February 7, 2018 / 1:34 PM / 6 months ago

LIVE MARKETS-"The market needed to re-establish an equilibrium"

    * European shares set to snap 7-day losing streak
    * STOXX 600 around 7 percent below January's peak
    * Wall Street rebounded on Tuesday but futures weak

    Feb 7 (Reuters) - Welcome to the home for real time coverage of European equity markets
brought to you by Reuters stocks reporters and anchored today by Danilo Masoni. Reach him on
Messenger to share your thoughts on market moves: danilo.masoni.thomsonreuters.com@reuters.net
 
 
    "THE MARKET NEEDED TO RE-ESTABLISH AN EQUILIBRIUM" (1325 GMT)
    We caught up with Mike Thompson, president of S&P Investment Advisory Services (SPIAS), to
hear his take on the sell-off we saw yesterday.
    "It was messy as the market needed to re-establish an equilibrium," Thompson said, adding
that what we saw was a dialling-back of the forward 12-month multiple in U.S. equities which
drove around the world.
    "I don't think there's any disagreement -- people still believe that equities are a better
opportunity than fixed income. The question is how much better, and that will really depend on
how fast rates rise," Thompson said.
    
 
    (Kit Rees)
    *****
    
    TIME TO 'GO SHOPPING' (1252 GMT)
    Bargain-hunting beckons - that's what George Godber, UK value fund manager at Polar Capital,
says after yesterday's sell-off knocked stocks down. 
    "We should get an opportunity to go shopping," he says. "When you get a lot of stocks down
more than they should be, we are going to increase positions across the board."
    One area where he sees opportunities in the UK is construction firms. "You have had a very
vicious fall-out in some of the construction names, more to do with Carillion than the last
couple of days," he says. 
    "But because of computer trading and ETFs there are people blanket selling - and there are
some really good bargain opportunities."
    Godber also argues the return of volatility is not unwelcome. "The markets have been
incredibly unvolatile. This is more of a function of how odd things have been, rather than this
being an abnormal move." 
    Meanwhile a trader says today has been more calm but investors are staying on the sidelines.
"No-one really leaving orders and confidence has definitely been dented," he notes.
    Computer-driven trading was on everyone's minds as markets plunged; this tweet neatly summed
up the zeitgeist:
 
 
 (Helen Reid)
    *****
    
    MIDDAY UPDATE: EUROPEAN STOCKS HIT SESSION HIGHS (1236 GMT)
    Just over halfway through the session and the rebound is in full swing, with Europe's STOXX
600 up around 1 percent at the day's highs. All sectors are in positive territory.
    Over in the U.S., futures are pointing to a slightly negative start to equity trading which
is likely to continue to be volatile.
    Here's your European snapshot:
 
    (Kit Rees)
    *****
    
    "A REMINDER THAT MOMENTUM CUTS BOTH WAYS" (1108 GMT)
    UBS strategist Bhanu Baweja notes momentum was one of the most successful factor styles on
the way up, and the fact these moves can reverse shouldn't take the market totally by surprise. 
    Momentum was the strongest-performing 'factor' in 2017 as a strong global economy and better
earnings growth drove stocks to trend continually upwards for nearly two years, their rally
virtually untouched until this week's sell-off. ETFs tracking the factor drew in significant
inflows over the year (see chart) - but if stocks now sink into a downwards trend, these flows
could reverse.
    UBS' Baweja, echoing other brokers' views this morning, reckons this price action won't mark
a medium-term top for markets, with the sell-off causing relatively few ripple effects across
asset classes. 
    "In the worst case, contagion and feedback loops could strengthen, even if the initial
selloff was triggered by algorithms," he argues. "Given the strength of data, we consider it
more likely that the selloff abates before long, and are therefore not minded to fundamentally
reassess our positive view on equities."
 
