January 18, 2018 / 2:57 PM / a month ago

LIVE MARKETS-Economic boom seen powering European cyclical stocks

    * European shares rise slightly
    * Tech leads gains
    * Real estate suffers most

    Jan 18 (Reuters) - Welcome to the home for real time coverage of European equity markets
brought to you by Reuters stocks reporters and anchored today by Julien Ponthus. Reach him on
Messenger to share your thoughts on market moves: julien.ponthus.thomsonreuters.com@reuters.net
    
    ECONOMIC BOOM SEEN POWERING EUROPEAN CYCLICAL STOCKS (1441 GMT)
    The BlackRock Investment Institute joins in the pro-cyclical chorus with their three-month
view for European equities.
    "We see sustained above-trend economic expansion and a steady earnings outlook supporting
cyclicals," Richard Turnill, global chief investment strategist, says in a note. 
    But Turnill added that strength in the euro "could cause more pain" for European companies.
 
    (Kit Rees)
    *****
    
    HALF-SESSION SNAPSHOT: ALL QUIET IN EUROPE (1316 GMT)
    European shares have come off highs with the pan-regional STOXX 600 index
marginally in the black. Moves in main country benchmarks are also rather small, while looking
at sectors, the stand out movers are tech, up 1.1 percent, and real estate,
down 1 percent. Both however remain well within this week's trading ranges.    
 
    (Danilo Masoni)
    *****   
    
    FINDING OPPORTUNITIES AMONG THE DISRUPTED (1215 GMT)
    Much has been made of the wave of disruption impacting almost every sector, but it can be a
challenge for income investors to own such stocks, which tend to be in the initial growth stage
and focusing more on reinvesting profits than handing them to shareholders.
    David Smith, manager of Janus Henderson's High Income Trust, is looking at companies at the
receiving end of disruption that are showing signs of moving with the times.
    Smith singles out Johnson Matthey as a stock whose valuation has been hit by the
rise of EVs, but points to the firm's increasing investment in R&D and its EV battery
technology. 
    Smith also highlights British American Tobacco as another firm with an attractive
valuation and which is focusing its efforts on next-generation products which heat tobacco
without burning it.
    "It’s important to remember ... that management teams of the disrupted companies won’t
necessarily stand still and the good ones will correctly balance investment to protect their
businesses with dividends successfully," Smith says in a note. 
    According the fund's factsheet from Nov 30, BAT was Smith's biggest position.  
 
    (Kit Rees)
    *****
    
    THE CARILLION RIPPLE EFFECT CONTINUES (1110 GMT)
    In the wake of Carillion's collapse, the UK's National Audit Office (NAO) released
a report today saying that privately funding public projects may not offer value for money.
    Analysts at Jefferies think that the report is "a potential lightning rod for criticism of
PFI, and, therefore, the funds," referring to the Private Finance Initiative.
    "While there are no direct implications for the day-to-day operation of the funds, as there
is limited involvement in the procurement of new UK projects, the ultimate result of this
scrutiny remains unclear," analysts at Jefferies write.
    But they also add that the most likely scenario under a potential Labour government is a
review of PFI and the selective renegotiation of certain contracts.
    Projects belonging to the John Laing Infrastructure Fund and HICL Infrastructure
Company are mentioned in the report. Their shares are both down more than 1 percent
today.
    (Kit Rees)
    *****
    
    THREE GOOD REASONS TO EXPECT MORE M&A (1040 GMT)
    After two rather soft years, M&A has livened up trading this month and Gérald Moser, head of
equity strategy at Credit Suisse Wealth Management, thinks it's just the start.
    He has three good reasons to believe so:
    1) Cash levels as a percentage of market cap are at a record high in the US and also at
healthy levels in Europe. Cash has been the preferred method of payment in M&A, being used in 50
percent of the deals, far ahead of stock, debt or a combination of the two. 
    2) Volatility levels are close to record lows, suggesting stable financial markets. This
usually bodes well for M&A activity. 
    3) The growth outlook is the best since 2009–2010, the immediate aftermath of the financial
crisis. While companies have used cash mainly to return money to shareholders through dividends
and share buybacks in the last few years, the strong growth outlook should encourage them to
look for growth opportunities and therefore consider M&A. 
 
