January 2, 2018 / 6:35 AM / a year ago

LIVE MARKETS-Closing snapshot: European shares end slightly lower

    * European stocks wilt on first day of 2018 trading
    * Turnaround in miners pulls stocks off lows
    * Autos stocks dented by weaker car sales data

    Jan 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 Helen Reid. Reach her on
Messenger to share your thoughts on market moves: helen.reid.thomsonreuters.com@reuters.net
    Closing snapshot: European shares end slightly lower
    Though strength in commodities-related sectors did help stem losses. That's it for today
folks, see you tomorrow for more on European equity markets, with all eyes on MiFID.
    We'll leave you with a closing snapshot:
    (Kit Rees)
    Miners pull European stocks off lows heading into close (1602 GMT)
    This is thanks to a turnaround among basic resources stocks, which are now in
positive territory with steel makers such as ArcelorMittal, Tenaris and
Voestalpine among the biggest mining gainers.
    Likewise energy stocks are positive while banks are flat, so we're seeing a helping
hand from the cyclical cohort.
    (Kit Rees)
    Portuguese shares post mysterious outperformance (1554 GMT) 
    Portugal's blue-chip index is set for a stellar outperformance in comparison to its
European peers, rising 1.4 percent while the STOXX 600 is losing 0.2 percent.
    But we don't know why.
    "I really can't see a single explanation to explain this", a Parisian asset manager told us,
saying current tailwinds for energy and financial stocks could be among the positive factors
lifting the PSI 20. Another possible explanation would be a very large investor going overweight
on the country.
    A trader in Lisbon also said he couldn't see any specific piece of news to justify today's
move. You can see Portugal's outperformance here: tmsnrt.rs/2CCu1yI

    (Julien Ponthus) 
    Bond market jitters a worry for stocks? (1505 GMT)
    Bond yields across the euro zone have shot up today after hawkish comments from a central
banker spread fear among investors that the end of the ECB's stimulus programme could come
earlier than expected. 
    Part of today's stock market weakness could be down to a contagion effect from the bond
sell-off as yields on German Bunds, the regional benchmark, hit a two-month high.
    "The irrational exuberance supporting bond markets is over and equity markets will likely
experience a long overdue correction in the path to a higher interest rate environment," says
Christopher Peel, CIO at Tavistock Wealth.
    "This is the start of a longer-term portfolio rotation that reduces bond duration and
increases equity exposure, especially Smart Beta strategies."
    Investors are likely to stay favourable to stocks as long as their yield remains relatively
more attractive, and Peel reckons bond yields will have to rise by at least 100 basis points for
that relative advantage to disappear. He sees it as more of an issue for stocks in 2019.
    Here's a graphic courtesy of our colleague Dhara Ranasinghe showing the pressure on Europe's
periphery bond markets - and the full bond report here:
    (Helen Reid)
    Bond funds were November's winners in Europe -Lipper (1404 GMT)
    Bond funds were a clear favourite among long-term mutual funds in Europe in November,
according to research by Thomson Reuters Lipper, and saw 18 billion euros' worth of inflows.
    Equity funds came in second place, with more than 7 billion euros' worth of inflows.
    Overall net inflows into European mutual funds stood at nearly 29 billion euros for
    (Kit Rees)
    U.S. stock futures up - but does the first day of trading matter? (1300 GMT)
    Futures for the S&P 500, Nasdaq and Dow Jones are all trading higher ahead of the Wall
Street open, pointing to a strong start to 2018 for U.S. stocks, which had a stellar 2017. 
    Some analysts say the direction on the first day of trading is actually a good predictor of
how well stocks will do in the 12 subsequent months. 
    Here's some number-crunching courtesy of Ryan Detrick, senior market analyst at LPL
    We checked whether we could find a similar trend for the STOXX 600 and the answer is no, not
really. Since 2008, three years yielded negative returns (2008, 2011 and 2016). The year started
badly in 2008 and 2016 but not in 2011.
    Of the 7 years when shares finished higher, two had a negative start (2014 and 2015). It's
probably safe not to read much into day one. 
    (Helen Reid and Julien Ponthus)
    Something "naysayers" forget about the U.S. yield curve (1220 GMT)
    Investors who worry that the flattening of the U.S. yield curve signals the upcoming end of
the bull market forget one thing, SocGen's Alvin Tan writes.
    "Naysayers might point to the flattening U.S. yield curve, but in the past two episodes
(1998 and 2005) when the yield curve flattened to zero, the S&P500 index continued to climb for
well over a year", he notes. 
    (Julien Ponthus) 
    MiFID II- "Peppercorn prices are unacceptable," research platform says (1157 GMT)  
    "MiFID II has arrived and action must be taken," writes Russell Napier, co-founder of
research marketplace ERIC. He worries that a number of investments banks are conducting a
"research price war" in a bid to woo clients. 
   "Devaluing (research) could harm the end investor, in direct contrast with MiFID II's
ultimate aim", he adds.  
    Have a look at Reuters' latest stories on MiFID II, which comes into force tomorrow:

