January 31, 2018 / 5:01 PM / 8 months ago

LIVE MARKETS-Closing snapshot: STOXX dips but January ends up 1.6 percent

    * STOXX 600 ends lower, up 1.6 pct in Jan
    * Earnings dominate trading
    * Ericsson falls after loss wider than expected
    * H&M tumbles as investors digest gloomy results
    * Capita plummets after profit warning, rights issue

    Jan 31 (Reuters) - Welcome to the home for real time coverage of European equity markets
brought to you by Reuters stocks reporters and anchored today by Helen Reid. Reach her on
Messenger to share your thoughts on market moves: helen.reid.thomsonreuters.com@reuters.net
 
    CLOSING SNAPSHOT: STOXX DIPS BUT JANUARY ENDS UP 1.6 PERCENT (1544)
    Sellers prevailed at the end of a choppy day, sending the STOXX 600 benchmark down
for a third straight day to its lowest level in nearly four weeks. 
    The pan European index however ended January with up 1.6 percent as the rally seen in the
first part of the month on optimism over economic and earnings growth was only in part offset by
the recent bond market jitters and concerns over a rising euro.
    Here's your snapshot for the day.    
 
   (Danilo Masoni)
    ****    
    
    "INVESTORS (WRONGLY) ASSUME NPL SCRUTINY RELAXATION" (1547 GMT)
    That's what UBS analyst Ignacio Cerezo says in his results preview for Italian banks, which
have been among the biggest beneficiaries of this year's rotation back into cyclical stocks but
are sensitive to any bad surprise from regulators on rules about bad loan provisioning. 
    Italian banks hold nearly one third of the euro zone's 800 billion euro bad loan pile
inherited from the financial crisis and NPLs will surely be a key focus next week when a number
of Italian lenders report results.
    "Underlying NPL formation should improve further, but focus will remain on the possibility
of more aggressive NPL reduction plans and the associated coverage build-up required," says
Cerezo, mentioning Banco BPM and UBI Banca as the ones to watch.
    Italian banks have rallied more than 13 percent year to date, nearly twice as
much as a broader index of euro zone banks.
    Here is UBS's Q4 results summary for Italian banks. 
 
    (Danilo Masoni)
    *****
    
    EUROPEAN INVESTORS JUMP BACK INTO ENERGY STOCKS (1523 GMT)
    The attractions of higher crude prices haven't left investors cold, and European portfolio
managers in particular are diving back into oil stocks, HSBC finds. 
    "Following a sharp increase in the oil price since mid-2017, international funds in general
have increased their holdings in the energy sector," say HSBC strategists. 
    "Across all key regions, Europe leads with the highest increase in its weighting in the
energy sector."
    And there's room for more - despite the already sharp increase in allocations, European
funds' positioning in energy remains below its mid-2016 peak.
    Europe's energy sector has outperformed the broader market (MSCI Europe) by a
considerable 14 percent since July 2017 - and investors have increased allocations to energy by
141 basis points over that same period.
 
    (Helen Reid)
    *****
    
    THE END OF "MELT-UP"?  (1455 GMT)
    Do the European equity wobbles of the past week mark an end to the blistering rally of
recent weeks and the start of an equally dramatic sell-off? Some see just a pause: 
    "I would say that the equity market spasm was a case of investors being spooked by the bond
sell-off. Markets were already super high, so a good excuse to take some risk off the table,
take profits and look for a dip to buy into again," says Neil Wilson, senior market analyst at
ETX Capital. 
    Wilson says a bond bear market does look likely but we are not there yet. "Yields are higher
mainly because of inflation break-evens, so that is broadly supportive of stocks -- i.e., growth
and inflation expectations rising should be good for equities."
    Andrea Tueni, head of sales at Saxo Banque Paris, says: “We’ve the impression that investors
are looking for a pretext to take a breather and lock in some of their gains.” 
    It’s a busy week in terms of macro and micro developments and politics, says Tueni. “If we
get through this week without any setbacks on these different points, we can’t rule out further
gains.”
    (Tom Pfeiffer)
    ****

    
    EUROPE IS GLOBAL ECONOMY'S "UNSUNG HERO" (1439 GMT)
    Another positive reading of Europe's economy from the BlackRock Investment Institute, which
says that, over the past two years, Europe has been the only constant source of support to
global growth. And things are looking good for 2018 too.
    "We expect Europe to be another solid contributor in 2018, with bigger investment to help
solidify the pace of growth," says Jean Boivin, head of economics and markets research at
BlackRock Investment Institute. 
    
