January 11, 2018 / 6:15 AM / 9 months ago

LIVE MARKETS- Closing snapshot: STOXX retreats as ECB minutes push euro higher

    * European shares slip after ECB minutes
    * Results disappointment hits Pandora, Tesco, M&S
    * CS upgrades 'relatively very cheap' UK stocks
    * Italian stocks set for 7 straight days of gains
    * FTSE hits new record despite M&S, Tesco shares slump

    Jan 11 (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 RETREATS AS ECB MINUTES PUSH EURO HIGHER (1635 GMT) 
    The STOXX closed down 0.3 percent and never recovered from the rise in the euro following
the publication of the ECB's minutes, which bolstered expectations of a shift in monetary
policy.
    Note also that despite the slump of Marks and Spencer and Tesco shares, the FTSE hit a new
high.  
     Good evening from us, here's your closing snapshot:  
 
    (Julien Ponthus) 
    *****
    
    MACQUARIE FAVOURS U.S. BANKS OVER EUROPE (1547 GMT)
    The sector has come into focus with the Q4 results season just round the corner and bond
yields on the rise.
    "We believe U.S. banks will push their advantage and continue to gain share due to stronger
capital position and a lower tax rate improving internal returns," Macquarie analysts said in a
note.
    "As a result, we prefer US to European banks," Macquarie adds, singling out Bank of America
, Goldman and Morgan Stanley.
    Their 'top shorts' are Deutsche Bank and UBS, while they like BNP's
 more diversified model.
    (Kit Rees)
    *****
    
    O BREXIT CONSENSUS, WHERE ART THOU? (1515 GMT)  
    With Brexit hardliner Nigel Farage now warming to the idea of a second UK referendum on EU
membership, it seems no one -- be it the public, markets or politicians -- can make up their
mind on when, how or even whether Britain will exit the EU. 
    Nomura just updated its tick list of signs that could lead to "No Brexit", such as a second
referendum, after Farage's comments.  
    "Rarely has the UK’s economic and political outlook seemed so uncertain", said Kallum
Pickering, senior UK economist at Berenberg.
    Consider this: Didier Saint-Georges, managing director at Carmignac says that given the
economic pain expected in 2018 in the UK, he is "starting the year with a short position on
sterling which should pay off if a downward spiral gets going". 
    Taking the opposite view, Guy Stephens, technical investment director at Rowan Dartington,
said Prime Minister Theresa May's recent cabinet reshuffle is "further evidence of her
strengthening position which must be good for sterling". 
    Also, while being underweight UK equities is a common call for most international investment
banks, Credit Suisse just went back to "neutral" and Raymond James made the case that "ever more
conciliatory" commentary around Brexit could support equities.
    Here below is Nomura's chart showing the shift in public opinion in favour of the view that
Britain was, with hindsight, wrong to vote 'Leave'. 
 
 
    (Julien Ponthus and Helen Reid)
    ***** 
    
    NEW YEAR PARTY CONTINUES IN ITALY (1426 GMT)
    Italy's top FTSE MIB index is bucking today's weakness, has hit a fresh 29-month
high and is rising for the seventh session in a row, its longest winning streak since October
2016. The index is also the biggest gainer among the European bourses year-to-date.
    Why such buoyancy? After all, Italy is set to hold a general election on March 4 and its
outcome is all but certain.
    We've asked Alessandro Balsotti, head of asset management at JCI Capital. 
    "It's been a strong start of the year for global stocks and Italy has a high beta that can
explain why it's outperforming. Italy is a proxy of European markets and it's gearing towards
financial stocks which are doing particularly well because of the yield curve steepening. I
don't think there is an immediate political reason," he says. 
 
    (Danilo Masoni)
    *****
    
    UK EQUITY ALLOCATIONS TO RISE? (1338 GMT)
    While allocations to UK equities have been at rock bottom "for many months", Raymond James
European strategist Chris Bailey reckons a recent recovery in the pound and UK domestic stocks
(see chart below) could continue, driving money back into the market some investors have shunned
as Brexit looms.
    "Our call is that the UK doesn't end 2018 so out of favour," he says, adding "ever more
conciliatory" commentary around Brexit will support equities. "The longer the transition, the
better for the UK."
    Meanwhile Credit Suisse is also sounding more optimistic on British stocks. It just upgraded
MSCI UK to 'neutral' from 'underperform', saying "UK equities are very cheap on a relative
basis, but the fundamentals and technicals are challenging". 
    CS had moved UK equities to underweight back in September last year.
 
