February 8, 2018 / 5:11 PM / 10 months ago

LIVE MARKETS-Closing snapshot: European stocks back at 5-mth lows

 (Repeats to fix story link)
    * European stocks extend declines in late trading
    * Falling oil prices weigh on market
    * M&A in focus as TDC, Swiss Re jump

    Feb 8 (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 STOCKS BACK AT 5-MONTH LOWS (1709 GMT)
    That late-afternoon slide in European trading and uptick in volatility has meant that stocks
have closed at five-month lows, with almost all sectors in negative territory.
    Here's your closing snapshot - have a great rest of the day, and see you tomorrow.
    
 
    
    (Kit Rees)
    *****
    
    EUROPEAN TECH, INDUSTRIALS TAKE A BEATING (1627 GMT) 
    The oil price drop is clearly a factor as the market ticks lower but two of the biggest
drags on the Stoxx are tech and industrials. Results today from ABB
, a bellwether of European heavy industry, failed to cheer investors who have loaded up
on cyclical stocks since December in the hope of a profit boost from synchronized global growth.
 
    Earnings season has brought us mixed results and "the usual noise", says John Bennett, head
of European Equities at Janus Henderson, but he has drawn at least one broad conclusion so far: 
    "I think you'll find it's going to be the usual year in that the analysts will spend the
year downgrading their estimates. And I think that one of the areas most vulnerable to that is
actually capital goods; I think you want to be selling out of industrials in Europe around about
now." 
    So earnings season is disappointing so far? 
    “No, no; it’s very stock specific. Look at Commerzbank, good numbers; UniCredit, good
numbers… ABN Amro, apparently awful; one of my biggest banks. Nordea, apparently awful; my
biggest bank." 
    "What you’re getting is the usual over-reaction to results, on either side of it. It’s too
early to say it’s a good, bad or indifferent earnings season." 
    (Simon Jessop and Tom Pfeiffer)
    *****
    
    "THE REBOUND FAILED" (1617 GMT)
    According to Mikael Jaccoby, head of continental European sales trading at Oddo, the reason 
why markets are suddenly getting deeper into the red is because investors just gave up on hopes
of a short-term rebound from this week's global sell-off. 
    "Technically, the rebound has failed," he says, adding that markets are now clearly in a
"risk-off" mode and taking profits everywhere they can. 
    Here you can see how losses accelerated about an hour ago:     
 
    (Julien Ponthus)
    *****
      
    EUROPEAN SHARES HIT SESSION LOW AHEAD OF CLOSE (1601 GMT)
    Late in the session and some selling pressure is coming through with the STOXX 600 down 1.3
percent at a session low.
    The move looks to be in part driven by oil prices which have fallen to 2018 lows, while on
Wall St stocks are down 1 percent.
    Investors are jittery following the slide we saw earlier in the week.
    "We have gone from a market which in my view was complacent about any downside risks to
genuine concerns," a trader says.
    "Even though it was technical from ETF/flash crash it has still undermined confidence and I
think put more focus on the upwards trajectory of interest rates," the trader adds.
    (Kit Rees and Helen Reid)
    *****
    
    GOODBYE GOLDILOCKS? GO HEAVY METALS, SAYS CITI (1421 GMT)
    "Having had the correction we feared, the question of course becomes do we buy the dip or
does this rout have further to run?" 
    The question is on everyone's lips, and Citi's global macro strategists have an interesting
answer to it. 
    They point to the fact cyclicals and growth stocks held up relatively well, U.S. Treasury
yields kept near their highs, and commodities didn't sell off, as signs the correction was
triggered by an inflation shock rather than a growth shock.
    So if this really is goodbye to the 'Goldilocks' bliss of high growth and low inflation,
then where can investors hide?
    In industrial metals, Citi says. "Historically moving from a Goldilocks environment to one
of increasing inflation generally sees volatility increase in equities and Sharpe ratios
decrease. Bonds do less well, and often commodities stand out as the outperforming asset class."
    On stocks, the bank says "rather than try to catch a falling knife, we would rather wait for
signs of stabilisation."
 