    (Danilo Masoni)
    *****
    
    TOLD YOU SO! FRENCH WATCHDOG BERATES FRENCH TV STAR AFTER BITCOIN SLUMP (0945 GMT) 
    Remember how French financial authorities including the head of the country's central bank
took up arms when reality TV star Nabilla Benattia encouraged her fans to invest in bitcoin? 
    Well, the slump in the cryptocurrency has brought them a "told you so" opportunity which
they were quick to seize. 
    "The followers of Nabilla who would have invested at the time she encouraged them to would
have made a very substantial loss, about a third," Robert Ophele, head of the French financial
markets authority (AMF), said yesterday. 
    "She's the proof one should not venture recklessly into these kinds of investments", he
added. 
    Here's Ophele making these comments to French news channel BFM Business:     
 
    (Julien Ponthus)
    *****    
        
    TOP MOVERS A LA CARTE: EARNINGS PROVIDE SUPPORT (0826 GMT) 
    The broader market is inching up around 30 minutes after the opening bell, masking bigger
moves for single stocks, with a series of well-received earnings updates providing support. 
    Top gainers on the STOXX 600 are Geberit, Balfour Beatty and Carrefour
, all up more than 2 percent after their updates, while Britvic, Infineon
 and Hargreaves were supported by upbeat broker notes. 
    Among the losers are utility SSE after reports that a UK price cap law should be
passed by the summer, while a downgrade hit Rightmove and BPER Banca fell
after a Reuters story raised fresh worries over Italian banks' bad loans. 
    British drugs company BTG is down 5 percent after a U.S. patent on J&J's Zytiga was
invalidated. BTG earns royalties on the drug. 
    Engineering company GKN ratcheted up the rhetoric over the hostile bid from Melrose
, calling its offer "misleading", accusing Melrose of offering a "fake premium" and
saying the combination would bring no industrial synergies. Investors are betting on some sort
of deal: GKN shares were trading at 447 pence, compared to Melrose's offer worth 430.1 pence,
based on the suitor's Jan. 16 closing price.
 
    (Danilo Masoni)
    *****

    OPENING SNAPSHOT: HIGHER (0807 GMT)
    European shares have opened higher in a bounce inspired by another record close at Wall
Street. Here is your snapshot:
 
    (Danilo Masoni)
    *****
    
    THREE HOT "SPECIAL SITS" (0754 GMT)
    Here's the latest on 3 hot European "special sits":
    * Activist investor Sachem Head is asking Whitbread to consider splitting the Costa Coffee
chain away from its hotels and restaurant businesses 
    * Steinhoff: Jayendra Naidoo resigns as a member of the supervisory board. 
    * The largest shareholder in Belgian biotech group Ablynx said the 2.6 billion euro offer
made by Denmark's Novo Nordisk is too low but that it is willing to consider a higher offer.

    (Julien Ponthus)
    *****
    
    BULLISH SECTOR, BULLISH HEADLINES (0720 GMT) 
    With an 8.8 percent rise since the beginning of the year, European car makers are the best -
by far - performing sector, something you can get a sense of when reading this morning's
headlines.
    In a nutshell, while Renault and Volkswagen are fighting over who can claim the crown of the
world's leading automobile group, Peugeot is planning to use the know-how of former
Opel engineers acquired from General Motors to re-enter the U.S. market.
    At the opposite end, retail, which is up a slim 0.75 percent in comparison with 2.3 percent
for the STOXX 600, is enjoying less glamourous headlines, with France's Carrefour cutting its
profit forecast for the second time in six months before presenting a new strategic plan
. That comes a day after another French supermarket group, Casino, disappointed
analysts with its 2017 profit growth guidance in its core French business.
    (Julien Ponthus)
    *****
    
    
    FUTURES POINT TO POSITIVE OPEN FOR EUROPEAN SHARES (0706 GMT) 
    Futures seem to confirm that European shares are set to join their U.S. and Asian peers' in
a global rally. 
 
    (Julien Ponthus)
    *****    
    
    MORNING CALL: EUROPEAN SHARES SET TO JOIN GLOBAL RALLY (0617 GMT)
    Good morning and welcome to Live Markets. It seems European shares are set to join the
global rally, which has lifted the Dow above 26,000 points and boosted Asian shares to new
highs. 
    Financial spreadbetters expect Frankfurt's DAX to open 76 points higher, Paris' CAC up 26
points and London's FTSE 8 points higher. 
      
    (Julien Ponthus)
    *****

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