 (Dhara Ranasinghe and Helen Reid)
    *****

    "JUST ONE WORD: PLASTICS" (1312 GMT)
    In "The Graduate", a young Dustin Hoffman (a.k.a. Benjamin Braddock), fresh out of
university, is famously given a piece of advice for his future career: "just one word,
plastics".
    Fifty years later, the future isn't what it used to be: Theresa May just pledged to
eliminate avoidable plastic waste within 25 years. Here's the story :
    According to Paul Moran, head of research for Northern Trust Capital Markets, this could be
a game changer (a 'diesel' moment) for the industry which investors, particularly shareholders
in UK packaging group RPC, should not overlook.
    "If we look at plastic packaging stocks in Europe, RPC stands out given it's basically all
plastic. As plastic is viewed as the structural grower in the packaging industry, this ought to
be a big concern for long term investors."
    RPC shares are currently down 1.2 percent. 
    Bonus: the "plastics" scene : bit.ly/1t8d96b
    (Julien Ponthus) 
    *****
            
    EUROPEAN SHARES GIVE UP GAINS AS MARKETS EYE ECB POLICY SHIFT (1247 GMT) 
    The STOXX 600 gave up its gains and is now down 0.1 percent as investors eye a
policy shift it the ECB's decision to revisit its communication stance in early 2018. 
    Here's the link to our story on the minutes from the central bank's December policy meeting:

    And here's the market reaction after the minutes were released:     
 
    (Julien Ponthus) 
    *****
       
    BUBBLE CONCERNS FOR U.S. EQUITIES "OVERDONE", AMUNDI RECKONS (1203 GMT) 
    While a growing number of investors are increasingly nervous about the gap in valuations
between U.S. and European equities and accordingly shifting investments towards the Euro zone or
 Japan, it's interesting to note that Amundi is keeping quite a positive view on U.S shares.
    "Looking into 2018, we believe that the concerns about a bubble for US equities are
overdone", writes Kenneth J. Taubes, CIO of Amundi's US Investment Management, who believes
there is room for corporate profits to rise. 
    "We expect that the combined impact of an improving US economy, a stronger global economy
and lower taxes will support EPS growth", Taubes said, adding that stock picking will however be
more important than ever. 
    "As certain stocks are over-valued, a rigorous bottom-up security selection will be key", he
said. 
    Here's a SocGen chart showing the gap between valuations in the U.S., Japan and the Euro
zone :    
 
    (Julien Ponthus) 
    *****
    
    MULTI-ASSET MANAGERS REASSESS BOND-EQUITY RELATIONSHIP (1135 GMT)
    The prospect of monetary policy normalization this year has got multi-asset managers
thinking about how best to keep their portfolios well-diversified.
    Tommaso Mancuso, head of multi asset at Hermes Investment Management, says in a note that
investors should not assume that bonds will keep on acting as a good hedge to their equity
exposure.
    "In a market regime in which bonds generate lower expected risk-adjusted returns and
potentially reduced diversification benefits, a balanced portfolio could very well be better off
without bonds," Mancuso concludes. 
    (Kit Rees)
    ******
    
    EYES ON THE PRICE: VALUATIONS BACK IN FOCUS FOR 2018 (1006 GMT)
    One trend that could materialise this year as the beginning of the end of QE starts to
jeopardise the relative attractions of stock market investing over bonds, is a newfound scrutiny
of equity valuations.
    "You've had quite a long period where investors haven't had to worry about valuation risks
much, it's been all about growth - but maybe after a strong 2017 people will look at valuation a
bit more and question whether certain stocks still look good value," says Nick Davis, European
income fund manager at Polar Capital. 
    His fund favours domestic European stocks over the region's global exporters on valuation
grounds. "There are some out of favour areas of the market that don't look as expensive, so
there are still pockets of value," he adds.
    On sector picks  "a lot of what you might describe as boring stocks look quite attractive...
pharma, infrastructure, telecoms for example."
    Didier Saint-Georges, managing director at Carmignac, echoes this renewed focus on specific
stocks in a note. "With the business cycle soon likely to peak, we are entering 2018 with a
particular attention to stock-picking."
    European stock valuations have actually remained steady over the past few months as strong
earnings kept P/E ratios from rising - but they're still above their five-year average.
 
 (Helen Reid)
    *****
    
    BITCOIN AND THE FRENCH TV REALITY STAR - PART TWO (0946 GMT) 
    Not only did the French financial watchdog (AMF) bark when a French reality TV star praised
the virtues of bitcoin investing (see yesterday's post), but the head of the French central bank
- no less - has also jumped in.
    "Those who invest in bitcoins do so at their own peril," Banque de France governor François
Villeroy de Galhau, told French news channel LCI when asked to comment on Nabilla Benattia's
advice to put money in the crypto currency. 
    He also added a piece of advice: "In a general manner, if one day a so-called financial
expert promises you a product which has both a high yield and low risk: run!"  
    Here's Villeroy de Galhau speaking to LCI.      
 
 
    (Julien Ponthus)
    *****
    
    OPENING SNAPSHOT: EUROPE STEADIES (0822 GMT)
    European shares have opened little changed as some calm returns to markets after China's
regulator said a report about Beijing slowing its U.S. bond buying was possibly wrong. The STOXX
600 regional benchmark was just flat and sectoral moves were also small, masking bigger
price swings for stocks such as Pandora and Tesco, both down following
results, or Hexagon, which soared after its CEO was found not guilty of insider
trading. William Hill and STMicro were boosted by broker upgrades.    
 