    (Helen Reid)
    *****
    
    EURO ZONE GROWTH TO FEEL LIMITED PAIN FROM EURO GAIN (1356 GMT)
    The move in sterling might be hampering the FTSE today, but what about the euro? 
    Well, UBS economists don't think euro zone growth will be hit so hard by a stronger euro.
    "Strong global growth and robust Eurozone domestic outlook are likely to soften the negative
impact of the stronger EUR," say UBS economists.
    They flag two reasons: 1) the shift in demand from domestic towards foreign goods is likely
to be smaller and 2) more expensive euro zone exports can be absorbed better by the main export
markets thanks to the global upswing.
    So far this year the move in the trade-weighted euro seems to be having limited impact on
euro zone stocks, which are down 1.4 percent year to date.
    
 
    
    (Kit Rees) 
    *****  
    
    
    "WE'RE LIKELY TO SELL THAT ETF AND BUY AN ACTIVE FUND" (1318 GMT)
    As volatility returns and central banks phase out loose monetary policies, 2018 may turn out
to be the year active managers turn the tables on passive ETF investing which has become so
popular in this long bull market. 
    StJohn Gardner, Head of Investment Management at Arbuthnot Latham, has given us one
interesting example of how he plans to reduce his ETF exposure to seek better returns from
active managers: "We currently have a 3 percent exposure to a European ETF that we have held for
some time now... We're likely to sell that ETF and buy an active manager." 
    Arbuthnot Latham has an 8 percent exposure to European equities, made up by two actively
managed funds and one ETF, said Gardner who oversees more than 1 billion pounds of assets.  
    "Active management is beginning to provide better returns," he said.
    The multi-year boom of inflows brought total ETF assets under management to $4.7 trillion
globally. Is the peak close?    
 
    (Danilo Masoni)
    *****
    
    "AN INTERESTING CHALLENGE TO THE CONVENTIONAL ECONOMIC THINKING" (1304 GMT) 
    With such a focus on whether equity risk premia actually reflect where U.S. interest rates
are heading, it can be useful to take a step back and look at what the actual economic policy of
the U.S. government is. 
    The bipartisan U.S. budget deal agreed overnight adds some $300 billion of extra government
spending to an economy growing up to three percent and near full-employment and that's even
before Trump's promised $1.5 trillion infrastructure spend.
    For Paul Donovan, global chief economist at UBS wealth management, the U.S. is "showering
money like confetti over the US economy". 
    Here's his take: "It may be worth watching the bond market as the idea of tax cuts and more
spending in an economy that has full employment and a large budget deficit is an interesting
challenge to the conventional economic thinking".
    You can listen to him here: bit.ly/2nRZnuv and hear how he pronounces the word
"interesting". It's interesting.          
 
    (Julien Ponthus)
    *****     
    
    BOE GIVES UK BANKS A BOOST, FTSE GETS A SLAP (1236 GMT) 
    UK banks turned positive and hit a session high after the BoE said interest
rates would probably need to rise sooner and by a bit more than it thought three months ago due
to the strong global recovery. Here's the story: 
    The same can't be said of the FTSE which got a little slap from the rising sterling.  
 
    (Julien Ponthus and Helen Reid)
    *****     
      
    
    VOLUME SPEAKS VOLUMES. BUT WHAT IS IT SAYING? (1144 GMT)
    This month's sell-off saw the heaviest volumes traded on the STOXX 600 in more than seven
months, which is important, sure, but nothing serious in comparison to what could be seen on the
other side of the Atlantic.
    As you can seen below, for the Dow (left), the volumes are the biggest ever, but for the
STOXX 600 it seems a mere blip in comparison to the Brexit vote for instance.
    Seems to confirm that whatever happened on the markets didn't have its roots on our side of
the pond.     
 
 
    (Julien Ponthus and Helen Reid)
    *****    
    
    GERMAN AUTOS: STAYING CAUTIOUS ABOUT EXCITING BREAKUPS (1039 GMT)
    The death of the conglomerate seems to be building up as a major topic with General Electric
considering breaking up, Siemens listing its healthcare business and now growing speculation
about spin-offs in the German automotive industry. 
    "We are excited about longer term upside opportunities," Barclays analysts say in a note
where they view the potential for break-ups as "a key theme for 2018 given the structural
reviews unveiled by management teams at Daimler, Volkswagen and Continental".
    Rumours that German giants could consider similar deals are definitely food for thought
after the arguably successful spin-off of Ferrari from Fiat Chrysler two years ago. 
    The only thing seriously keeping Barclays' enthusiasm in check (they are neutral on the
sector) is the fact it could take some time given the complexity of the process in Germany. 
    "This is not to say that we don't believe structural changes will happen, just that we urge
investors not to base investment decisions on expectations of a quick turnaround," Barclays
cautions.
    Here are a couple of recent headlines:
    Continental still has no concrete plans for potential break-up 
    Daimler open to alliances, partial listing of mobility services
    And here is a Ferrari:    
 
