February 1, 2018 / 5:21 PM / 5 months ago

LIVE MARKETS-Closing snapshot: European stocks see fourth day of losses

    * European stocks dip after positive open
    * Healthcare leads sectoral fallers, tech up
    * Results boost Dassault, Nokia, NEX
    * Capita falls as brokers weigh in

    Feb 1 (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 SEE FOURTH DAY OF LOSSES (1714 GMT)
    So that's now day four of the European equity sell-off. Germany's DAX was hit particularly
hard due to falls among health stocks (and a stronger euro doesn't exactly help) as bond market
jitters filter into equities. It looks like market watchers are taking this as a sign to be
cautious, rather than an outright bear market (maybe a mini correction?) given that the economic
growth backdrop remains robust and should support equities.
    U.S. stocks are now in positive territory, so this pullback might be short-lived as the
STOXX 600 is now at its lowest since the beginning of the year.
    Here's your closing snapshot - have a good evening!
    
 
    (Kit Rees)
    *****
    
    RISING BOND YIELDS JUST A HEADWIND, BUT TREAD CAUTIOUSLY (1608 GMT)
    We've seen a bit off a sell-off this week in Europe - four straight days of losses on the
STOXX 600. Is this because markets have come too far? Or is the sell-off in bonds spilling over
into the equity market? 
    Either way, Alastair George, chief strategist at Edison Investment Research, doesn't think
this is something to worry about.
    "Rising yields are a known risk for 2018 and unlikely to create a major sell-off in equity
markets by themselves," says Edison's George.
    Instead, a meaningful slowdown in economic momentum would be a bigger concern, but apart
from the German Ifo expectations index slipping from a peak, evidence for this is scant.
    "We believe at currently high valuations for developed market equities, investors should
tread cautiously in what remains a top-of-cycle environment, even if rising bond yields are more
likely a headwind than a precursor to a crisis," George concludes.
    
 
    (Kit Rees)
    *****
    
    HEDGING IN A BOND BEAR MARKET: A CHEAT SHEET (1535 GMT) 
    "I believe that yields are in a secular uptrend, so I doubt that long-term bonds will offer
much protection in the next selloff," writes Vincent Deluard, global macro strategist at INTL
FCStone. 
    "The negative correlation between stocks and long-term treasuries is already abating," he
argues in a research note where he offers a useful cheat sheet on how to hedge a portfolio in a
bond bear market:     
 
    (Julien Ponthus)
    *****    
   
    EUROPEAN STOCKS TAKE A TURN FOR THE WORSE (1505 GMT)
    Germany's DAX is down 1.1 percent at its lowest since Jan 3, leading European stocks down as
this morning's short-lived recovery fades from memory, with earnings disappointments outweighing
the gains in tech and banking stocks. Only the banks-heavy Italian index is holding on to its
gains as the session draws near its close. 
    A downbeat U.S. open isn't helping sentiment, with investors across the pond focusing on the
Fed raising its inflation outlook and earnings undershooting expectations. 
    Healthcare stocks are the worst performing with Novo Nordisk down 6.5 percent
after results, the biggest weight on the STOXX.
    Investors are noting a wide divergence in share price reactions to results, with
disappointments taken particularly badly. 
    "Where companies are giving guidance that's any less optimistic than it has been, they are
seeing their share prices quite savagely hit," said Stephen Macklow-Smith, European equities
fund manager at JP Morgan Asset MAnagement. 
    A surprise afternoon drop also from UK workspace company IWG, down 16 percent as
investors desert the stock after Canada's Brookfield Asset Management and Onex Corp
 said they decided against making an offer for it. 
    (Helen Reid)
    *****
    