    (Danilo Masoni)
    *****    
    
    SOFTWARE MAKERS IN FOCUS AS EARNINGS ROLL IN (0746 GMT)
    The tech rally has slowed somewhat, prompting some investors to say the golden era of
technology stocks is coming to its end, while other say the future direction of the richly
valued sector depends more and more on its ability to deliver earnings growth.
    On this front, we'll keep an eye today on software makers like SAP and Software AG
 following a strong earnings beat from U.S. peer Progress Software that sent
its shares rallying on Wall Street. 
    SAP however could be hit by a Morgan Stanley downgrade to equal weight with a reduced price
target of 105 euros, while Software saw its price target lifted to 39 euros from 35 euros at
Barclays. Earlier this month chipmaker Dialog Semiconductor, recently hit by investor
fears it could lose top customer Apple, reported sales above its own outlook but its shares fell
following an initial positive reaction.    
 
    (Danilo Masoni)
    *****
        
    WHAT'S ON THE RADAR FOR THE EUROPEAN OPEN (0740 GMT)
    European futures are pointing to a slight recovery for the region’s stock markets on
Thursday after a bond market sell-off in the previous session brought an end to the breakneck
New Year rally in equities. 
    All eyes on UK retailers again as Marks & Spencer and Tesco became the latest in the
squeezed sector to report on Christmas trading, with diverging results.
    Tesco’s Christmas sales fell short of market forecasts, continuing a trend of  general
merchandise being much weaker than food growth, while M&S beat forecasts with a smaller than
expected fall in  clothing and homeware.
    Pre-market indications see Tesco dipping while M&S could make a slight gain. 
    A trader says "If Tesco is the miss it seems on first glance, would be surprised if it
doesn’t take a decent knock here."
    Online still seems to be winning with Boohoo raising its sales forecast again, and
shares called up 3 to 5 percent.
    Unlisted companies which could also provide a read on the health of Britain’s high street
include department store John Lewis, which said margin pressure was rising and volatile trading
would continue over the next 12 months, and House of Fraser, whose Christmas sales fell.

    And a source-based report that Nestle could pick a buyer for its U.S. chocolate business by
the end of the week, a deal expected to top $2.5 billion, could move the Swiss food giant’s
shares.
    In other company news and potential stock movers: 
Swiss exchange probing Clariant over possible Huntsman disclosure breach; 
    Nestle to pick U.S. chocolate business buyer by end of week-sources; 
    French group Sodexo keeps goals despite slow start to Q1; 
    Richemont posts solid Q3 sales growth thanks to jewellery, Asia; 
    CEO of Sweden's Hexagon found not guilty of insider trading; 
    Tesco reports 1.9 percent rise in Christmas like-for-like sales; 
    M&S clothing sales slightly better than expected in Christmas quarter​; 
    Ultra Electronics sees "significant exposure" to U.S. defence spending; 
    Premier Oil output set to rise by more than 10 pct 
    (Helen Reid)
    *****
    
    FUTURES POINT TO RECOVERY FOR EUROPEAN STOCKS (0705)
    European stocks look set for a recovery stronger than spreadbetters' calls suggested -
futures are up 0.2 to 0.4 percent across the major benchmarks. This indicates early gains after
a downbeat day yesterday when bond market worries seeped into stock trading.
    Here's your snapshot:
 
    (Helen Reid)
    *****
    
    BITCOIN BURNED BY SOUTH KOREA BAN TALK (0654 GMT)
    Another eye-catching mover overnight was Bitcoin, which is down nearly 10 percent after
South Korea's justice minister said the ministry is preparing a bill to ban cryptocurrency
trading through its exchanges, dealing another blow to the cryptocurrency whose sharp rally has
hit a speed bump over the past weeks.
 
    (Helen Reid)
    *****
    
    RESULTS AND DEAL TALK TO DRIVE TRADING (0635 GMT)
    While we await some major UK retailers reporting today including Marks & Spencer and Tesco,
results from Richemont and Sodexo have just hit the wire, while a late source-based story on
Nestle's U.S. chocolate business sale could move the Swiss food giant.
    Cartier watch maker Richemont reported solid fourth-quarter sales growth thanks to
strong jewellery demand in Asia:
    Food services firm Sodexo, which suffered broker downgrades hitting its shares on
Tuesday, reported a slow start to its Q1 but stuck to growth and margin forecasts:
    Nestle is said to be picking a buyer for its U.S. chocolate business by the end of
the week, with Ferrero seen as a front-runner:
    (Helen Reid)
    *****
    
    MORNING CALL: EUROPEAN STOCKS TO DIP AS GLOBAL RALLY FIZZLES OUT (0614 GMT)
    Good morning and welcome to Live Markets. Stocks in Europe look set for a more hesitant open
today with spreadbetters calling for slight gains for the DAX - which suffered a big fall
yesterday - while the FTSE and CAC 40 are seen dipping.
    In Asian trading the New Year rally petered out as bond markets continued to sell off and
Reuters reported Canadian government sources increasingly believe Trump will soon announce the
U.S. intends to pull out of NAFTA. 
    Here are your early calls:    
    DAX is expected to open 5 points higher at 13,286.5
    CAC 40 is expected to open 2 points lower at 5,502.7
    FTSE 100 is expected to open 3 points lower at 7,745.1
    (Helen Reid)
    *****

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