    (Julien Ponthus)
    *****    
    
    CAUTION IS THE ORDER OF THE DAY (0927 GMT)
    There's been a lot of talk about how volatility-linked products may have contributed to the
correction seen earlier this week, and Hermes Investment Management is urging investors to
remain cautious about leveraging positions too far.
    “Gearing is fine as long as implied volatility remains low, but given we anticipate further
shocks with sharp surges in volatility, those same investors will be forced to cut their
positions, leading to self-reinforcing position shedding," Eoin Murray, head of investment at
Hermes Investment Management, says in a note.
    Murray also notes that their correlation surprise indicator hit a new high during the last
quarter, adding that investors should be wary about making assumptions as to cross-asset
relationships.
    "Traditional methods of portfolio diversification that rely principally upon historical
measures of correlation have become less effective," Hermes' Murray says.
    (Kit Rees)
    *****
    
    Opening snapshot: financials help limit STOXX losses (0812 GMT)
    European shares are down in early dealing, with commodity stocks leading losers but M&A
newsflow in the insurance sector and well-received results from some banks are boosting the
financial sector, helping limit the STOXX decline to 0.3 percent. 
    The UK's FTSE is down 0.3 percent ahead of the Bank of England policy meeting. 
    Telecoms are also in the spotlight with TDC up 20 percent after the Danish telecoms
operator turned down an indicative takeover bid from Australia's Macquarie and three pension
funds.
    Here's your snapshot:    
 
    (Danilo Masoni)
    *****    
    
    
    WHAT'S ON THE RADAR FOR THE EUROPEAN OPEN (0748 GMT)
    European shares’ recovery rally looks set for an abrupt ending on Thursday with futures
pointing to losses of 0.7 to 0.9 percent after weaker trading on Wall Street and in Asia.
    Earnings, which took a back seat earlier this week amid the global market turmoil, are
coming in thick and fast with several big European banks and industrial firms reporting. 
    Societe Generale and Commerzbank both reported declining profits,
blaming weak markets and restructuring, while Italy's UniCredit swung to a profit in
2017. 
    Oil major Total, whose shares fell sharply this week as crude prices tumbled,
reported soaring profit, raising its dividend and planning a share buyback.
    And as we detailed just now, some surprising M&A news should liven up the insurance sector. 
    (Helen Reid)
    *****
    
    M&A NEWSFLOW PUTS INSURERS IN FOCUS (0743 GMT)  
    Insurance stocks are definitely on the watchlist with some interesting M&A newsflow that
could liven up the session with Swiss Re set to lead the dance after surprise news
that Japan's SoftBank is in talks to buy a minority stake in the Swiss reinsurer. 
    "Yesterday’s announcement is totally surprising," says Baader Bank Helvea analyst Daniel
Bischof. "However, given SoftBank’s technology-vision, Swiss Re makes sense as a target given
its extraordinary research & development capabilities which distinguish Swiss Re from
competition and make the company a knowledge powerhouse," he added.
    Swiss Re shares are seen up 5 percent following the news. The deal is reported to be worth
10 billion or more.
    Still in the sector, a source-based Bloomberg report said yesterday that Bermuda-based
insurer XL Group attracting interest from rivals including Allianz SE of Germany. goo.gl/XHHosw
    And there are also some earnings updates. Zurich Insurance reported
better-than-expected earnings as the insurer dealt with a raft of natural catastrophe losses and
a sluggish investment environment.
    (Danilo Masoni)
    *****   
    
