January 17, 2018 / 5:17 PM / a year ago

LIVE MARKETS-Closing snapshot: European stocks end slightly lower

    * European shares end slightly lower
    * Earnings in focus: ASML, Casino, Pearson, Burberry
    * Informa agrees to buy UBM
    * Tech stocks lead Wall St higher

    Jan 17 (Reuters) - Welcome to the home for real time coverage of European equity markets
brought to you by Reuters stocks reporters and anchored today by Danilo Masoni. Reach him on
Messenger to share your thoughts on market moves: danilo.masoni.thomsonreuters.com@reuters.net  
  
 
    CLOSING SNAPSHOT: EUROPEAN STOCKS END SLIGHTLY LOWER
    European stocks have finished the session just slightly lower, as falls among health stocks
and commodity firms weighed. Today has been a busy with company updates, and tomorrow we've got
quite a few British firms giving trading updates too.
    Have a lovely evening - here's your closing snapshot:
 
    (Kit Rees)
    *****
    
    CONGLOMERATES? IT'S A KIND OF MAGIC, M&A BANKER RECKONS (1625 GMT) 
    With General Electric considering a breaking-up and Siemens listing its
healthcare business, it's tempting to call it a trend: "The end of the industrial conglomerates"
was the title of Bayern LB's bond daily research today. 
    After all, didn't Siemens boss Joe Kaeser declare last November that "conglomerates of the
old-fashioned kind have no future"? 
    As much as there are no driving forces in today's capitalism to revive the conglomerate
model of the 70's and 80's, breaking up conglomerates is not a trend, it's just something you
consider "when the magic is gone", an M&A banker just told us.  
    By magic, he meant that only a handful of CEOs are successful enough to avoid the so-called
"conglomerate discount", where a group's varied divisions are seen as being more valuable if
they were split into separate companies.
    "If investors are happy to pay a premium for Berkshire Hathaway shares it's because they
think: 'Warren Buffet is a better stock picker than me'," he reckons.  
    Same thing with GE's former iconic CEO Jack Welch -- investors were happy to let him reign
over a disparate empire as they were convinced he was the ultimate asset manager. 
    It's just simply no longer the case, the banker said. 
    Here's Jack Welch:   
 
    (Julien Ponthus)
    *****
        
    THE GREAT BRITISH BARGAIN HUNT (1556 GMT)
    Here's a more positive view on British stocks from Richard Colwell, head of UK equities at
Columbia Threadneedle Investments. He sees opportunities to buy inexpensive stocks as investors
baulk at exposure to companies seen as Brexit victims or targets for disruption. 
    "You could consider UK equities an each-way bet for 2018. If equities around the globe grind
higher, then at some point UK equities should be a catch-up trade," Colwell says in a note.
    "But if global equities correct, then UK equities ought to be more resilient due to their
low valuations and the fact that there is no ‘hot money’ in the UK market."
 
    (Kit Rees)
    *****
    
    NUDGING TOWARDS EQUITIES OVER BONDS (1416 GMT)
    Daniel Morris, senior investment strategist at BNP Asset Management, says that the strong
economic growth we've been seeing would suggest that higher allocations to equities would be
more appropriate.
    And this is despite the fact that retail investors put twice as much money into bond funds
as they did into equities up to October last year (referencing figures from Broadridge Financial
Solutions).
    "Equities and credit should continue to offer the best hedge against the transition in
central bank policies," Morris says.
    "We expect equity market returns to again surpass those of fixed income in 2018. While
valuations are somewhat high, they are not extreme and should be sustainable given that economic
growth is expected to remain steady and inflation subdued."
    (Kit Rees)    
    
****        
    
    WHAT'S WORSE THAN OWNING A CARILLION SHARE? (1243 GMT) 
    Holding a Carillion bond? 
    While bond holders can usually expect to salvage some value in a bankruptcy, it appears the
market is pricing in close to nothing for holders of Carillion's December 2019 convertible bond
. 
    It is trading at a cash price of less than 2, which roughly means it holds less than 2
percent of its face value. Yield: 286 percent... (the figure is purely theoretical given the
bankruptcy procedure). 
    Here's the bond's performance over the last 6 months: 
 
