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LIVE MARKETS-2007-2019: Guess who's no longer a Top 10 euro zone bank?

* Gains on STOXX fade

* Trump commits to Xi meet to seal trade deal

* Autos stocks, miners rise

* Banks tumble as Caixabank (Amsterdam: CB6.AS - news) , Sabadell results disappoint

* Poor China manufacturing data, euro zone PMIs hold stocks back

Feb 1 - 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

2007-2019: GUESS WHO'S NO LONGER A TOP 10 EURO ZONE BANK? (1439 GMT)

Deutsche Bank (IOB: 0H7D.IL - news) !

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The once mighty investment bank is no longer among the top 10 lenders of the euro zone and

is now only number 11 by market cap, Refinitiv data shows.

If one takes a look at the top 10 banks prior to the financial crisis (we took Jan 1 2007 as

a starting point) you can see all the usual suspects (Santander, BNP Paribas (LSE: 0HB5.L - news) ...) are still in

the list, with the exception of DB, which lost its place to Caixa during 2018.

It is something of an aberration that while Germany GmbH and its Mittelstand reign supreme

across the currency bloc, the euro's economic powerhouse has nothing to show for in the top 10

lenders.

Things may change again over 2019 if speculation over a government deal to merge Deutsche

Bank and Commerzbank (Xetra: CBK100 - news) actually turns into reality.

Seeing how Deutsche is losing ground after its results today, the journey back to the top 10

looks like a tough one.

Here's a graphic showing the evolution of the top 10:

(Helen Reid and Julien Ponthus)

*****

EUROPEAN EARNINGS: IT'S BAD, BUT NOT AS BAD AS WE THOUGHT (1411 GMT)

The Q4 earnings season was viewed as a reality check for the European investors looking for

evidence that December's rout was justified.

It's still early days, with only 56 out of 443 companies having reported. That's 19 percent

of the STOXX 600 market cap, Goldman Sachs (NYSE: GS-PB - news) says.

But analysis by the U.S. bank and Barclays (LSE: BARC.L - news) confirms expectations that earnings growth is

slowing. Q4 EPS growth so far is 1 percent in Europe, compared with 15 percent in the U.S,

according to Barclays head of European equity strategy Emmanuel Cau.

One more surprising takeaway is perhaps the lack of surprises: Goldman says 60 percent of

companies have reported earnings in line with consensus, compared with the S&P 500 where the

percentage is the lowest since Q4 2016.

Large-cap companies - SAP (Amsterdam: AP6.AS - news) , LVMH, Shell (LSE: RDSB.L - news) - have in particular delivered strong results and

shown they were not affected by the macro slowdown.

The other result of the banks' analysis is that unusually, investors are rewarding companies

much more than usual for positive surprises and shrugging off the nasty news.

That's probably because the Q4 2018 sell-off created a disconnect between prices and

earnings. With (Other OTC: WWTH - news) the market rising, companies that surprise to the downside are not being too

heavily penalised and companies beating are being rewarded the most since the great financial

crisis, Goldman Sachs says.

For instance, in the U.S., stocks that beat EPS outperformed by a median +2.4 pct on the

day, but stocks that missed underperformed, by -0.9 pct. In Europe, companies that beat on EPS

are seeing a more positive one-day reaction of +0.8 pct, while misses have a median reaction of

-0.5 pct, says Cau.

Typically, it's the other way round.

And the quick early takeaway? Cau says this may be tentative evidence that stock prices had

discounted a worse Q4 outcome than is unfolding.

(Josephine Mason)

*****

TWO NAUGHTY CYNICAL THOUGHTS (1259 GMT)

As much as a cynic would expect a quiet burst of Schadenfreude at BNP Paribas' Paris

headquarters at the sight of the downfall of (former?) archrival Deutsche Bank, there are few

naughty thoughts sweeping through the market this morning.