 
    (Kit Rees)
    *****
        
    Consumer staples set to deliver "unspectacular" results (1400 GMT)
    Consumer staples are on the up in today's directionless market but the start of 2018 has
seen the richly valued sector beaten down by a strong rotation back into cheaper cyclicals
fuelled by bullishness about global growth and rising bond yields. 
    Liberum has taken a look at consumer staples just before the big names report their results,
and they're not expecting fireworks.
    Here some of their key takeaways:
    * We expect a solid, if unspectacular, set of results.
    * Growth remains constrained with headwinds from soft consumer demand, geopolitical turmoil
and disinflation.
    * Input prices remain benign but intense price competition, retailer pressures and online
deflation impede margin growth, putting the onus on cost savings and M&A to drive EPS.
    * Sector valuation remains elevated at a 36% premium to STOXX 600. We expect valuations to
remain capped, particularly if bond yields continue to rise.    
    And speaking about valuations, here's a quick view from Pieter Fourie, fund manager at
Sanlam’s Global High Quality fund, who has cut his exposure to the space: "We've been selling
some consumer staples recently, like Nestle and Pernod Ricard. Consumer
staples has historically been a good hunting ground, but some of these stocks are too expensive
so we have reduced."  
    European Consumer staples have lost nearly 1 percent year-to-date, while cyclicals
 advanced 3.6 percent.    
 
    (Danilo Masoni)
    ****      
    
    UK TECH - YOU DON'T WANT TO JUMP OFF THE TRAIN TOO EARLY (1319 GMT)
    Though some may argue that the UK doesn't really have much of a tech sector, there are a
number of companies involved in areas such as cyber security. And analysts at Investec think
that the sector "still looks appealing", despite high valuations.
    "A de-rating is difficult to call aside from a macro sentiment hit (Brexit, interest rate
normalisation)," Investec analysts say.
    "Jumping off the train too early can preclude exposure to another leg of strong gains."
    Companies among Investec's core structural growth buys include identity data firm GBG
, automation firm Blue Prism, IT services and consulting firms First
Derivatives and FDM, which they think offer up to 50 percent upside over two
years despite "demanding" ratings.    
 
    (Kit Rees)
    *****
    
    HIGHER BOND YIELDS UNLIKELY TO BE AN ISSUE FOR EUROPEAN EQUITIES (1202 GMT)
    That's the view from Silvia Dall’Angelo, senior economist at Hermes Investment Management,
who adds that a significant improvement in Europe's growth outlook has driven both its equities
and yields.
    "Bond yields are still low by historical standards and any ECB hawkish moves are likely to
be gradual and well telegraphed, meaning that financial conditions should remain supportive of
growth in the near future," Dall'Angelo says, but adds that further appreciation of the euro
would be "toxic" for exports.
    (Kit Rees)
    *****
    
    NUMBER OF EMEA COMPANIES AT HIGH RISK OF DEFAULT FALLS (1130 GMT)
    In another sign of the return to health of corporates in the wider European region, the
number of non-financial companies in EMEA with a credit rating of B3 negative and lower (at the
highest risk of default) fell to a two-year low at the end of 2017, Moody's finds.
    "Given the issuer-friendly state of debt capital markets, we expect the number of newly
rated speculative-grade companies to grow, which could mean the percentage of companies on the
list drops to the high single digits," says Moody's analyst Matteo Versiglioni. 
    Dig down into the sector breakdown and there's an interesting finding: the retail sector was
the only one where the number of companies at highest risk of default rose from last year. 
    Meanwhile rising commodity prices helped the number of energy and metals & mining companies
on the list decline further.
    (Helen Reid)
    *****
    
    BOND YIELDS, POLITICS CLOUD OUTLOOK FOR UTILITIES (1054 GMT)
    SSE's shares may have seen a slight bounce today, but it's been a tough couple of months for
utilities stocks, with analysts at Deutsche Bank saying that falls resulting from profit
warnings from Centrica, Innogy, EDF and Suez are not a
buying opportunity.
    On the more positive side, Deutsche Bank still has faith in the medium-term yield and growth
outlooks for buy-rated Iberdrola and E.ON, as well as one of the "riskier
value propositions" RWE.
    "However, a pause in the bond yield rally and political concerns may be needed to get their
message heard," DB analysts say in a note.
    European utilities have underperformed world utilities over the past five years.
 