    "GO LOCAL" IN EURO ZONE STOCKS AS EURO SURGES HIGHER (1402 GMT)
    That's what UBS recommends as it ups its forecasts for both Eurozone GDP growth and the euro
- a mixed blessing for euro zone stocks. 
    The bank's strategists have raised global and Euro zone GDP forecasts substantially, and
also see the euro rising more than previously expected, to $1.30 at year-end.
    The stronger growth forecasts add around 2 percentage points to their top-down earnings
forecast for European equities - but the bigger FX headwind will likely erase that gain, so
equity strategists are sticking with their 10 percent EPS growth forecast for the year and
target of 440 for the STOXX 600 by year-end.
    They recommend stocks with over 45 percent of domestic revenues, yet which also provide
cylicality and strong earnings growth - such as banks, insurance and software stocks. 
    Euro zone exposed stocks are also attractive in terms of valuation, trading on a P/E of 13.8
compatred to 16.2 for U.S. exposed stocks in the region and 20.5 for EM exposed stocks, UBS
finds. And they've still got far to go: while they've outperformed by 5 percent since the
beginning of 2017, they're still down 24 percent from the post-crisis peak.
    (Helen Reid)
    *****
    
    "EXPECT MORE DIVIDEND CUTS IN THE UK" (1324 GMT)
    That's a quote from SocGen strategists. In a nutshell, beware UK companies which offer
attractive yields but don't necessarily have the balance sheet to back them up when profit
warnings hit the screens. 
    The French bank has a "dividend risk screen" and says "several UK names that have recently
got into trouble were on this list".  
    "Of the current 50 names, 21 are UK-listed, close to historical highs", SocGen analysts add.
    Capita, by the way, was on that list prior to its profit warning: 
 
    (Julien Ponthus)
    *****    
    
    A TOUGH START FOR EUROPE'S NON-FOOD RETAILERS (1316 GMT)
    It's evident from the results we've had so far from the European non-food retailers that
certain themes are gaining favour with investors, such as progress in online and a more
value-oriented offering.
    Analysts at Deutsche Bank point to "another month of polarisation", and they highlight five
key investment themes in the space:
    1) Buy the value retailers;
    2) Watch value traps in mid-market apparel retail;
    3) Online brands over platforms;
    4) Remain cautious about 'transformation stories';
    5) Buy travel at right price.
    Here's how the non-food retailers of the STOXX 600 have performed so far this year - it's
been a tricky start for some:
 
    (Kit Rees)
    *****
    
    "DEATH, TAXES AND BEAR MARKETS" (1232 GMT) 
    "There are three certainties in life: death, taxes and bear markets", says Peter Elston, CIO
of Seneca Investment Managers. 
    Timing, of course, makes all the difference and Elston, whose firm has already lowered
equity weights, sees a bear market coming in late 2019. 
    According to Seneca's research, a gradual tightening of monetary policy will cause a
downturn in the global economy in 2020. Even if things don't exactly unfold at that pace, Elston
argues there is a case to act now. 
    "We will almost certainly be wrong with our timing but this is why we are acting now. If we
are late, we will have already reduced equity exposure. If we are early, and the bull market
continues into 2020, we can continue to reduce our equity targets even more."
 
    (Julien Ponthus)
    *****    
    
    WHAT WOULD A MEGA ITALIAN BANK MERGER LOOK LIKE? (1150 GMT)
    "Consolidation is the only survival strategy," says Equita analyst Giovanni Razzoli in a
study this week where he simulates the unthinkable: a mega Italian bank tie-up sponsored by the
government and combining state-controlled Monte dei Paschi di Siena, Banco BPM
, BPER Banca, Credito Valtellinese and Banca Carige to
create the country's largest franchise.
    Razzoli calls the five-bank combination "project Overlord" and assumes that Italy's Ministry
of Economy and Finances which controls Monte Paschi would sponsor it. 
    He's aware of the risks but sees rich rewards too.
    "We are perfectly aware that a 'project Overlord' would feature very high execution risk,
and – above all - several governance issues. The project is likely to 'scandalize' most of the
shareholders of the banks potentially involved," he writes.
    He envisages a two-step process. 
    The banks involved would first put together the main administrative and governance functions
in exchange for shares in a new holding company at market prices. Secondly they would move to a
deeper integration and look at the cost-cutting options.
    The new bank would be the leader in Italy with a capitalisation of 12 billion euros before
synergies and a 20 percent market share of the Italian banking system, leapfrogging Intesa
Sanpaolo and UniCredit.     
 
