January 9, 2018 / 6:22 AM / 6 months ago

LIVE MARKETS-STOXX 600 closes 15 points from all time high

    * European shares rally continues on cyclical strength
    * STOXX 600 benchmark at fresh 2-1/2 year highs
    * Global earnings revisions at all-time high - Citi
    * European stocks offer catch-up potential - UBS
    * Morrisons gains after Xmas update beats expectations

    Jan 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 Helen Reid. Reach her on
Messenger to share your thoughts on market moves: helen.reid.thomsonreuters.com@reuters.net
 
 
    STOXX 600 CLOSES 15 POINTS SHY OF ALL TIME HIGH (1635 GMT) 
    Another robust session for European shares with the Stoxx 600 up 0.4 percent and only 15
points shy of its all time high of 415.18 of 15 April 2015. 
    Here's your closing snapshot : 
 
    (Julien Ponthus) 
    *****
    
    
    CONSENSUS NOT A DANGEROUS PLACE TO BE (1622 GMT)
    Consensus is only a dangerous place to be when you are approaching an inflection point, says
Chris Godding, CIO of Tilney, which manages more than 20 billion pounds' worth of clients'
money.
    And by consensus Godding means expecting 2018 to be another year of very strong global
economic and earnings growth.
    "When we look at the world ... we find it very difficult to come up with a solid reason to
think that the trend, or the consensus, is going to be different or it's going to be wrong,"
Godding says.
    He adds that while the potential inflection point was a change in liquidity provided by
central banks, we have only just started achieving synchronized global growth.
    "This is another reason to think that maybe it’s not all over just yet."
    (Kit Rees)
    *****
    
    JUST 9 DAYS INTO 2018, S&P 500 TOPS FORECASTS (1615 GMT)
    The ongoing stock market rally is taking many by surprise and only nine days into the new
year, the U.S. benchmark index has already risen above the year-end forecasts of Morgan Stanley,
Scotiabank, Stifel and HSBC. 
    In the snapshot the forecasts for the S&P 500 from 19 top brokers, courtesy of a trader. 
 
 
    
    More broadly, the MSCI all-country world index is also offering a bullish picture. Just nine
days in, the index is on track for its best month since July 2016.  
    (Danilo Masoni)
    *****
    
    PLAYING FIAT CHRYSLER THROUGH EXOR? WHY NOT! (1608 GMT)
    Dealmaking talk has put Fiat Chrysler on a roll but for some investors it's safer to play
the story through Exor, the holding company of Italy's Agnelli family which controls the
automaker along with big holdings in other valuable assets including truck maker CNH Industrial
, reinsurer Partner RE and Ferrari.
    Among them is Andrea Scauri, fund manager at Milan-based Ifigest.  
    "Exor's 30 percent discount to NAV is higher than the average. Considering that there is
also the optionality that CNH could sells assets, I believe Exor offers more long-term value and
lower volatility than Fiat at the moment," he says.
    Scauri adds that Exor could benefit from an increase in premiums at Partner Re following
damages linked to hurricanes in the U.S. While Fiat has gained 24 percent in just four days,
Exor has gained a respectable 13 percent. 
    (Danilo Masoni)   
    *****
    
    FIAT CHRYSLER RACES HIGHER IN HEAVY VOLUMES AS AUTOS EXCITEMENT DRIVES TRADING (1436 GMT)   
    The Italian carmaker's shares are on a dizzying ride, up 24 percent in just four
days, as dealmaking bets drive autos even higher.
    A Morgan Stanley note yesterday talked up Fiat's Jeep brand and the possibility of a
spin-off, boosting its shares higher. Here's our story on Jeep growth expectations from
yesterday:
    Investors are certainly piling into the stock: no fewer than 100 million shares - around 10
percent of the stock's free float - have changed hands in the past four days of trading.
    "Something is cooking," says a London-based trader focusing in special situations.
    Also helping drive the autos sector sharply higher is Continental, boosted
to a record high by a report on a possible breakup of the car parts maker.
    For what it's worth over (nearly) six days of trading, the autos sector is easily Europe's
best-performing so far in 2018.
 