    (Julien Ponthus)       
    More pressure in store for European retailers - Deutsche Bank (1141 GMT)
    There's a big focus on retail in notes this morning, with the big UK retailers Kit just
mentioned due to report next week. 
    Weighing in on non-food retailers, Deutsche Bank analysts say macro conditions will continue
to be pretty unhelpful and performance will be largely determined by structural changes in a
disrupted industry.
    Here are five investment tips and themes DB suggests to navigate this:
    1) Buy the value retailers
    DB's top picks are AB Foods, B&M and Boohoo which could all
benefit from consumers shifting to cheaper stores
    2) Watch the value traps in mid-market apparel retail
    M&S, Next and Debenhams should be avoided despite low valuation
multiples, DB reckons, though it sees a "slightly better" year for them in 2018
    3) Back online brands over the platforms
    DB prefers ASOS and Boohoo over Showroomprive and Zalando,
saying the UK online fashion starlets are more differentiated and can drive stronger growth
    4) Be sceptical of transformation stories
    It's a difficult backdrop for successful turnarounds in the sector and DB downgrades
Carpetright for that reason
    5) Buy travel companies at the right price
    Airport retailers such as Dufry and WH Smith could benefit from increasing
airport traffic boosting their captive consumer base
    (Helen Reid)
    X-mas: analysts watching UK "Big Four" supermarkets vs. discounters (1131 GMT)
    Following the Christmas period, it looks like there's a lot of interest in retailers - UBS
analysts are weighing in with their thoughts on UK grocers, which have been feeling the heat
from the discounters as well as an inflation-pressured consumer.
    "With UK disposable income squeezed, Christmas trading could be a bellwether for
down-trading in 2018," UBS analysts say in a note.
    "But the Big-4 have tried to minimise reasons for shoppers to switch," UBS adds, comparing
prices of turkeys at Aldi, Lidl, Asda, Tesco and Morrisons.
    UBS also highlights that Tesco had the best sales momentum of the four biggest UK
supermarkets going into Christmas, with its price position "on point". Here's how UK grocers'
shares have done over the past two years:        
    (Kit Rees)
    2018, a vintage year for merger arb? (1110 GMT)
    More and more investors are hoping Donald Trump's tax overhaul will trigger a wave of M&A
and produce a vintage year for merger arb funds. 
    "If the reform kicks in, one may expect increased M&A activity, which could be bolstered by
additional resources made available by tax savings and possibly cash repatriation measures,"
writes Roberto Bottoli, a portfolio manager for merger arbitrage strategies at GAM Investments.
Lyxor also has "very strong convictions" on merger arbitrage this year. 
  (Julien Ponthus)
    Morning snapshot: European shares dip (1023 GMT)
    The first trading session of the year is turning out to be a rather muted one, with losses
among miners and autos weighing.
    A stronger euro also isn't helping, with the currency up at its highest level since
September last year.
    Looking over market commentary from this morning and most analysts and traders were
expecting the manufacturing data out of China to support miners, but instead it looks like
there's some profit-taking going on given the sector is coming off its highest level
since January 2013.
    And here are the top STOXX gainers and losers two hours into the European trading session: 
    (Kit Rees)
    What you need to know so far (0750 GMT)
    Good morning and happy new year! European stocks are gearing up for a positive start to 2018
on Tuesday, with liquidity returning to normal levels after the holiday lull.