    (Danilo Masoni)
    *****  
 
    
    TACTICAL INDICATORS FLASHING RED? DON'T PANIC (1110 GMT)
    Credit Suisse's aggregate tactical indicator hit its highest level of exuberance in the last
12 years late last week, the bank's global equity strategists say, but they don't interpret this
as a sell signal. 
    "Both the aggregate tactical and sentiment signals have been much better buy than sell
signals: euphoria lasts longer than panic!" writes strategist Andrew Garthwaite. 
    According to Garthwaite, only two of the normal 13 preconditions of a market peak have been
seen - so remaining positive on stocks despite their strong rally isn't irrational.
    "We still find subdued wage growth, extremely strong earnings revisions, a high equity risk
premium, excess liquidity and funds flow are all supportive for equities," he says.
    Interestingly cyclicals (apart from tech and financials) are however a risk area Garthwaite
is nervous about, saying these stocks have priced themselves off extreme PMIs/ISMs.    
    (Helen Reid)
    *****
    
    THE UK IS THE LAGGARD IN 2018 (SO FAR) (1050 GMT)
    Just a quick observation as we step into a new month - the UK equity market has notably
lagged the rest of the world in terms of total returns so far this year - see the chart below.
    Conversely, emerging markets and Europe (ex-UK) are shaping up to be this year's winners. It
is early days yet, but investors could be betting on these two regions as big beneficiaries of
the synchronised upswing in global growth, whereas investors are still nervous around the UK? 
 
    (Kit Rees)
    *****
    
    VIEW FROM THE STREET: THE CASE FOR NOT BUYING THE DIP IN CAPITA (1043 GMT)
    After a 48 percent fall yesterday, brokers are digesting UK outsourcer Capita's
latest profit warning and outlining the possibilities for its future. Down another 4 percent
today to 177p the stock is certainly cheap - but why are bargain-hunters not snapping it up?
    "Too early to buy back in despite the fall," say Deutsche Bank analysts. "Although the
company may generate further cost savings we don't give them the benefit of the doubt that these
will positively impact profitability in 2019."
    They don't see Capita showing growing profitability until 2020 at the earliest - a date UBS
also targets as a potential recovery point.
    "We think a (required) focus on internal execution will see negative earnings growth and
free cash flow for FY18e and FY19e, but FY20e could see both turn positive," write UBS analysts.
    Barclays says Capita is a five-year turnaround story which must also grapple with "profound
change and uncertainty" in its markets. 
    "This is a first and necessary step on the road to recovery, but the lack of visibility
coupled with experience at Serco (where three years on the recovery in revenue and profits is
still elusive) will likely keep new money on the sidelines for a while yet," Barclays analysts
write.
 
    (Helen Reid)
    *****
    
    BINGE-BUYING EUROPACORP SHARES, NETFLIX AND NO CHILL (1003 GMT)  
    Shares in French film director Luc Besson's EuropaCorp are on fire this morning, up
as much as 40 percent after French business daily Les Echos reported Netflix is in talks - not
clear at this stage exactly about what - with the company which made a hit with "Lucy", staring
Scarlett Johansson, in 2014. 
    After a box office disappointment for its big budget sci-fi movie "Valerian and the City of
a Thousand Planets" this summer, EuropaCorp has been on the look-out for new partners to bring
in fresh cash or help it restructure its debt. 
    EuropaCorp is worth currently a bit less than 100 million euros on the Paris stock market,
that's a market cap about 1000 times smaller than Netflix, which plans to spend up to $8 billion
this year on TV shows and movies to fend off rivals such as Amazon Prime.
    Here's Luc Besson and the logo of his company in the background.      
 