    (Helen Reid)
    *****
    
    BANKING MERGERS: A LITTLE LESS CONVERSATION, PLEASE? (1340 GMT)
    While M&A is powering markets (biotech has seen a flurry of bids since the beginning of the
year), the banking sector isn't joining the rush. Quite the opposite... 
    Speculation of a possible deal uniting Commerzbank with the likes of BNP Paribas
, SocGen or UniCredit has subsided and investors don't appear to
anticipate an imminent move.  
    In its monthly newsletter, fund Axiom AI, which invests in banking securities, said it was
not holding its breath: "Consolidation will be a hot topic but should remain marginal". 
    Berenberg equity sales traders also note that some of Commerzbank's 54 percent
overperformance since the beginning of 2017 can be credited to M&A rumours, but stress a tie-up
is not a safe bet. 
    "While the market has speculated that Commerzbank may be involved in M&A, we see
cross-border consolidation as unlikely, particularly given regulation opposition", they said,
adding that "material in-market consolidation in Germany is unlikely..." 
    For "A little less conversation (and), a little more action", it's this way: bit.ly/1zYh2xS
    (Julien Ponthus and Helen Reid) 
    *****
    
    "THE RETURN OF PRICING POWER" (1331 GMT)
    Subdued inflation is making central banks comfortable in making only gradual steps towards
policy normalisation, but from the corporate world there are scattered signs here and there of
prices going up.
    Earlier on we told you about two big Chinese beer firms raising prices in their country.
Well today we also have two brokers saying luxury groups will have stronger pricing power going
forward following a 2017 driven mainly by volume growth.
    "2018 will see a return of pricing power for some players. The recent price increases at
industry leaders such as Gucci, Chanel and Hermes seem to confirm that trend," says Berenberg.
    Bernstein too says pricing power is back: "Given better demand and more balanced price
differentials between regions, brands that are enjoying strong momentum will most likely resume
price increases." 
 
    (Danilo Masoni)
    *****
         
    MIDDAY SNAPSHOT: EUROPEAN STOCKS HOLD AT 2 1/2-YEAR HIGHS (1225 GMT)
    Halfway through the session, and that boost from the miners Helen just wrote about is
helping European stocks stay at their highest levels since August 2015. 
    Over in the U.S., stocks futures are signalling that Wall St is also set to make gains
today, with futures up 0.1-0.2 percent.
    Here's your snapshot:
 
    (Kit Rees)
    *****
    
    HOLD MY BEER WHILE I ENJOY A LIGHT "MARLBORO TUESDAY" (1214 GMT) 
    Remember how in 1993, Philip Morris' decision to cut prices to defend its market share
triggered a sell-off across consumer staples? 
    Well, in a modest manner and in the opposite direction, it seems European beer makers are
enjoying a similar moment after China Resources Beer and Tsingtao Brewery
decided to raise prices in their country. 
    "A stronger pricing environment in China is positive for European alcoholic beverage
companies. In our beverage universe, Carlsberg (12%), AB InBev (10%), Remy (19%) and Pernod
(11%) boast the highest China sales," Liberum analysts noted on Monday.
    As you can see below, AB InBev, Carlsberg and Heineken are
outperforming the food and beverage index as we get into midday trading: 
 
   In case you missed it yesterday, here is a nice piece on the correlation between beer sales
and World Cups:
    (Julien Ponthus) 
    *****         
    
    
    MINER SWING CONTINUES AS BROKER CONSENSUS BUILDS (1145 GMT)
    Europe's mining and basic resources index has hit its highest level in nearly six
years, since March 2012, and topping the sector leaderboard today (see chart below). Similarly
with the oil sector, brokers' optimism on miners has been noticeably increasing recently as
commodities drive global markets higher.
    "A strengthening macro backdrop, limited capex, strong earnings momentum and cash
generation, cheap valuation multiples on current commodity prices and light positioning create
conditions for continued outperformance," Barclays analysts write.
    This year could mark the light at the end of the tunnel for a sector whose brutal
restructuring and deleveraging will start to bear fruit. 
    "On our base case BHP, Rio and Glencore will all be net cash by 2020, an historically
unprecedented scenario," Barclays notes. "The key to rerating is judicious allocation of surplus
cash."
    ETF Securities commodities analysts say historically the recovery in capital spending has
lagged price recovery by about a year, so capex growth is likely to turn positive in 2018.
 