    EARLY MORNING EUROPEAN HEADLINE ROUND-UP (0732 GMT)
Oil group Total raises dividend and plans share buyback as 2017 profit soars 
Swiss Re in talks with SoftBank, Japanese firm could take minority stake
Italy's UniCredit swings to 2017 profit 
SocGen quarterly profit plunges although results top expectations 
Commerzbank profit declines in Q4 amid weak markets and restructuring 
Compass Group sees FY organic revenue growth at top end of forecast 
ABB sees brighter outlook after Q4 net profit drops
Digital shake-up drives Publicis to revise down profit target for 2018 
Hermes sales growth slows in Q4, but margins to hit record in 2017 
Akzo Nobel warns of 130 mln euros in 'transformation' costs 
Norway's Yara Q4 lags forecast, proposes smaller dividend
Voestalpine's Q3 net profit boosted by strong steel demand
Pernod Ricard raises profit goal after forecast-beating H1 results 
TalkTalk to raise cash after cutting forecasts​ 
Britain looking closely at Melrose bid for GKN - PM May 
Bayer-Monsanto deal edges closer to Brazil antitrust approval 
Smith & Nephew meets lower end of guidance range for 2017    
U.S. FDA approves Gilead triple HIV drug, GSK venture files lawsuit 
Zurich Insurance beats 2017 profit estimates, raises dividend 
Finland's Solidium sells Telia stake for 5.1 bln SEK
Thomas Cook expands airline business by 10 pct for this summer 
TDC rejects takeover offer from Macquarie, Danish funds
ArcelorMittal to top Brazil's long steel output after Votorantim deal -exec 
Ashmore says H1 assets up 18 pct on inflows, market gains 
Airbus says may increase A400M provision 
France's Vinci optimistic on 2018 prospects 
Stronger sales at European shopping centres help boost Klepierre's cash flow 
Swiss watchdog in touch with Credit Suisse over volatility ETN 
AA sees FY core profit of 390-395 mln stg 
UK's Bellway sees 14 pct rise in first-half housing revenue
Britain's Tate & Lyle quarterly sales volume picks up pace
    (Tom Pfeiffer)
    *****
    
    
    EUROPEAN STOCK FUTURES POINT DOWN (0713 GMT)
    It certainly looks like a weaker session for European stocks ahead, with futures down 0.5 to
0.8 percent.
    Results from UK companies including Thomas Cook, TalkTalk, DFS Furniture, and Sophos, are
just hitting the wire. 
    M&A activity could also liven up today's session with Swiss Re's shares seen
opening up 5 percent after the reinsurer said it was in talks with SoftBank on a
potential minority stake.
    (Helen Reid)
    *****
    
    EARNINGS, BANK OF ENGLAND IN FOCUS (0644 GMT)
    Nevertheless there are other events in Europe today which should grab investors' attention,
with results still rolling in from big corporate players.
    Banks are at the forefront today with Societe Generale reporting forecast-beating
results despite quarterly profit plunging on tax-related and restructuring costs.
Commerzbank also flagged a 51 percent decline in Q4 profit, blaming weak
markets and its overhaul.
    Other notable results include truck maker Volvo, which reported record profit,
and Swiss engineering group ABB, which gave a brighter outlook for the year.

    We'll also be closely watching the Bank of England's rate decision and inflation report -
particularly considering the past week's jitters over inflation. 
    SocGen analysts expect the BoE to slightly raise growth and inflation forecasts.
    "The MPC will be happy to see that the money market is now taking seriously its message of
further tightening," they write. "However the market has brought forward the expected timing of
rate increases compared to its view three months ago quite aggressively, and even though we
expect the tone of the report to be slightly more hawkish, we think it might not be enough to
validate the current Overnight Index Swap curve."
    
    (Helen Reid)
    *****
    
    MORNING CALL: A SHORT-LIVED BOUNCE (0622 GMT)
    Good morning and welcome to Live Markets. 
    That was nice while it lasted! European stocks are set to fall back again after a
short-lived recovery bounce yesterday, as Wall Street and Asian markets lost steam overnight.
Looks like those calls for volatility to stay high in the short- to medium-term were prescient.
    Asian shares hovered near six-week lows as U.S. bond yields headed towards four-year highs,
keeping pressure on investors spooked by signs of rising inflation.
    Spreadbetters call the DAX 108 points lower at 12,482, the CAC 40 down 47 points at 5,208.8,
and the FTSE down 56 points at 7,223.2. The damage done in the past fortnight is considerable:
the DAX ended yesterday 7.4 percent down from its record high hit as recently as Jan 23. 
    (Helen Reid)
    *****

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