November 15, 2018 / 3:40 PM / a year ago

LIVE MARKETS-Brexit: Face it, you have no edge

    * STOXX hits fresh 2-week low, down 1.2 pct
    * UK ministers quit in severe blow to PM May
    * Brexit drama offsets optimism over trade war

    Nov 15 - Welcome to the home for real time coverage of European equity markets brought to
you by Reuters stocks reporters and anchored today by Josephine Mason. Reach her on Messenger to
share your thoughts on market moves: rm://
    We happened to have UBS Wealth Management's Brexit specialist at our Reuters Global
Investment Outlook Summit this morning just a few minutes after Raab's resignation. 
    One of Dean Turner's key conviction is that there is no way investors can have "an edge" to
trade on the drama unfolding given the unpredictable nature of this crisis.
    "It’s very difficult to believe you’ve got an edge over anyone else in this situation. Who
has got insight into how the Tory Party is going to react? We have views, and I’m sure other
people in the market have views. But no one has that edge. So taking active positions is risky."
    As an economist, it's possible to try to anticipate how an economic agent will respond to a
financial incentive. But in the case of Brexit "it's an emotive issue," Turner said.
    There's also a case to remember how many investors got burnt by the referendum. Fool me
    Thinking about it, there's probably a case to draw a parallel between Brexit speculation and
calling the weather in three months. 
    More about the chaos theory here: (Edward Lorenz, father of chaos
theory, dead at 90) 
    Butterfly effect:    
    (Julien Ponthus, Jamie McGeever and Karin Strohecker)
    If you haven't had time to go through the plethora of views on what the multiple
resignations from UK PM Theresa May's cabinet mean, here's a recap from two top brokers of
possible scenarios, courtesy of a forex trader.
*** Deutsche Bank's Oliver Harvey:    
    * Fail and try again, ultimately goes through on second attempt but GBP lower in the
meantime (40
    * May resigns/is toppled - highly negative as Tory leadership contest. Market to price no
deal (20
    * The EEA pivot - joint Labor/Tory deal (20 percent)
    * May calls new referendum (20 percent)

*** Nomura's Jordan Rochester:
"I would put it in this order of likelihood. I am not even going to try and put percentages on
it yet – maybe when the dust has settled. But the order of likelihood I see is:
    * This deal somehow trudges on through parliament
    * Second referendum
    * General election
    * Hard Brexit"    

