February 2, 2018 / 12:27 PM / in 6 months

LIVE MARKETS-"No-one wants to put their neck out there on a sell signal"

    * European stocks set for biggest weekly loss since Nov 2016
    * Deutsche Bank, Caixabank, Sabadell down after results
    * Eyes on U.S. payrolls data

    Feb 2 (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
 
    
    "NO-ONE WANTS TO PUT THEIR NECK OUT THERE ON A SELL SIGNAL" (1219 GMT)
    It was a shy kind of a sell signal: BAML's note stopped short of being outright bearish,
examining several potential scenarios including the S&P 500 rising above 3,000, and even
suggesting extraordinary market circumstances may make sentiment signals irrelevant.

    As a trader puts it: "I don't see how they can say 'sell signal' when they've been banging
on about it not hitting 8 for months, and then not go through with it... Sums up how NO ONE
wants to put their neck out there on a sell signal."
    BAML cross-asset strategists have taken some extra precautions in reaction to the signal.
"Cautious" on the near term, they've rolled over their S&P 500 "fragility hedge".
    "We felt that risk reward had deteriorated and that the market could not sustain the pace of
gains. While the modest falls of the last week have started to see some of those overbought
indicators diminish, equity markets remain stretched on most measures we look at," they note.
    Yet they're still "constructive" on the longer-term outlook for stocks. Global growth likely
to come in at 4 percent or more should drive earnings to grow by double digits for the year (see
chart).
    Responding to clients' pushback to their more cautious stance, they say: "We do not disagree
with the solid fundamentals... It is just when many seem to agree and are quoting our own
arguments back at us, we get a bit nervous."
    The BAML cross-asset team's favourite trades in European equities:
    - Long European dividend yield stocks
    - Long European pharma (valuations at lowest since 2011)
    They're also long U.S. banks against the S&P 500, betting on deregulation boosting returns.
 
 
 (Helen Reid)
    *****
        
    EYES ON LEVERAGE AS BOND YIELDS RISE (1059 GMT)
    Even if rising yields do suggest that growth expectations are increasing, and therefore
could lift equities, there are also implications for investors using leverage, says David Jane,
manager of Miton's multi-asset fund range.
    "Higher yields also means higher funding costs for leveraged investors and a higher
opportunity cost for investors in risk assets versus the risk-free return," says Miton's Jane.
    "While the economic outlook is highly positive and equity valuations remain reasonable
against a strong period for profit growth, the risk remains that the overblown leveraged trades
need to be unwound as interest rates rise worldwide," Jane adds.  
    (Kit Rees)
    *****
    
    A TIMELY "SELL" SIGNAL (1045 GMT) 
    In terms of timing, Bank of America Merrill-Lynch's "Bull & Bear" indicator comes at a time
where it definitely won't be overlooked. The fact that it hit a "Sell" signal while European
markets are deep into a fifth consecutive day in the red is food for thought.
    "What is for sure is that this indicator comes at a moment where investors are asking
themselves where the market is heading," said Pierre Martin, a senior sales trader at Saxo Bank.
    Martin argues that the fast-rising upward trend since the beginning of the year leaves some
space for some technical correction but that at the same time, there is no reason to give up on
the "global synchronised growth" investment case.      
 
    (Julien Ponthus)    
    *****
    
    DECLINE OF THE DAX (0939 GMT)
    One of the most impressive reversals in 2018 so far has been Germany's DAX, which started
out the year as a leader among European stock markets, fuelled to a fresh record high by the
cyclicals-led rally, only to reverse violently, dropping more than 5 percent in just eight
sessions. It's now in the red year-to-date. 
    The euro's relentless rise must be partly to blame for the outsize decline in the
exporter-heavy index, but rising bond yields are also a pressure for the DAX's big defensive
stocks in healthcare and utilities. 
    
 
 (Helen Reid)
    *****
    
    SPANISH BANKS' RESULTS "A LITTLE DISAPPOINTING" (0847 GMT)
    It's a hefty day for European banking results, and the falls in the share prices confirm the
view from Jefferies analysts that earnings from Spanish lenders Sabadell and Caixabank
 are somewhat underwhelming.
    "4Q numbers decidedly mixed for both (-ve one-offs at CABK, weaker core trends at SAB), but
the guidance towards a brighter outlook may offer partial support," Jefferies analysts say.
    Spanish banks did have a strong year in 2017 so some share price weakness was perhaps to be
expected.    
 
