March 14, 2018 / 3:17 PM / 3 days ago

LIVE MARKETS-adidas seen from the street

    March 14 - 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:
    Shares in the German sportswear maker are the biggest gainers in Europe today, up 12 percent
and on track for their biggest one-day gain in nearly 10 years - a remarkable performance for a
company with a market cap of 35 billion euros. 
    But is the reaction proportionate to what adidas has announced in its solid update?  
    "No. Things are overdone," a Frankfurt-based trader says. 
    "There were some shorts ahead of FY18 outlook, which was expected to be weak. That did not
materialize. Shorts must be covered," he adds.    
    Still the numbers and the big buyback are a nice surprise.  
    UBS highlights that its buyback represents almost 9 percent of the company's share capital,
the maximum permitted under the AGM authorisation, while Baader Bank Helvea says its outlook was
convincing and above expectations. Neither, however, made changes to their price targets.
    (Danilo Masoni)
    The Russian economy seems to have engaged in a spectacular pull-back from cross-border M&A,
Thomson Reuters data shows today as Britain and the Kremlin enter a showdown about how a
Soviet-era nerve toxin was used to attack a Russian ex-spy in the UK.
    A few days ahead of Sunday's Russian presidential election, our Deals Intelligence team took
a look at how the Russian M&A industry has performed since President Putin’s election in 2012.
    Main takeaway is that Russia's resurgence as a key player on the world stage has been
matched by a total withdrawal in international M&A. 
    "Russian outbound M&A at its second lowest level since 1999 with only 5 million dollars.
Outbound M&A activity was still at zero in YTD 2017; a scenario that hasn't been seen in Russia
since prior to 1998," Thomson Reuters analysts wrote. 
    As you can see below, foreign investors seems to be on the back foot too, with inbound M&A
down 87 percent year-to-date.   
    (Julien Ponthus)
    Turns out the Leave/Remain divide still runs deep... even seeping into investors' equity
    Investors based in London, which had the highest Remain vote, are the most positive on Euro
zone equities, a Lloyds bank survey shows. They're also among the least enthusiastic about UK
    The North, meanwhile, which had the third highest Leave vote in the UK, has the strongest
positive sentiment towards UK equities. Investors in Scotland are the most pessimistic about UK
equities, having voted overwhelmingly Remain.
    "It could reflect political leanings but it’s more likely that investors are simply keeping
a close eye on how the negotiations unfold and what impact these will have regionally," says
Markus Stadlmann, chief investment officer at Lloyds Bank Private Banking.
    Sentiment across all equity markets is much higher compared to last year, except for UK
shares which have seen sentiment tumble 17.7 percent from March 2017.
    Here's the regional breakdown:
 (Helen Reid)
    UBS believes the European Aerospace and Defence industry is poised to deliver solid free
cash flow growth and that could further underpin share prices in the sector, which has
already risen 15 percent over the last year, comfortably beating the broader marker.  
    "FY17 results saw better than expected cash generation across the space, and we see scope
for further improvement 2018-20e to drive share-price outperformance," analysts at the Swiss
investment bank says in a note, raising their FCF estimates for Airbus and saying they
are increasingly confident Rolls Royce will deliver.
    On top of that UBS sees "improving mid-term growth prospects". They say the civil cycle
remains robust with Airbus expecting deliveries to increase to around 800 deliveries in 2018
from 718 in 2017. They're also remaining positive on the aftermarket, citing Safran's 
growth guidance, but are cautious on suppliers like Meggitt given price pressure from
    (Danilo Masoni)
    Slowly but surely, the narrative that the Euro zone could somewhat have reached "peak
growth" continues to grow this morning with data showing the Euro zone industrial production was
weaker than expected in January.
    "While January may have been a weak month, the recovery of production still maintains a
relatively strong pace. The question is whether this pace can be sustained in 2018 as well," ask
ING analysts in a note commenting on the statistics. 
    "Although still signalling strong growth, the somewhat weaker PMI data in February begs the
question whether the acceleration of production might stop before it properly started", the bank
    While 2017 was all about the #Euroboom, the first quarter of this year is more about
economists pointing to a loss of economic momentum. 
    Here's a blog post from January where Sebastian Raedler, head of European equity strategy at
Deutsche Bank made that case and explained how it would impact the STOXX600:
    (Julien Ponthus)

    One of the answer is good old-fashioned value investing (Warren Buffett style), Societe
Generale argued in a global asset allocation note, where it reflects on the state of markets
"now that volatility tourists (retail money invested in VIX products) have gone back home". 
     Gone are the days when bonds were a cheap and effective hedge against sell-offs in the
equity markets, the French bank says, adding that "recent events show not only some instability,
but a higher correlation between equity and bond prices". 
    And that's not about to end, according to SocGen's analysts for whom this constitutes a
trend which is here to stay and advise "concentrating equity exposure in the value style (euro
area, Japan".  
    Here's a link to Wikipedia's 'Value Investing' : and here are Socgen's
calls to address correlation between equity and credit: 
    (Julien Ponthus)
    European shares are pulling higher from a negative open, but the real action is on the
single-stock level where results are spurring some decent-sized moves.
    Adidas is currently the biggest gainer after its results and share buyback announced, while
news of Prudential's demerger has sent its shares up around 5 percent.
    A strong showing from the miners is also helping prop up the market thanks to some solid
industrial production figures out of China.
    A decline among energy stocks and industrials is pulling the market lower, however, as
results knock shares in chemicals firm Brenntag and postal services provider Bpost.
    Here's your opening snapshot: 