    (Kit Rees)
    *****
    
    FOUR REASONS TO BE SCEPTICAL ABOUT TECH (1025 GMT)
    Tech stocks are top losers today in Europe and even though they are the biggest
sectoral gainer in the region over the past twelve months, there is growing scepticism among
market players about whether 2018 will be as bright as last year.
    Hildebrandt Tomas, director and senior portfolio manager at Evli Investment Management in
Helsinki, is among those who think the rally has most likely lost its steam. 
    He has four reasons to believe so:
    1) US TAX REFORM: "IT companies are not necessarily the largest beneficiaries there"
    2) VALUATION: "Many internet companies' valuations have risen to very high levels compared
to some other sectors"
    3) INTEREST RATES: "A possible future rise in interest rates can impact growth stocks (like
tech) in different ways"
    4) TECHNOLOGICAL CHANGE: "It's not only those who produce technologies but those who use
them that are the future beneficiaries. It's more interesting to find those companies who are
able to use new tools in their own businesses."
    (Danilo Masoni)
    *****  

    EUROPEAN EQUITY FUNDS ENJOY HIGHEST INFLOWS IN 2018 SO FAR (1011 GMT)
    European equities remain the favourite among global investors, according to fresh flows data
from HSBC and EPFR. Weekly fund inflows over the last three weeks are among the top ten weekly
inflows since the beginning of the data series, HSBC finds. 
    "In our last note on investor allocation we highlighted muted equity fund flows in Europe in
Q4 2017 and advised investors to watch this space over coming weeks," write HSBC strategists.
    "Year-to-date in 2018, European fund flows have seen a big turnaround, clocking inflows in
excess of $22 billion, which are also the highest across all major regions."
    Last year Europe recorded the highest equity inflows across all major regions, accounting
for over one-third of global equity fund inflows. This year could be shaping up to deliver
similarly impressive figures.
    On the country level there are some interesting developments: global funds are raising their
allocation in the UK from the lowest level in over ten years. In December 2017 global funds
increased UK holdings by 52 basis points, causing the 5-year z-score of global funds holdings in
the UK to hit its highest level since July 2016.
    And uncertainty over Italy's upcoming election has caused global funds to trim their
exposure to the country. They've reduced their weightings in Italy by over one standard
deviation compared to its long-term average value.
    
 
 
 (Helen Reid)
    *****
    
    WEAKENING DOLLAR BLIPS ON EUROPEAN EQUITY RADAR (0927 GMT)
    After spirits maker Diageo last week, now big German industrial names are pointing
to dollar weakness as a significant headwind. 
    Siemens <    SIEGn.DE> says its medical equipment business Healthineers and its industrial
businesses were hit by negative currency effects, which took 5 percentage points off order
growth. And industrial chipmaker Infineon has slashed its revenue guidance blaming
the weakening U.S. currency. 
    We found last week that shares of European exporters have slightly outperformed their
domestically exposed peers despite a slowly strengthening euro.. Can that last? 
    "Until recently we were still getting upgrades on dollar strength against the pound, now
we're getting to this halfway house where the historic numbers look pretty good and prospective
numbers look much more challenging because of the currency and we think that will start to feed
through," says Simon Gergel, Chief Investment Officer for UK Equities at Allianz Global
Investors.
    Raymond James has worked out some European winners and losers from a 10 percent drop in all
currencies vs the euro. It finds "a stronger euro should not hurt companies, as long as the
synchronized GDP growth across developed economies continues". 
    Winners include Vodafone, Total, GKN, losers include Yara
, Symrise, Lanxess, Suez, Fortum, Clariant
, Pernod Ricard, Adidas, LVMH, E.ON and
Henkel. 
    (Tom Pfeiffer and Kit Rees)
    *****
    