 (Helen Reid)
    *****
    
    
    IT'S THE CHIEF ECONOMIST STUPID! (1110 GMT) 
    Pundits speculating over who gets to replace Mario Draghi as President of the ECB could
somewhat be losing some of their precious time, ING writes today. 
    "Looking ahead, the replacement of Peter Praet by May 2019 will in our view have a bigger
impact on the ECB’s monetary policy than the Draghi-succession," the bank says, arguing that the
position of chief economist has much more of an impact on the actual monetary policy. 
    "Praet’s successor will have to prepare the groundworks for the first rate hikes, balance
sheet normalisation and the further exit from ultra-loose monetary policies. On substance, the
next Peter Praet could be more influential on monetary policy than the next ECB president."
    Here are Draghi and Praet (centre and right): 
 
    (Julien Ponthus) 
    *****
    
    
    EUROPEAN STOCKS "VERY HOT", BUT STILL OFFER CATCH-UP POTENTIAL - UBS (1054 GMT)
    UBS strategists warn the temperature in European - and global - markets is rising, saying
sentiment is getting complacent as their bull-bear indicator soared 84 percent in a year and
global risk aversion fell to a more than 10-year low.
    "Complacency is high, but EU is earlier cycle and still offers catch-up," write UBS
strategists. 
    Return on equity for Europe is lagging the U.S. cycle by the most in 50 years, and the
trailing profit gap just hit a new high of 60 percent, they find, indicating there's indeed
space for the region's corporates to catch up. 
    Key to this will be European earnings, up against stiff competition from the U.S. market
flattered by a sweeping tax cut package. "U.S. tax cuts dominate today, but Europe is
improving," UBS adds. The bank's end-2018 target for the STOXX 600 is 440, which translates to
11 percent upside, and it expects 10 percent EPS growth.
    As you can see below, earnings have indeed been the main driver of equity returns in Europe
- making the upcoming results season all the more important.
 
    (Helen Reid)
    *****
    
    
    GLOBAL EARNINGS REVISIONS AT ALL-TIME HIGH - CITI (1024 GMT)
    The fourth-quarter earnings season is getting closer and investors have never been so
upbeat. Citi says global earnings revisions remained positive this week (+41%) for the
fourteenth week in a row, recording the best weekly upgrades since their data started in 2000.
    High earnings revisions are usually seen at the start or end of the economic/market cycle, 
strategists at the U.S. bank led by Robert Buckland note, but the good news this time is that
their "Bear Market Checklist" says it's still too early to call the end of this cycle.
    Little wonder then that the global stock market rally isn't losing momentum as 2018 gets
underway.
 
    (Danilo Masoni)    
    *****
    
    
    ABLYNX: ARE WHITE KNIGHTS REALLY QUEUING AT THE GATES? (0959 GMT)
    Because looking at the share price jumping another 11 percent this morning, it sure seems
like a lot of merger-arbs are comfortable putting their money, and a lot of it, on a sweetened
bid or a rival offer. 
    A trader said this morning that speculation in the Belgian press about different suitors,
such as the likes of Sanofi or AbbVie was among the reasons lifting Ablynx to
reach 34.3 euros, over ten percent above Novo's 30.5 euros offer.
    Asked to comment yesterday about the market paying a premium on Novo's offer, the trader
said: "the problem with biotech is that you need to be comfortable with valuations". 
    Below, a taste of the action around Novo's offer:
 
    (Julien Ponthus) 
    *****
    
          
    POSITIVE VIBES FOR UK GROCERS (0916 GMT)
    It's a decent day for grocers, with Morrisons' shares up close to a three-month high, and
Kantar data showing that Tesco was the best performer over Christmas, boding well for
its update tomorrow.
    Morrisons' shares may have enjoyed gains last year, but Jefferies analysts say that they are
"by far the most attractively valued equity in the space".
    "Whilst we are aware of the inevitable consumer challenges to the sector in 2018, investors'
continued obsession with size does MRW a disservice," Jefferies analysts add in a note.
 
    (Kit Rees)
    *****
    
    
    EUROPEAN SHARES RISE AS FOOD RETAILERS IN DEMAND (0818 GMT)
    It's a positive open for European stocks with Morrisons and Sainsbury's among the top
gainers, while Altice is leading the pack following the spin-off announcement.
    Sodexo is at the bottom of the STOXX, however, after some broker downgrades.
    Later on this morning we've got data on the Euro zone unemployment rate due, which is
expected to show a slight decline.
    Here's your opening snapshot:    
 