    (Julien Ponthus)
    *****
       
    
    
    OPENING SNAPSHOT: TOP MOVERS (0817 GMT)
    Return of the melt-up? European stocks are striding into February with strong gains led by
banking and tech stocks.
    Among notable movers after results, Bic is down 6.7 percent while NEX Group
 is top of the STOXX, up 7.4 percent after revenues rose. The financial technology firm
benefited from markets it said were 'noticeably' more active this year.
    Meanwhile Shell took a 5 percent dive at the open and is now down 1.8 percent, the
worst-performing on the FTSE 100. It seems the cashflow might be what the market's taking issue
with. "Unfortunately, resilient earnings do not appear to have translated into cash generation
this quarter," write RBC analysts.
    Dealmaking is still a feature too with Denmark's TDC tumbling 10.7 percent after
saying it would buy Swedish Modern Times Group's broadcasting and entertainment
business.
    (Helen Reid)
    *****
    
    WHAT YOU NEED TO KNOW BEFORE EUROPE OPENS (0748 GMT)
    European shares are expected to open higher on the first day of February with futures up
around 0.4-0.5 percent following a weak end of January, which was marked by jitters over rising
bond yields and a stronger euro.
    Earnings will be a key focus with heavyweights such as oil major Royal Dutch Shell
and drugmaker Roche having already reported results. Profits at Shell more than doubled,
slightly beating analyst expectations, although traders indicated the stock 1-2 percent lower
citing weak cash flow. Net income at Roche fell as sales growth was broadly in line with
expectations. 
    Consumer goods maker Unilever delivered better than expected fourth-quarter sales
growth, a possible relief for a sector which has been hit this year by a rotation back into
cyclical stocks. Its shares were indicated 1 percent higher.
    Overall fourth-quarter earnings for the STOXX 600 are expected to increase by 11.9
percent year on year, the latest Thomson Reuters data showed.
    In M&A news, traders mentioned as possibly market-moving a Bloomberg report saying BHP
 is mulling a split of its US shale unit to speed up the sale of the business it values
at $10 billion. 
    (Danilo Masoni)
    *****
    
    EUROPEAN STOCKS HEADLINE ROUND-UP (0733 GMT)
    With so many results coming in today, we've rounded up some of the most important we're
watching: 
    
Shell's 2017 profits more than double
Unilever fourth-quarter sales better than expected
Daimler warns spending on new technology to dampen earnings growth 
Vodafone's growth edges lower in Europe, but still on track for year
Nokia top quarterly expectations, buoyed by patent payment 
Roche expects 2018 profit to grow faster than sales[
BT's Openreach ramps up fibre broadband rollout 
Microsoft's cloud computing business grows, stock edges up
Facebook forecasts rising ad sales despite dip in usage 
Novo Nordisk posts Q4 results slightly below expectations, chairman to step down 
BBVA Q4 net profit falls 90 pct after Telefonica stake writedown
Denmark's TDC to buy MTG's Nordic Entertainment and Studios
Denmark's Orsted beats Q4 forecasts on strong wind operations 
DNB Q4 beats forecast despite rise in digital investment 
Dassault Systemes posts double-digit growth in new licences revenue 
Lundin Petroleum launches dividend payments 
Skanska construction order intake just lags expectations 
UK's Rank interim profit jumps on strong online business 
Vivendi CEO optimistic about talks with Mediaset over pay-TV dispute 
Oreo maker Mondelez's profit beats on higher demand for key brands 
Melrose to publish formal bid document for GKN on Thursday - source 
Britain's Cranswick says Q3 revenue ahead on strong Christmas 
NEX Group says markets "noticeably" more active since start of 2018 
British private equity group 3i posts increase in net asset value per share 
Ocado promotes Luke Jensen to executive director role​ 
    
(Tom Pfeiffer)
    *****
    
    FUTURES POINT TO BOUNCEBACK FOR EUROPEAN STOCKS (0717 GMT)
    Futures have opened markedly higher this morning, pointing to a convincing bounceback for
the European stock market after a weak end to January. As we pointed out earlier, it's all about
earnings today, and UK companies' results have just hit the wire with heavyweights Unilever
 and Shell reporting as well as Vodafone. 
 