    BAD MONTH FOR UK OUTSOURCERS GETS WORSE (0830 GMT)
    It's been a terrible month for UK outsourcers. After Carillion collapsed, now
Capita is going into brace mode following a profit warning, scrapping its dividend and
announcing it will go to shareholders for fresh funds.
    The new CEO Jonathan Lewis also wants to raise cash from asset sales as he sets out a vision
for a simpler business focused on fewer markets. But he expects the company to bleed cash this
year and the business outlook appears to have got even worse since the company's last market
update, with Lewis pointing to delays in decision making, weakness in new sales and a higher
level of attrition than expected.
    An index of support services companies is down 0.6 percent this morning in a rising market.
Babcock is down 3 percent, Serco 1.5 pct, Kier 2 percent. 
 
    (Tom Pfeiffer)
    *****
    
    OPENING SNAPSHOT: EARNINGS DOMINATE EUROPEAN SHARE TRADING (0816 GMT)
    European shares have opened slightly higher this morning with a broad-based move higher, but
it's earnings which are driving moves. 
    Individual gains and losses on the STOXX 600 are ranging between a gain of 6.2 pct and a
loss of 31.8 percent, the latter thanks to Capita's plunge. More on that in a bit.
    Here's your opening snapshot:
 
    (Kit Rees)    
    *****
    
    KEY CALLS FOR EUROPEAN EQUITIES (0758)
    It looks like we could see some hefty moves today thanks to earnings.
    Among those standing out for us (based on indications from trading desks):
    Capita - called as much as 40 percent lower after a big profit warning and dividend
suspension
    Infineon - seen down 3 to 4 percent, traders saying sales came were in line but the firm cut
its sales guidance
    Ericsson - seen down 2 to 3 percent on the back of a sales miss
    H&M - called up as much as 2 percent thanks to better than expected results, though outlook
and sales weak
    (Kit Rees)
    *****
    
    WHAT'S ON THE RADAR FOR EUROPEAN STOCKS (0753 GMT)
    A hesitant recovery seems to be in store for European stocks after a global risk-averse turn
dented benchmarks yesterday. Euro zone blue chips were still on track for their best month since
September, though, as a month of eye-watering gains across equities drew to a close.
    Results take centre stage today, with a slew of companies reporting across industrials,
banking and retail. 
    Banks had mixed results as ING’s profit disappoints while SEB beats expectations. The sector
is under extra pressure to deliver strong results as it’s become a favourite since the end of
last year as investors rotated away from tech and into financials. Even after Tuesday’s losses,
the STOXX banks index is set for its best month since March last year.
    It'll be a dark day for Capita (and pay day for short-sellers) as the outsourcer's
shares are indicated down as much as 40 percent after the company announced an unholy trinity of
a profit warning, rights issue and dividend suspension. 
    Autos stocks could be under pressure after data showed British car production fell last year
for the first time since 2009 and investment slumped by a third as uncertainty over Brexit hit
demand. 
    Pharmaceuticals could also be a focus after President Trump again took aim at the sector,
lambasting high drug prices in his State of the Union speech.
    And in an early sign of the weak dollar hurting some exporting European companies, chipmaker
Infineon slashed its revenue guidance, blaming the greenback.
    Here are some extra headlines which could move the market this morning:
    UK car output drops for first time since 2009, investment slumps 
    U.S. agencies probe Apple over slowing iPhones -Bloomberg
    Italy's Safilo sees 2017 adj EBITDA halving
    JCDecaux beats fourth-quarter revenue target 
    (Helen Reid)
    ******
    
    EARLY MORNING EUROPEAN HEADLINE ROUND-UP (0736 GMT)
    It's a busy day of earnings today, so here's a summary of the headlines we're looking at.
    