    (Kit Rees)    
    *****
    
    OPENING SNAPSHOT: EUROPEAN SHARES DIP AS BANKING RESULTS WEIGH (0811 GMT)
    It looks like day five of straight losses for European shares, with the STOXX 600 index
sliding further in early dealing.
    Aside from oil & gas, all other sectors are in negative territory, with the disappointing
results from Deutsche Bank sending its shares 5 percent lower, while Spain's Caixabank and
Sabadell are also among the biggest fallers among banks following earnings.   
    We could see some volatility ahead of U.S. payroll data.
    Here's your opening snapshot:        
 
    (Kit Rees)
    *****
    
    
    WHAT YOU NEED TO KNOW BEFORE EUROPE OPENS (0745 GMT)
    European shares are set to open flat to slightly lower at the end of a week where rising
bond yields and strength in the euro have pushed the STOXX 600 benchmark down around 1.7
percent.
    That is already the biggest one-week loss since early November when a slowdown in earnings
growth and similar bond market jitters weighed. Futures were trading between flat and a fall of
0.2 percent.
    Tech stocks will be in focus after U.S. internet giants released their earning updates
yesterday with a record profit at Amazon possibly boosting shares in companies like Zalando,
while shares in semiconductor companies like AMS, Dialog Semi, and IQE are expected to open
lower after Apple issued a light guidance and reported it sold fewer iPhones over the holiday
quarter than Wall Street had expected.
    There is a raft of results in Europe too that will keep investors busy. 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.      
    Deutsche Bank shares are indicated down 4 percent after the German lender reported a bigger
than expected net loss for 2017, which could test a strong rally in banking stocks seen so far
this year which was fuelled by expectations over tighter monetary policy and strong economic
growth. 
    (Danilo Masoni)
    ****

    EARLY MORNING EUROPEAN HEADLINE ROUND-UP (0738 GMT)
    Lots of earnings today, here's what's jumped out so far:
    
    Deutsche Bank posts third consecutive annual loss in 2017
    Spain's Caixabank Q4 profit falls 70 pct from Q3
    Spain's Sabadell Q4 net profit more than doubles on one-off sales
    Danske Bank beats Q4 pretax expectations, expects lower 2018 net result

    Nordea banking group to list Finnish unit on Scandinavian exchanges
    Philips Lighting Q4 earnings beat estimates on cost cutting
    Tyre maker Nokian Q4 profit up 13 pct yr/yr
    Tools maker Husqvarna Q4 result, dividend better than expected
    Aker BP Q4 core profit lags market expectations
    Fortum Q4 profit jumps 57 pct yr/yr
    Tele2 says will aim to grow dividends, Q4 core profit matches forecasts

    Hexpol Q4 operating profit matches forecast​
    Cevian Capital raises Ericsson stake to 5 pct of votes
    Spanish property developer Metrovacesa cuts listing price    
    AirAsia CEO says looking at Boeing 787 for AirAsia X fleet growth    
    AstraZeneca flags return to drug sales growth in 2018
    Britain's BT says on track for year after Q3 meets its expectations
    Cobham sells communications units to Viavi for $455 million​
    Doorstep lender Provident Financial names new CEO
    Satellite company Avanti appoints new CEO​    
    EU clearing house system passes stress test    
    (Kit Rees)
    *****
    
    BUT FUTURES POINT TO STEADY OPEN FOR EUROPEAN SHARES (0702 GMT)
    Contrary to earlier calls from financial spread-betters, European stock index futures have
opened with slight gains, indicating this week's sell-off could ease somewhat.
    The STOXX 600 is down around 1.8 percent so far this week, set for its biggest weekly loss
since November 
    Here's your snapshot:    
 
    (Danilo Masoni)
    *****
        
    DEUTSCHE BANK POSTS BIGGER THAN EXPECTED LOSS (0643 GMT)
    Banks, recently buoyed by rising bond yields and optimism about economic growth, could be in
focus today after the DAX-listed heavyweight lender disappointed analyst expectations with a
2017 loss of 497 million euros in 2017. 
    (Danilo Masoni)
    *****
    
    MORNING CALL: EUROPE SET TO EXTEND LOSING STREAK (0630 GMT) 
    Good morning and welcome to Live Markets. 
    Rising bond yields and a stronger euro are likely to put European shares under pressure for
a fifth day in a row, one day after the export oriented German DAX index fell 1.4 percent - its
biggest one-day loss since early November.  
    Over in Asia, the euro neared multi-year peaks as talk of policy tightening in Europe and
expectations that inflation is set to gear higher drove up borrowing costs globally, a move that
sparked a sell-off in Asian equities.
    Later in the day the focus will be the U.S. payrolls report. "Anticipation is elevated after
a hawkish FOMC meeting... A strong number may increase the probability of four rate hikes this
year," says Credit Suisse in its investment daily note.
    We'll also be keeping an eye on tech stocks here in Europe after results from big internet
companies in the US. "Some anxiety is fuelled by a trend for companies that miss estimates to be
penalized... Facebook bucked the trend, forecasting rising ad sales despite a dip in usage.
Apple reported record quarterly revenue and profits after the bell, Amazon’s results easily beat
expectations, but Alphabet disappointed," adds Credit Suisse.
    Back to Europe, here are your opening calls, courtesy of CMC Markets.
    FTSE100 is expected to open 5 points lower at 7,485
    DAX is expected to open 63 points lower at 12,940
    CAC40 is expected to open 9 points lower at 5,445
    (Danilo Masoni)
    *****

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