  (Julien Ponthus and Abhinav Ramnarayan)
    
    *****     
    
    U.S. EQUITIES, HAVE YOU SEEN THE RED FLAG? (NO, NOT THAT ONE) (1210 GMT) 
    There's a warning sign creeping up on U.S. shares and, no, it's not the P/E ratios, Deutsche
Bank's research found. 
    "While equity investors remain fixated on the market’s valuation relative to earnings, it is
the dividend bubble quietly inflating in the background that should be of far greater concern", 
the banks wrote in its "13 tipping points in 2018". It argues that "History shows the Shiller
multiple is terrible at indicating the right time to buy and sell". 
    "The evidence shows that market gains in recent years have been propped up by unsustainable
expectations of future dividends, and there are signs that 2018 could be the year the trend
finally turns", it believes. 
    Here's a chart showing how a number of companies are stretching their pay-out ratio to keep
up with dividend inflation:     
 
    (Julien Ponthus)
    *****     
     
    EUROPEAN BANKS ARE GARNERING ATTENTION (1153 GMT)
    In keeping with this wave of love for cyclical stocks, this time we've got analysts at
Bankhaus Lampe saying that they prefer European banks over financial services.
    Bankhaus Lampe reckon that financial services, such as exchanges, will be supported by
rising U.S. interest rates in the near term, but volatility is low and further gains for stocks
such as asset managers may be more limited.
    "Longer term (>12m), we believe that banks have greater upside potential, driven by yield
curve steepening (QE tapering), cost savings (e-banking) and sector consolidation (or share
buybacks) now that capital regulations (Basel 3) have been finalised," Bankhaus Lampe analysts
say in a note.
    (Kit Rees)
    *****
    
    THE SILVER LINING TO A STRONGER EURO (1134 GMT)
    As the euro moves lower, European shares have cut losses with the STOXX 600 flat in
late morning trade.
    But while there have been concerns more broadly about the euro's rise denting European
company earnings, there is also a more positive view out there, as voiced by Chris Bailey,
European strategist at Raymond James:
    "Higher sentiment also means higher faith in pan-EU growth rates ... and with this comes the
opportunity: outperformance and higher multiple potential for the more EU ‘domestic' -centred
profit and cash flow generators," says Bailey in a note.
    "That pushes you towards sectors including the financials, construction, retail, and
telecoms versus the more export-centred ones."
    (Kit Rees)
    *****
    
    THE PROBLEM WITH "VERY BRITISH", BRITISH SHARES (1110 GMT) 
    Viewed from the office of a Parisian asset manager, Carillion's collapse and this morning's 
concern surrounding Interserve are early signs of the pain Brexit is expected to bring and
another reason to stay underweight on British shares.
    "For all 'very British', British companies (that is almost entirely exposed to the UK
economy) one can see that there is an issue with faltering sales", said Olivier de Berranger,
who heads asset management at France's La Financière de l’Echiquier. 
    "Markets pay little attention to Brexit but there are worrying signs like the bankruptcy of
Carillion or the decrease in traffic at Eurotunnel", de Berranger told Reuters' Paris markets
team.      
 
    (Blandine Henault and Julien Ponthus)     
    *****     
    
    WHAT COULD SPOIL THE EUROPEAN EQUITY PARTY? (1007 GMT)
    On a day like today, it's sobering to consider what could go wrong for European equities.
    "No one wants to be dancing when the music stops, but the last part of a bull market tends
to produce some of the most powerful returns," UBS' strategists say in a note, predicting around
15 percent of total returns in European equities in 2018.
    UBS flags rising U.S. yields, euro strength, PMIs rolling over and volatility picking up as
potential spanners in the works, though.
 
    (Kit Rees)
    *****
    
    EUROPE JOINS GLOBAL GLOOM, INTERSERVE FALLS IN POST-CARILLION SCARE (0820 GMT) 
    As expected, European markets opened on a downward trend, in sync with a gloomy global mood
which dampened Wall Street and Asian markets. All main bourses and sectors are down with the
exception of tech, boosted by the results of ASML. 
    British contractor Interserve is taking a 10 percent hit after the Financial Times
reported that government ministers are "very worried" and have set up a team of officials to
monitor the company following the collapse of competitor Carillion. 
    Still in the UK but on a brighter note, events organiser UBM is surging 15 percent
after a 3.8 billion pound bid from Informa.
    Here are the top movers on the STOXX 600 which is down 0.22 percent. 
 
