sell the Generali stake at the market price. 
    
    BNP PARIBAS 
    Emirates NBD, Dubai's largest bank, has agreed to buy the French
bank's Egyptian arm for $500 million, in a deal that will help the French lender
shore up its capital while allowing the Dubai bank to expand its regional
footprint. 
    
    FINMECCANICA 
    General Electric is set to sign a deal to buy Italian aerospace supplier
Avio excluding its space division, sources close to the talks said on Wednesday.
Finmeccanica owns around 14 percent of Avio. 
    The board of the defence group heard a statement from chairman Giuseppe Orsi
on talks to sell non-core assets including AnsaldoEnergia, a source close to the
board said on Wednesday, without adding details. 
    
    LAFARGE 
    The French cement maker is in talks with private equity and financial firms
to raise about $300 million by selling around a 20-25 percent stake in its India
unit, two sources with direct knowledge of the matter told Reuters.
 
    
    AREVA 
    The French nuclear reactor maker cut its 2013 core profit goal as it lowered
its forecast for revenue from its renewable energy business because of project
delays. 
    
    EDF 
    Britain must decide by March 19 whether to allow EDF Energy to build a new
nuclear power plant at Hinkley Point in South West England, the planning agency
said after making its recommendation on the project. 
    
    PPR 
    The French luxury and sports brand group said it plans to pay shareholders
an interim dividend of 1.50 euros a share for 2012 on Jan. 24. 
    
    AIR LIQUIDE 
    The gases group said it won equipment sales contracts worth more than 100
million euros to provide extreme cryogenic systems for two scientific research
projects.  
    
    RWE 
    Australian bank Macquarie has bought a stake in Czech gas grids
owned by RWE, which expects the transaction to close in the first quarter. RWE
will receive a cash component as part of the deal but did not give any financial
details. 
    
    BERTELSMANN 
    The media conglomerate will use organic means and acquisitions to grow its
digital business, strategy chief Thomas Hesse told Sueddeutsche Zeitung. He
added the group would be interested in any bits of EMI that came onto the
market.
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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