    (Kit Rees)
    Food retail is a tough area at best, given the threat posed by online giant Amazon. If you
look at a chart of how the UK grocers have performed over the past year, one thing stands out -
Ocado is the best performer. So online is key.
    Today's results from Morrisons though could give investors something to cheer about.
MRW beat forecasts and announced a special divi, thanks to wholesale and an online push (the
results mention initiatives such as a store-pick online service and 'Morrisons at Amazon').
    "Today's release points to considerable self-help still available to drive future earnings
gains," analysts at Jefferies analysts say in a note.
    "Earnings visibility and income support are key to our Buy. Both appear well underpinned
after the finals," Jefferies add.    
    Traders are calling Morrison's shares 2 percent higher today. And on a positive note, all of
the UK supermarkets are outperforming the FTSE 100 so far this year.
    (Kit Rees)
    European shares are set to follow Asia’s lead and fall further on Wednesday, with futures
down 0.1 to 0.3 percent, after jitters over world trade were reignited by President Trump’s
threats of tariffs on Chinese imports, and investors continue to digest political uncertainty
after Trump fired his Secretary of State.
    "Even before this latest firing, the turnover rate among high-level staff and cabinet
members had been higher than under any other president in the past 40 years," UniCredit
strategists wrote in a note.
    Better-than-expected Chinese industrial production figures boosted metals prices and should
help mining stocks gain on Wednesday, though concerns on trade could cap gains. 
    As earnings continued to come through, retailers will be a focus after Zara owner Inditex
and Adidas reported. The German sportswear company is seen up as much as 6 percent at the open
after it announced a large share buyback and increased its profit forecast for 2020.  
    Investors are also likely to cheer Morrisons after the UK’s no.4 grocer beat forecasts and
announced a special dividend.
    M&A news includes Prudential’s plan to spin off its UK and European business from
international businesses, and news that Atlantia and ACS have reached an agreement over their
joint control of Abertis. Quite a range of pre-market calls for Prudential, seen up 2 to
10 percent.
    Also in focus will be stocks with Russia exposure in case of market reaction after a war of
words between Britain and Russia escalated overnight when Russia did not respond to a British
ultimatum for an explanation of the nerve agent attack in Salisbury. 
    Additional headlines:
    Australia picks Rheinmetall as preferred supplier for $2.5 bln contract (beats BAE)

    BRIEF-Bpost Sees Recurring EBITDA In Range Of EUR 560-600 Million In 2018
    Drugmaker Hikma posts lower-than-expected 2017 profit
    (Helen Reid)
Prudential to spin off UK and European business in radical break-up 
Morrisons pays special dividend after profit rises 11 pct​  
Adidas forecasts slower sales and profit growth for 2018 
Adidas to buy back up to 9 pct of share capital 
Zara owner Inditex full-year profit up 7 pct 
Britain's Balfour Beatty's annual profit almost triples 
Italy's Atlantia and ACS reach agreement over joint control of Abertis 
Air France rejects wage demands as another strike looms 
SocGen in exclusive talks to buy Commerzbank's EMC unit -Handelsblatt‍​ 
American Tower, KKR are bidders for Altice NV's towers-Bloomberg 
Italy's Snam raises investment, profit targets to 2021  
Raiffeisen proposes dividend of 0.62 eur/shr
Clas Ohlson Q3 operating profit falls 
MEDIA-Tesla treasurer and VP of finance leaves the company - Bloomberg
IHG acquires 51% stake in Regent Hotels & Resorts
    (Tom Pfeiffer)

    Futures are down across the board, indicating European stocks aren't going to have an easy
reprieve after yesterday's falls, as fresh tariff threats add to uncertainty over trade.
    Retailers are front and centre of results this morning, with Adidas and Inditex reporting.
The German sports fashion company is seen gaining 3 percent in pre-market indications after it
forecast sales and profit growth would continue in 2018, albeit at a slower pace.
    Inditex meanwhile reported a seven percent jump in annual profit, despite negative headwinds
from a strong euro.
    Meanwhile M&A could also be a mover after Atlantia and ACS reached an agreement overnight
over joint control of Abertis.
 (Helen Reid)
    Fewer than 20 percent of investors now expect a transition deal to be agreed before the
March EU summit, according to Barclays' monthly Brexit investor survey conducted last week.
Almost two thirds of those surveyed expect an agreement to be delayed to the October EU summit
or beyond.
    Barclays analysts say the EU's draft treaty "brought the issue of the Irish border back to
the fore and the importance of resolving it before transition talks can begin, in order to avoid
talks stagnating later." Hence investors' increasing doubts an agreement can be hashed out in
    Looking further ahead, only 13 percent expect an agreement to be reached before the March
2019 deadline. A large minority of investors, 24 percent, expect the UK and EU to fail to agree
the outline before the transition period ends. 
    (Helen Reid)
    Good morning and welcome to Live Markets. 
    European stocks are called to decline further today as the latest protectionist policy push
creates more uncertainty and pessimism over world trade.
    Asian shares reversed overnight as investors digested the threat of new U.S. tariffs on
Chinese imports and President Trump's move to fire his Secretary of State, which had already
sent Europe and Wall Street skidding.
    Trump is seeking to impose tariffs on up to $60 billion of Chinese imports, targeting the
technology and telecoms sectors in particular. 
    Spreadbetters call the DAX 79 points lower at 12,143, the CAC 40 down 27 points at 5,215,
and the FTSE 100 27 points lower at 7,112. 
    (Helen Reid)

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