    (Helen Reid)
    *****
    
    IS NOW A GOOD TIME TO JUMP INTO EQUITIES? (1055 GMT)
    Strategists at BAML say they were surprised by the intensity of the moves in yesterday's
correction, which was a result of very overbought conditions.
    However, they add that it could be a good idea to buy the dip as global growth remains
strong.
    "On a one- to two-week view it is difficult to know whether to buy the equity market but on
a six-month view we see this as a good entry point," BAML's cross-asset strategists say in a
note.
    Global equity losses of the size we saw yesterday usually take around four months to recoup
on average, they reckon.
    (Kit Rees)
    *****
    
    WHAT IF RETAIL MONEY LEAVES ETFS? (1022 GMT)
    It's arguably a remote possibility but after retail investors got stung by the collapse of
high-risk low-volatility stock market products, some market players have started to speculate
about what could happen if ETF products lose popularity among ordinary investors.
    Here's a reflection from StJohn Gardner, MD of Investment Management at Arbuthnot Latham:   
    "We believe recent events to be short term and technically driven and not the beginning of a
long bear market cycle... Nevertheless, there is also the potential for a new swathe of sellers
to enter the market, spooked by the events of the last few days. If money from retail investors
leaves the Exchange Traded Funds that they have been buying in large quantities over the last
few years, then a longer-term bear market could begin," he writes in a note.
    "Logically, though, investors should now focus on the fundamentals of the companies they are
invested in and will realise that equities actually present a better investment opportunity than
many other asset types in an inflationary environment... We would expect retail selling to be
countered by professional investors using the recent falls as an opportunity to rebalance
Pension funds and portfolios, particularly those that have been waiting a long time now for an
opportunity to switch from bonds or cash into equities," he adds.
    (Danilo Masoni)
    *****
    
    INVESTORS RELIEVED TO GET CORRECTION "OVER AND DONE WITH" (0957 GMT)
    Looking at comments from investors, the prevailing mood seems to be that the equity market
correction was expected - many even calling it a 'healthy' correction.
    "Having been expecting a correction for so long, we are relieved to get it over and done
with and focus on more fundamental factors," John Husselbee, head of multi-asset at Liontrust
Asset Management, says.
    "In our portfolios, we took some profits in Japan in December and also tilted towards value
stocks. Japan has been hit hard and, if the correction continues, growth stocks would be
expected to bear the brunt of any selloffs so we will wait to see how things play out,"
Husselbee adds.
    (Kit Rees)
    *****
    
    EUROPE EDGES UP, BUT NO CLEAR-CUT REBOUND (0808 GMT) 
    European bourses are up but they are clearly not rebounding the way you could expect them to
after seven sessions in negative territory. 
    Here's what it looks like 8 minutes after the bell rang: 
 
    (Julien Ponthus) 
    *****     
    
    WHAT YOU NEED TO KNOW BEFORE EUROPE'S OPEN (0746 GMT)
    European shares are expected to break a seven-day losing streak at the open with futures up
0.6-1.2 percent. Although traders don’t rule out further turbulence ahead, the focus is likely
to turn again to the thick agenda of earnings updates. 
    There is a good number of banks reporting results including ABN Amro and Raiffeisen which
have already released market-beating figures, while the results from GlaxoSmithKline later in
the day will put the healthcare sector in the spotlight.
    According to a Thomson Reuters data, 48.2 percent of the STOXX 600 companies that reported
results so far have exceeding earnings estimates. That's below the 50 percent beat seen in a
typical quarter. The picture looks much better in the U.S. where 78 percent of the S&P 500
companies that reported so far are above expectations. STOXX 600 Q4 earnings are seen up 11
percent, while S&P 500 earnings are seen up 14 percent.
    For a round up of market moving headlines, scroll down for an earlier post.
    (Danilo Masoni)
    *****        
    
    CURB YOUR ENTHUSIASM, U.S. FUTURES APPEAR TO SAY (0730 GMT) 
    While Europe seemed set to bounce back thanks to Wall Street's overnight rebound, investors
are keeping an anxious eye on futures for the S&P 500 and the Dow, which have somehow dampened
the mood in Asia. 
    Have a look at the last few hours of trading on S&P 500 futures:  
 