 
 
    (Helen Reid)
    *****
    
    EARNINGS, EARNINGS, EARNINGS (0642 GMT)
    It's going to be another busy day for corporate eanings with some big heavyweights like
drugmaker Roche, bank BBVA and Nokia
 having already released their numbers earlier on. 
    Overall fourth-quarter earnings for the STOXX 600 are expected to increase by 11.9 percent
year on year, the latest Thomson Reuters data showed.
    Here's your full list of companies reporting today:
    AB SKF Q4 2017 Earnings Release    
    AcadeMedia AB Q2 2018 Earnings Call
    Aptiv PLC Q4 2017 Earnings Call
    Banco Bilbao Vizcaya Argentaria SA Q4 2017 Earnings Call
    CapMan Oyj Q4 2017 Earnings Release
    Cimpress NV Q2 2018 Earnings Call
    Coloplast A/S Q1 2018 Earnings Call
    Core Laboratories NV Q4 2017 Earnings Call
    Daimler AG Q4 2017 Earnings Release
    Dassault Systemes SE FY 2017 Earnings Call 
    DNB ASA Q4 2017 Earnings Release
    Eaton Corporation PLC Q4 2017 Earnings Call
    Ferrari NV Q4 2017 Earnings Call
    Granges AB Q4 2017 Earnings Release
    Inwido AB (publ) Q4 2017 Earnings Release
    JM AB Q4 2017 Earnings Release
    Kesko Oyj Q4 2017 Earnings Release
    Lemminkainen Oyj FY 2017 Earnings Call
    Lundin Petroleum AB Q4 2017 Earnings Release
    Modern Times Group MTG AB Q4 2017 Earnings Release
    Nokia Oyj Q4 2017 Earnings Release
    Novo Nordisk A/S Q4 2017 Earnings Call
    OM Asset Management PLC Q4 & FY 2017 Earnings Call
    Orsted A/S Q4 2017 Earnings Release
    Panostaja Oyj Annual Shareholders Meeting
    Petroleum Geo Services ASA Q4 2017 Earnings Release
    Qiagen NV Q4 2017 Earnings Call
    Rank Group PLC HY 2018 Earnings Release    
    Roche Holding AG FY 2017 Earnings Release
    Royal Dutch Shell PLC Q4 2017 Earnings Release
    Sensata Technologies Holding NV Q4 2017 Earnings Release
    Skanska AB Q4 2017 Earnings Release
    Stolt-Nielsen Ltd Q4 & FY 2017 Earnings Call
    Unilever PLC Q4 2017 Earnings Release
    Yit Oyj Q4 2017 Earnings Release
    (Danilo Masoni)
    *****


      
    
    MORNING CALL: EUROPE SEEN HIGHER (0617 GMT) 
    Good morning and welcome to Live Markets. 
    European stocks are set for a positive open on the first day of February, recovering the
slight losses seen in the previous session when the broader STOXX 600 index fell for a
third straight session to its lowest level in almost four weeks. The STOXX ended January up 1.6
percent. 
    Overnight Asian shares eked out modest gains, clawing back sharp losses from earlier this
week, however, rising U.S. bond yields and interest rates could dampen investors' optimism
toward the global economic outlook.
    Here are your opening calls, courtesy of CMC Markets.
    FTSE100 is expected to open 23 points higher at 7,556
    DAX is expected to open 41 points higher at 13,230
    CAC40 is expected to open 14 points higher at 5,495
    (Danilo Masoni)
    *****

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