February 9, 2018 / 10:58 AM / 8 months ago

LIVE MARKETS-It has a name: "the short volatility flash crash"

    * STOXX 600 down 0.5 pct
    * Financials, insurance stocks worst-performing
    * Umicore leads gains while Amundi falls
    * U.S. stocks plunged around 4 percent

    Feb 9 (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

    IT HAS A NAME: "THE SHORT VOLATILITY FLASH CRASH" (10h40 GMT) 
    Only time will tell whether this sticks but Julius Baer has named the U.S. sell-off "the
short volatility flash crash".   
    "We doubt that we will ever learn the truth behind what will go down in financial history
books as the 'short volatility flash crash'," Christian Gattiker, chief strategist and head
research at Julius Baer, said in a note where he takes the humble point of view that it's
difficult to grasp what really happened.
    "This week, the narrative of volatility 'shorties' going into a death spiral, triggering an
algorithmic trading reaction in stocks, is as intuitive as it is logical. I doubt we will ever
learn the real reasons and causes behind this week's events. The take-away is simple: there are
dynamics in financial markets (and beyond) that cannot be grasped by anyone and remain intrinsic
risks... as in 1987, 1997, and 2010".
    (Julien Ponthus) 
    ***** 
    
    DEUTSCHE BANK EXPECTS THE 'GOLDILOCKS GAP' WILL CONTINUE TO CLOSE (1024 GMT)
    Analysts over at Deutsche Bank don't have a particularly rosy prognosis for Europe's STOXX
600 index.
    "We expect the Goldilocks gap of strong growth in combination with a low discount rate to
continue closing over the coming months, mainly because of a softening in Euro area macro
momentum," Deutsche Bank's analysts say, adding that they predict further tactical downside for
the STOXX 600 over the coming months.
    They see the STOXX 600 as around 6 percent below the fair-value level implied by their
tactical model (current fair-value of 410, that is).
    But by the middle of the year they see this fair-value declining to 370 on their models.
    
    Here are some key stats for the STOXX 600:
    ∙ set for worst week in two years  
    ∙ down 4.5 percent year to date
    ∙ currently its biggest yearly decline since 2011
    ∙ down 8 percent since its Jan 23 peak
    ∙ index is at 371.90 points at time of writing    
    (Kit Rees)
    *****    
    
    "GROWING PAINS" TRIGGERED LATEST STOCKS SELL-OFF - UBS WEALTH (1016 GMT)
    Another heavy U.S. and Asian sell-off overnight, but UBS Wealth Management is staying
overweight on global equities. Why? 
    - The fundamental economic outlook is still positive 
    - Little sign of contagion from equities to other asset classes
    - Moves of this magnitude are not uncommon: there have been 23 "bull market corrections"
since 1940 
    "Like Monday's sell-off, we believe the latest move lower was initially triggered by
"growing pains" as investors digest the implications of above-trend economic growth for central
bank policy and inflation," says Mark Haefele, UBS Wealth Management's Global Chief Investment
Officer. 
    He says investors with a long-term horizon could "use this opportunity to begin to rebalance
portfolios after the recent drawdown, if they are able to tolerate further volatility over the
weeks to come."
   (Tom Pfeiffer)
    ****
    
    STOCKS OPEN SLIGHTLY LOWER, UMICORE SHINES (0818 GMT)
    As futures indicated, stocks have opened lower but not falling as drastically as the U.S.
yesterday. Financials and industrials are the biggest weights on the STOXX 600, which is down
0.6 percent.
    Umicore is shining at the top of the STOXX, gaining 6.4 percent after it raised 892
million euros through an equity placement which it will partly use to fund investments in its
rechargeable battery materials business. 
    But Maersk is falling 4.6 percent, the worst performer, after its
fourth-quarter profit missed expectations.
    Interestingly U.S. futures are up 0.6 to 0.7 percent, pointing to a stronger open across the
pond.
    (Helen Reid)
    *****
    