 
    (Julien Ponthus) 
    *****
    
    WHAT YOU NEED TO KNOW (0748 GMT)
    European shares are expected to open lower today with index futures pointing to losses of
around 0.1-0.4 percent, as markets pull back following a new year rally that a lifted the
pan-European STOXX 600 benchmark to its highest since August 2015.  
    Earnings are likely to be the main focus with ASML in the spotlight after the chip
tool maker reported a better-than-expected net profit for the fourth quarter as several
customers asked for early delivery of products amid a booming semiconductor industry. For 2018,
the company said it expected continued solid growth of sales and profitability. Eyes also on
retailer Casino, which said it would deliver on its 2017 profit growth forecasts
despite posting slightly softer fourth quarter sales, and manufacturing group Alstom,
which reported higher third-quarter sales and kept its 2020 financial targets. UK education
group Pearson predicted underlying profit growth in 2018 despite ongoing pressures in
its North American business.  
    In M&A, Britain's Informa made a cash and paper offer to buy events organiser UBM
, while Nestle agreed to sell its U.S. confectionery business to Italy's Ferrero
for $2.8 billion. Baader Bank noted Nestle got an attractive price for a business that's losing
market share.
    Interserve could be hit after the FT reported that the construction service provider
was under UK government watch over financial health fears.
    Other stock movers: European car sales drop 4.8 pct in December, Rio Tinto says U.S. SEC
fraud case should be dismissed; Novartis's Kymriah wins speedy reviews in U.S., Europe; UK
cinema chain Cineworld's 2017 revenue grows as Star Wars, Dunkirk shine. 
    (Danilo Masoni)
    *****    
    
    FROM YESTERDAY'S "HICCUP" TO A BITCOIN-LIKE FALL (0725 GMT) 
    What would it take? According to Rabobank, a trade war waged by Donald Trump on China has
the potential to bring down global markets in the most dramatic way. 
    "The little hiccup we got in equities yesterday could -- perhaps -- start to look more like
what Bitcoin just did", it wrote in its morning note as world leaders nervously await the U.S.
president's speech at the World Economic Forum in Davos next week. 
    Here's bitcoin's fall these last three days: 
 
 
    (Julien Ponthus) 
*****        
          
    EUROPEAN STOCK FUTURES FALL (0702 GMT)
    Stock futures in Europe have opened in the red with declines of around 0.3 percent.    
 
    (Danilo Masoni)
    *****
    
    TECH IN FOCUS AS ASML BEATS EXPECTATIONS (0634 GMT)
    The richly valued tech sector is one to watch this morning after the Dutch supplier
of equipment to key chip makers reported a better-than-expected net profit for the fourth
quarter.  
    Several customers asked for early delivery of products amid a booming semiconductor
industry, helping ASML's net profit rise to 644 million euros from 524 million euros.
Analysts polled for Reuters had expected profit of 454 million euros.
    Tech stocks are leading sectoral gainers in Europe over the last 12 months but some
investors say the sector's golden era may be over.    
 
    (Danilo Masoni)
    *****
    
    EUROPEAN MORNING CALL: LOWER (0617 GMT)
    Good morning and welcome to Live Markets. Following a steady close in the previous session,
financial spreadbetters expect European to open lower today as gains on Wall Street evaporated,
dragged by a weaker energy sector and losses in General Electric shares.
    Over in Asia, stocks stepped back from a record high as the region's resource shares were
hit by falling oil and commodity prices.
    Here are your morning calls, courtesy of CMC Markets:
    FTSE100 is expected to open 21 points lower at 7,734
    DAX is expected to open 64 points lower at 13,182
    CAC40 is expected to open 20 points lower at 5,494
    (Danilo Masoni)
    *****

    
 (Reporting by Danilo Masoni, Helen Reid, Kit Rees and Julien Ponthus)
  
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