    (Danilo Masoni)
    It's exactly what fund managers and many European banks don't want to hear but the rise of
ETFs and passive management is not going away, quite on the contrary. 
    Moody's says that in Europe, it expects "the wider passive fund sector, including tracker
funds, to grow to 22% of total assets under management (AUM) from 14% at year end-2017 in our
base case scenario, and to 27% in our fast case scenario". 
     "In these scenarios, ETFs share of total fund AUM would rise to close to 11% and 14%
respectively, from 6.2% at the end of 2017", the rating agency adds.
    Moody's notes that traditional European banks, which control a big chunk of the retail
market will be less successful in selling their own costly funds and prevent the rise of ETFs on
the old continent.
    "Asset managers with passive capabilities, such as BlackRock, DWS and Lyxor, will benefit
from this growth phase and continue to grow their market share", Moody's believes.
    It's true that the last few years were not exactly a showcase for stock pickers who
struggled to keep up with benchmarks, particularly in the U.S. where just a handful of stocks
such as the FAANGS drove indexes higher.  
    That said, some stock pickers probably needn't worry.     
 Here's a link to Moody's press release: 
    (Julien Ponthus)
    Our graphics team has just put online an interactive "Rolling bear market" chart, which
shows you both how many stocks are in bear territory within the world's main benchmarks and
whether these indexes are themselves down 20% from their peak.        
    As you can see, on the surface, the performance of global stocks overall does not appear
that troubling, but a closer look at the share of constituents in bear markets is a totally
different story.
    Here's the link to the "Rolling bear market": 
    Here's another link to our Oct. 24 analysis on how bears are taking over world stock markets
    (Lea Desrayaud, Ritvik Carvalho and Julien Ponthus)
    Volumes and sell orders are on the rise as the Brexit drama unfolds but there are a handful
of UK stocks that are surviving quite decently, mostly because they are exporters and benefit
from a weaker pound or because their business could benefit from a disorderly Brexit.
     Here is Goldman Sachs' so-called "UK8" basket of big international stocks that get a boost
when the sterling falls. 
    And here is the Societe Generale's "Brexit+" plus basket of Brexit resilient companies:   
    "People are dumping stocks geared to the UK's domestic economy like homebuilders, banks like
RBS and LLoyds and real estate and of course they're buying UK exporters," said Stephane Ekolo,
equity strategist at TFS Derivatives.
    Our latest update from the British capital: British PM May battles to save Brexit deal as
ministers quit
    (Danilo Masoni)
    "We are experiencing huge sell orders and the sterling-dollar pair is in free fall for now",
Think Market analyst Naeem Aslam said a bit more than an hour ago after the resignation of
Brexit minister Raab gave cable a kick in the face.
    Aslam took the view that "The Brexit deal is dead in the water" and that "this could be the
end of the road for May" while other analysts witnessed their clients' rush for answers. 
    Nomura's Brexit specialist said "huge numbers of questions from clients this morning show
most are in scenario planning mode". 
    So what were investors doing apart from witnessing sterling make a spectacular fall in what
Oanda's Craig Erlam called a "crazy start to trading" which is likely to last all day? 
    "Short term traders looking to jump on the big moves and ride them for smaller short term
gains have been busy, and will be the ones who take the big risks but could ultimately be the
only ones willing to trade the currency", said James Hughes from AxiTrader.
    For IG's Chris Beauchamp, who said it was just "one of those morning" there is a case to say
that how this crisis unfolds is anybody's guess. 
     "There are, at present, too many moving parts to guess whether the deal can still get
    (Julien Ponthus)
    The positive open we've seen here in Europe has been short-lived and now all regional
benchmarks are trading in the red after the resignation of Brexit Minister Raab has clearly made
even more difficult an orderly exit of the country from the European Union.
    The STOXX 600 has just hit a two-week low with UK domestic stocks feeling most of
the pain, as sterling comes under fresh pressure.
    Here are a couple of takes:
    "This departure could put at risk the Brexit deal and traders are selling the British
currency due to growing uncertainty about the future of the UK," says Carlo Alberto De Casa,
chief analyst at ActivTrades in London.
    "Raab resigning just now changes the ballgame. Hard to be optimistic on GBP in the short
term.  But equally Theresa May has survived much worse. It’s whether we get a flood of
resignations to follow," Nomura analysts tell clients in an email.
    The STOXX 600 is now down 0.6 percent while political uncertainty is penalising stocks in UK
companies with high domestic exposure, offsetting losses in exporters and weighing even on the
FTSE 100, struggling to remain in positive territory.
    And here's a snapshot:    
    (Danilo Masoni)
    A strong rebound in mining stocks is helping drive European stocks up this morning with the
STOXX up 0.4 percent and DAX up 0.7 percent. 
    Hopes that a trade war between China and the U.S. could be nearing endgame after China sent
a written response to U.S. trade reform demands are likely helping boost the mining sector
 up 1.8 percent after a sharp fall yesterday on growth worries. A weaker dollar is likely
also supporting the sector.
    Autos stocks meanwhile are the worst-performing, down 0.4 percent after China poured
cold water on hopes for auto tax cuts there. 
    AMS fell as much as 8 percent at the open after it cut its revenue guidance,
reigniting fears around the semiconductor sector. 
    On the UK front, newly-listed carmaker Aston Martin reported strong Q3 profit and
said it expected full-year sales to come in at the top end of expectations.
    Its shares opened up 2.7 percent but quickly turned negative, now down 7.6 percent and set
for their worst ever daily fall.
    Here are the top movers: 
    (Helen Reid)
    European futures are higher, defying earlier calls for another drop by financial
spreadbetters as renewed optimism over a possible end to the prolonged trade spat between the
United States and China appeared to offset worries over Rome's showdown with Brussels and May's
Brexit drama.
    Some negative headlines may curb the gains though: China has poured cold water on industry
hopes for a cut in auto purchase taxes, in Austria AMS cut its sales forecast, the latest chip
supplier hurt by Apple's weak sales forecast for the upcoming holiday season, and Henkel shares
are indicated lower after the maker of Persil detergent and Loctite adhesives reported a
slowdown in sales.
    AMS shares are seen down 10 percent at the open. They have already lost almost a third of
their market cap this month, on track for their worst month in a decade.
    Here are this morning's headlines to watch:
    Austria's AMS becomes latest Apple supplier to slash forecast
    China state planner douses hopes for auto tax cuts, tells sector to buckle up
    Henkel sales growth slows as adhesives cool
    Hugo Boss seeks sales boost from speed, online, Asia
    French group Bouygues maintains toned-down outlook as 9-month profits fall
    NN Group's Q3 profit rises on improving Dutch market
    European passenger car sales slump 7.4 pct in October
    Global regulators hold off designating 'too big to fail' insurers
    Linde AG expects revenue and earnings to be at top end of forecast 
    Antofagasta approves $1.3 bln Los Pelambres copper mine expansion
    K+S cuts outlook after dry weather weighs on production
    SKF to increase cost focus against an uncertain macro backdrop
    Dutch insurer NN Group's Q3 core profit beats estimates with 7 pct rise
    UK forced to accelerate planned reform to gambling regulations
    Ericsson doesn't see sales lift after security concerns hit Chinese rivals
    Vodafone may replicate elements of UK tower sharing venture elsewhere
    Britain's Lloyds agrees settlement with HBOS whistleblower
    BMW, Vodafone, Ericsson urge EU to consider 5G car standard
    (Josephine Mason)
    Good morning and welcome to Live Markets. 
    European stocks are called to open lower today even after Asian equities rose overnight on
news that China has delivered a written response to U.S. trade demands.
    Politics and falling oil prices continue to overshadow, with Brexit drama dominating the UK
market and Italy's deepening budget crisis and showdown with the EU Commission driving bond
yields up and bank stocks down.
    "While (Theresa May was able to achieve what she called collective approval from her cabinet
to accept the deal, the gritted teeth consensus could well be tested in the coming days," says
Michael Hewson, chief market analyst at CMC Markets UK.
    Financial spreadbetters call the DAX 30-35 points lower, the CAC40 is expected to open 11-15
points lower and the FTSE 100 will be flat to down 28 points, according to IG and CMC Markets

    (Josephine Mason)

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