    (Kit Rees)   
    *****
        
    
    WHAT'S ON THE RADAR FOR EUROPEAN STOCKS (0750 GMT)
    European stocks were set for a lukewarm start to trading on Tuesday while futures for
Britain’s FTSE 100 indicated the index could recover from Monday’s fall, with investors still
focusing on reports from retailers after Mothercare and McBride suffered sharp falls in the
previous session after poor trading updates.
    Morrisons, the first UK supermarket to report on Christmas trading, beat expectations for
like-for-like sales growth, signaling it’s not all doom and gloom for the UK retail sector, and
setting a high bar for peers Tesco, Sainsbury’s and Marks & Spencer which report later this
week. Morrisons shares are seen gaining up to 5 percent at the open.
    A strong Christmas update from Majestic Wine should help cement more optimistic sentiment on
Britain’s squeezed retail sector.
    In Europe the struggling cable company Altice will be a focus after it said it would spin
off its U.S. operation – its shares are indicated 2 to 5 percent higher in pre-markets.
    And Carillion said it doesn't know why the shares moved up so much yesterday.
    
    In other potential stock movers: 
    UK builder Persimmon says 2017 profit will be ahead of expectations; 
    UK's Morrisons beats forecasts for Christmas trading; 
    Ski resort operator Compagnie des Alpes buys stake in Travelfactory; 
    Britain's Majestic Wine sales rise in Christmas season; 
    Europe's Altice to spin off U.S. operation, simplify business; 
    Shire cuts 2020 revenue target, prepares for spin-off of ADHD drugs; 
    Regulator rejects Spanish ministers' complaint on Atlantia bid;
    Carillion Says Not Aware Of Developments That Support Share Price Rise
    (Helen Reid)
    ***** 
    
    
    MORRISONS TO FEEL THE XMAS CHEER (0745 GMT)
    Morrisons could see a strong day after all following its Christmas update, in which the UK
supermarket beat forecasts.
    Traders are expecting the shares to gain between 2-5 percent at the open.
    "There’s still a pretty big short base and I think people were cautious heading in – so
could open with a decent pop," one trader told Helen.
    "Beware another Next-like short squeeze (11.5% on loan)," tweeted Accendo Markets' Mike van
Dulken.
    (Kit Rees and Helen Reid)
    *****
    
    
    EUROPEAN STOCK FUTURES FALTER, BUT FTSE SET TO RISE (0709 GMT)
    Futures for the main euro zone indices have had a lukewarm open, with the CAC and DAX
holding flat - while FTSE 100 futures indicate a small recovery rally for the British index
which had a weak day yesterday after hitting a fresh intraday high in early trading.
    "With the FTSE indices again flirting with overbought territory and one-third of All-share
stocks beginning the week within 10 percent of their 52-week high, the UK market is due a spell
of consolidation on technical grounds," writes Peel Hunt analyst Ian Williams in a morning note,
adding however that the underlying mood of investors seems resilient.
    Here's your snapshot:
 
 (Helen Reid)
    *****
    
    
    UK RETAIL IN FOCUS: MORRISONS TO REPORT XMAS TRADING (0645 GMT)
    After a pretty poor performance from UK stocks yesterday, particularly retailers Mothercare
and McBride who sank after poor trading updates, the retail sector will again be a focus today
as Christmas trading results from supermarket Morrisons are awaited.
    HSBC analysts expect a weakening of like-for-like sales growth compared with last Christmas
and Q3. 
    "Morrisons is up against some tough comparisons (2.9% LFL last Christmas) and has been
seeing a slowdown in trade as reported by Nielsen in its market share data," they pointed out in
a preview note. 
    Among other UK companies to watch today will be housebuilder Persimmon and Topps
Tiles, the home improvement store which has been seen as a bellwether of consumers'
confidence and willingness to splash out on DIY projects.
 
 (Helen Reid)
    *****
    
    
    MORNING CALL: EUROPEAN SHARES SEEN MIXED (0621 GMT)
    Good morning and welcome to Live Markets. Stocks in Europe look set for a mixed open today
with spreadbetters calling for slight gains for the FTSE - which lagged peers yesterday - while
European shares are seen edging lower.
    Over in Asia, shares kept approaching their all-time highs overnight while the yen jumped
after the Bank of Japan reduced its bond buying programme. 
    Here are your early calls:    
    DAX is expected to open 15 points lower at 13,351.7 
    CAC 40 is expected to open 4 points lower at 5,483
    FTSE 100 is expected to open 11 points higher at 7,707.3    
    (Helen Reid)
    *****

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