    Europe:
    H&M Q4 pretax profit falls less than expected
    Siemens Q1 profit dips on Power and Gas business declines
    ArcelorMittal upbeat about 2018, slowly resumes dividend
    Ericsson posts bigger than expected Q4 loss
    Santander Q4 profit falls 4 pct on U.S. impairments
    Truck maker Volvo raises market outlook after Q4 order boom
    Lonza's full-year core profit soars 82 pct on acquisitions
    Electrolux Q4 operating profit tops forecast
    Infineon slashes revenue guidance on weak U.S. dollar
    SEB raises dividend as Q4 profit beats expectations
    Energy group Total announces major deepwater oil discovery in Gulf of Mexico

    ING quarterly profit misses on costs, weaker financial markets
    Dutch telco KPN's Q4 results slip as roaming rules hurt
    Sanofi and partner seek European Medicines Agency review for sleep sickness
product
    Wartsila Proposes Share Split
    
    UK:
    Britain's Capita plans rights issue after profit warning
    Britain's SSE raises FY profit outlook
    Centamin posts fall in 2017 core profit on lower output, higher costs
    Wizz Air posts record passenger numbers and profit in third quarter 
    UK's Britvic Q1 revenue up 3.3 pct
    Dairy Crest says 9-month revenue well ahead of last year
    Shell says to sell its stake in Thai Bongkot fields to PTTEP for $750 mln


    Macro:
    German retail sales fall unexpectedly in December
    (Kit Rees)
    *****
    
    FUTURES INDICATE HESITANT RECOVERY FOR EUROPEAN STOCKS (0708 GMT)
    Stock futures have opened up 0.1 percent across the major European benchmarks, suggesting a
rather hesitant recovery from yesterday's sharp falls. 
    While the STOXX, DAX and CAC40 are set to rise, ending January on a positive note, the FTSE
100 is on track to fall further with futures down 0.2 percent. A rising pound could be piling
extra pressure onto the British index.
 
 
 (Helen Reid)
    *****
    
    WEAK DOLLAR WOES FOR INFINEON (0657 GMT)
    In an early sign the weak dollar could be a strain on some European companies, particularly
those reliant on exports, chipmaker Infineon just cut its 2017/18 revenue guidance,
blaming the greenback's weakness.
    The stock is indicated down 1.9 percent in pre-market trade.
    (Helen Reid)
    *****
    
    RESULTS WATCH: SIEMENS STRUGGLES, ARCELORMITTAL RESUMES DIVIDENDS (0641 GMT)
    Results are rolling in thick and fast today from industrials as well as several banks.
    German engineering group Siemens reports a fall in quarterly industrial profit
due to continued weak demand from the power and gas sector. Profit was in line with analysts'
forecasts, but profit margin shrank.
    Interestingly the group says it got a net 437 million euro benefit from U.S. tax reforms in
the first quarter. 
    The world's largest producer of steel, ArcelorMittal, was more upbeat, with profit
ahead of expectations and resuming dividend payments after skipping them for 2015 and 2016. The
$0.10 payout undershoots analysts' expectations of $0.30, though.
    A slew of banks reporting today as well, with ING's Q4 profit missing expectations
while Sweden's SEB raises its dividend after strong results. Meanwhile impairments in
its U.S. unit dented Santander's numbers. 
    The pressure's on for European banks, a leading sector in this year's rally, to deliver
convincing results, so it'll be interesting to see how banking shares react today.
    Also in results to watch today, especially considering the tech rally after AMS results
earlier this week, will be chipmaker Infineon. More on that soon.
    
    (Helen Reid)
    *****
    
    MORNING CALL: EUROPEAN STOCKS TO RECOVER (0619 GMT)
    Good morning and welcome to Live Markets. 
    Looks like European stocks could recover slightly today after suffering their biggest daily
loss since November yesterday in a global risk-averse turn. Only the FTSE is seen edging
slightly further down, having sunk to five-week lows yesterday as miners and banks tumbled.
    Overnight Asian stocks lost further ground, falling from their record highs as the global
rise in bond yields weighed on equities. The dollar found some support, however, ahead of the
Federal Reserve's policy decision.
    Spreadbetters call the DAX 25 points higher at 13,222.1, the CAC 40 up 8 points at 5,481.7,
and the FTSE down 4 points at 7,584.3.
    (Helen Reid)
    *****

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