    (Julien Ponthus) 
    *****    
     
    EARLY MORNING EUROPEAN HEADLINE ROUND-UP (0715 GMT)
    As some calm looks set to return to the market today, corporate news is again in the
spotlight with some earnings beats from Statoil, ABN Amro and Aker
possibly providing support. Also in focus is Tesco after the BBC reported that the
retailer is facing Britain's largest ever equal pay claim from women and a possible bill of up
to 4 billion pounds.
    Here's your early morning headline round-up with links to the full stories.
Rio Tinto full-year profit jumps 69 pct; announces $1 bln buyback
Statoil raises dividend, capex as oil sector picks up
Sanofi pins hopes on 2018 for growth after recent takeover deals
Tesco faces record 4 billion pound equal pay claim in Britain - BBC
ABN Amro keeps aim at high capital buffer after surge in Q4 profit
Hannover Re sees 2018 net profit of more than 1 bln euros
UniCredit completes sale of large bad loan portfolio
Carlsberg increases dividend, fourth quarter sales disappoint
Credit Suisse 'volatility' fund liquidated after market selloff
Delivery Hero Q4 revenue soars 51 pct
Osram Q1 core profit falls less than expected
Norway's Aker Solutions Q4 beats forecast, vows further cost cuts
Handelsbanken Q4 profit hit by loan losses, to pay extra dividend
Raiffeisen Q4 profit beats expectations helped by falling risk costs
Swisscom steps up cost cuts as competition grows
MEDIA-Vodafone may hang up on India's Indus Towers in $5 bln deal - Economic Times 
          
    (Danilo Masoni)
    *****
    
    DAX, FTSE, CAC FUTURES ON THE UP (0703 GMT)
    Futures on Europe's top stock benchmarks have opened in positive territory, up 0.4-1
percent, confirming earlier indications from spreadbetters for a rebound at the open following
seven days of losses in a row. Traders, however, don't rule out there could be further
turbulence ahead. Here's your snapshot:    
 
    (Danilo Masoni)
    *****    
    
    EUROPEAN EARNINGS: BEATS LAG TYPICAL QUARTER, BUT REVENUES AHEAD (0637 GMT)
    The latest Thomson Reuters Earnings Outlook report for the pan-European STOXX 600
index is out, showing how fourth-quarter earning beats so far are lagging the typical quarter,
while revenue beats are ahead. 
    As a result earnings growth forecasts for the quarter have been revised downwards.    
 
    Here in the key highlights there are more details: 
    * Fourth quarter earnings are expected to increase 11.0% from Q4 2016. Excluding the Energy
sector, earnings are expected to increase 7.9%.
    * Fourth quarter revenue is expected to increase 1.5% from Q4 2016. Excluding the Energy
sector, earnings are expected to increase 0.6%.
    * 85 companies in the STOXX 600 have reported earnings to date for Q4 2017. Of these, 48.2%
reported results exceeding analyst estimates. In a typical quarter 50% beat analyst EPS
estimates.
    * 89 companies in the STOXX 600 have reported revenue to date for Q4 2017. Of  these, 57.3%
reported revenue exceeding analyst estimates. In a typical quarter 54% beat analyst revenue
estimates.
    * During the week of Feb. 12, 33 STOXX 600 companies are expected to report quarterly
earnings. 
    (Danilo Masoni)
    *****

    MORNING CALL: AFTER 7 DAYS OF RED, EUROPEAN SHARES SEEN UP (0614 GMT) 
    Good morning and welcome to Live Markets. 
    After seven days of pain that pushed the STOXX 600 7.7 percent below the two-year
peak hit in January, shares in Europe are finally set to rise back following a rebound at Wall
Street in the previous session, although there could still be turbulent sessions ahead.   
     Asian share markets took back some of their earlier gains as investors were unnerved by a
drop in U.S. stock futures, underscoring lingering anxiety following steep losses in global
equities over the past few days.
   "Yesterday's recovery in US markets is likely to result in a decent rebound for stock markets
in Europe this morning after yesterday's weak session, however it remains too early for the
moment to suggest that this might be the end to this particular bout of weakness, given that we
still remain below the levels of where we closed Monday’s trading session," say Michael Hewson,
Chief Market Analyst at CMC Markets UK.
    Here are your opening calls: 
    FTSE100 is expected to open 44 points higher at 7,185
    DAX is expected to open 138 points higher at 12,530
    CAC40 is expected to open 69 points higher at 5,230
    (Danilo Masoni)
    *****

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