    WHAT'S ON THE RADAR FOR THE EUROPEAN OPEN (0746 GMT) 
    We're officially in a correction, the bottom of which is elusive and could very well throw
the bulls out of their nine year run. 
    European stocks are set to open moderately in the red after Wall Street’s fresh sell-off but
don’t seem to be on their way to replicate the extent of their U.S. peers fall.
    Limited news on the corporate front so far but quite an event in Britain with the Daily
Mirror buying the Daily Express. 
    There's a potentially huge M&A deal with traders pointing to an FT report saying L'Oreal
 is ready to buy Nestle's 23 bln euros stake in the French cosmetics company. 
    European banks are giving encouraging signals with Mediobanca this morning lifting its
dividend.
    On the other hand Britain's Nationwide Building Society reported a 6 percent fall
in nine-month statutory pretax profit, hurt by lower consumer spending.     
    Belgium’s Umicore also easily managed to raise close to 900 million euros to fund new
investments in rechargeable battery materials at a discount of 2.7 percent to Thursday's closing
price.
    Maersk missed fourth-quarter core profit expectations. 
    German consumer electronics retailer Ceconomy reported a 16 percent drop in operating profit
last month due to price reductions around Black Friday. 
    (Julien Ponthus) 
    *****
    
    "A REASSESSMENT OF THE INFLATION OUTLOOK IS NATURAL" (0731 GMT)
    This late-cycle environment leads logically to readjustments in the market around inflation
expectations, says JP Morgan Asset Management global market strategist Kerry Craig. 
    "Equities can handle higher rates and bond yields... what they are not good at dealing with
is the pace at which they move," adds Craig. 
    "A reassessment of the inflation outlook at this point in the cycle is natural and markets
are adjusting for this," he says, adding that markets still haven't adjusted to the expectation
that the U.S. Federal Reserve could raise rates four times in 2018. 
    He reckons, with the S&P 500 falling into correction territory, the most severe market
swings have passed. We'll see about that later today...
    Next week's U.S. inflation numbers will of course be key, and Craig admits a strong figure
could cause more disruption. 
    (Helen Reid)
    *****
    
    FUTURES POINT TO A LIMITED RETREAT AT THE OPEN (0711 GMT) 
    As we noted earlier, European markets don't seem to be heading to replicate Wall Street's
overnight fall and set to post only limited losses. That being said, European bourses already
had a fair beating during the previous sessions.  
    DAX futures are now even in positive territory:    
 
    (Julien Ponthus)
    *****  
    
    "HERE WE ARE IN OFFICIAL CORRECTION TERRITORY" (0650 GMT)
    Sometimes you just have to call a spade a spade, and that's what Rabobank analysts did in
their morning note.
    "Here we are in official correction territory", they wrote, pointing out that with
Thursday's drops, the benchmark S&P 500 and the Dow industrials have fallen more than 10 percent
from Jan. 26 record highs.
    
    (Julien Ponthus)
    *****
       
    BAML'S BULL & BEAR INDICATOR STILL SAYS SELL (0635 GMT) 
    Bank of America Merrill-Lynch's indicator of market sentiment is down from 8.6 to 8.5 but
that, according to its analysts, remains in "excess bullish" territory and still signals a 
"sell". 
    The indicator had jumped of market sentiment jumped from 7.9 to 8.6 on Jan 30, driven up by
record inflows to equities and bullish hedge fund risk appetite.
    (Julien Ponthus)
    *****
    
    MORNING CALL: EUROPE TO OPEN IN THE RED AFTER NEW WALL STREET SELL-OFF (0615 GMT)  
    Good morning and welcome to Live Markets. 
    European bourses are expected to open in the red this morning after Wall Street's fresh new
sell-off. The bottom of the slide remains elusive but this current trend sure seems to be
threatening to throw the market's bull run off course.
    Spreadbetters are calling the DAX 23 points lower, the CAC 40 down 8 points, and the FTSE
down 40 points.
    Considering that U.S. stocks plunged around 4 percent on Thursday, this looks, so far, like
a limited reaction from our side of the pond. .     
    (Julien Ponthus)
    *****

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