    Strong oil and metals prices were likely to support markets higher as investors awaited
manufacturing data for the region later in the morning.
    Britain’s FTSE could be the exception, with stock futures trading down 0.1 percent and
suggesting the leading stock index’s impressive run of record highs may begin to come up against
some resistance.
    On the corporate front, news that the outgoing CEO of the world’s biggest catering firm
Compass Group died in a seaplane crash on New Year’s Eve could weigh on the stock. The
company pushed forward incoming CEO Dominic Blakemore’s starting date to Jan 1. 
    And a new development in the Steinhoff accounting scandal will pile more pressure
on the sinking stock: the South African retailer said its 2015 results would also have to be
    In other company news and potential stock movers: Glencore sells Australian coal
mine to Gupta's GFG Alliance, Siemens to gauge interest of state funds in
Healthineers IPO-CEO and BA owner IAG to buy insolvent Austrian holiday airline Niki. 
    (Helen Reid)
    No Xmas magic for UK retailers (0730) 
    Jefferies believes UK consumers spent "cautiously" this Christmas and that 2018 is set to be
another "tough" year given ongoing Brexit negotiations and persistent headwinds to the British
    Here's how the UK food and drug retailers underperformed the FTSE 100 last
    (Julien Ponthus)
    Futures point to upbeat start to 2018 trading (0706 GMT)
    Contrary to spreadbetters' indications earlier, futures have opened higher for the euro
zone's leading STOXX 50 index as well as the DAX and CAC.
    The FTSE meanwhile looks set for a slightly weaker open with futures trading down 0.1
percent after having finished 2017 with a series of new record highs.
    (Helen Reid) 
    Manufacturing data to point to sustained economic growth (0655 GMT)
    European manufacturing PMIs at 0900 GMT will deliver the first datapoint investors will be
watching as a harbinger of whether the region's impressive economic growth is likely to be
sustained and continue supporting stocks.
    "We think the PMIs have been a little too high recently, especially in manufacturing which
points to GDP growth of 1.3% quarter-on-quarter in Q4," write Societe Generale analysts.
    They reckon Spanish PMIs may take the hit from the Catalonian crisis, while Italy's reading
of manufacturing activity is likely to rise.
    The UK manufacturing PMI (out at 0930 GMT) has been surprisingly strong recently. 
    "As with the CBI survey, we see no obvious reason for short-term weakening but, compared to
that survey, the surge in the PMI looks a little extreme so we expect a small fall to 57.5, more
as a consolidation than a genuine weakening," they write.
    Below you can see the FTSE's surge in December - up 5.3 percent over the month - boosted by
rising metals prices.
    (Helen Reid) 
    European shares to begin new year hesitantly (0630 GMT)
    Good morning and happy new year! Spreadbetters see Germany's DAX opening 41 points lower and
France's CAC 40 sliding 8 points at the open on the first trading day of the year, despite
generally positive Asian stock markets overnight buoyed by strong manufacturing data from China.
    The FTSE meanwhile is likely to set a fresh record in early deals - maintaining the momentum
of the past few weeks as traders trickle back in after the festive season.
    "Traders will be looking for clues where big money will park funds for 2018 in the first few
days of January," writes Jasper Lawler, analyst at LCG Markets. "We think the price breakout in
UK blue-chip stocks means momentum will be in their corner for the opening quarter of 2018."
    (Helen Reid) 

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