In our Morning Bid Europe, Reuters editors noted that news of scary Brexit

contingency plans or anecdotes about "consumers stockpiling food and medicine out of a fear that

a no-deal Brexit will strangle supply chains" might not be that gloomy stories, depending on

one's point of view.

"A cynical eye might also note that these are precisely the sort of dramatic headlines that

may help PM Theresa May focus the minds of lawmakers on securing some kind of deal and to ready

public opinion for a messy compromise," our editorial team wrote.

Another cynical view could be found in morning comments from UBS GWM' Paul Donovan after

Trump cited substantial progress in the trade talks with China.

The chief economist argued that a limited breakthrough could be helpful for the U.S.

president.

"The most likely outcome would seem to be a moderate deal that would still allow criticism

of China during the 2020 US election campaign," he writes.

As a kicker, here's a more general point about how the changing economic cycle might be a

golden age for cynics and their cold take on politics and economic growth.

In a note headlined "Are the cynics now in charge?", David Jane, manager of Miton’s multi

asset fund range, asks whether we're "emerging from a prolonged period of excess confidence into

a period where the cynics are back in the driving seat."

"There's evidence that buyers are no longer prepared to trust the future growth prospects of

individual companies. The recent revision of the terms of WeWork’s financing round, and the

recent attitude to certain new bond and loan issues, suggest a degree of realism is emerging,"

he writes.

Going back to the earlier BNP Paribas versus Deutsche Bank comparison, let's make clear that

a "Cynical" keyword search on Reuters.com gives absolutely no result for companies...

(Julien Ponthus)

*****

BEWARE THE GHOST OF U.S. PAYROLLS PAST (1226 GMT)

Just over an hour until U.S. nonfarm payrolls (at 1330 GMT), European investors are nervous

and the pan European STOXX 600 is down slightly.

It was a year ago that a sharp rise in hourly pay triggered the sell-off that derailed last

year's stellar new year rally. Wall Street hated Main Street's pay rise.

The context has changed, not least with a now dovish Fed.

Data is expected to show job growth slowed to 165,000 last month after shooting up 312,000

in December, which was skewed by adverse weather. But economists reckon the pace of hiring

probably remains fast enough to support the world's No. 1 economy even as the outlook resulting

from government policy and cooling global economies darkens.

Still uncertainty about the widely-watched numbers is higher than usual, as investors

prepare to weed out the impact of the 35-day government shutdown and understand the health of

the underlying economy.

The government has said the nearly 400,000 furloughed and unpaid government workers will be

included in the payroll counts. That could temporarily boost the unemployment rate by around 1/4

percentage point, Goldman Sachs says. (See the chart below that shows federal unemployment

spiked during the 2013 shutdown) Consensus for the unemployment rate is 3.9 percent.

Some analysts reckon the market may be OK with a weak number, taking comfort from the Fed's

dovish tone earlier in the week and Trump's positive noises around the trade spat overnight.

"The fact that the non-farms has not been mentioned at all amongst commentators this week

until last night says to me that we've negotiated most of the event risk for now and its effect

on the market will be short term," says Jeffrey Halley, senior market analyst at OANDA.

Then again after the meteoric gains this January, the data may be the perfect excuse for a

repeat of 2018 to lock in profits.

(Josephine Mason)

*****

HONEY, I SHRUNK THE MARGINS! (1101 GMT)

This earnings season is still in its early days but some patterns are already clear. Chief (Taiwan OTC: 3345.TWO - news)

among them is the issue of margins, stubbornly staying under pressure for the third straight

quarter.

Companies' operational margins have dropped to a two-year low, BAML strategists note, with

Brexit uncertainty and China cited as negative drivers.

There is good news: sales have been strong - with 59 percent of companies beating sales

estimates (the highest in two years) - and the number of profit warnings is tracking at two-year

lows.

But only 44 percent have beaten EPS estimates, the lowest level in six years. As you can see

below, that level is more than 1 standard deviation under the average level of earnings beats.

Where is safe to put your money in this environment, then?

"We continue to follow the 'secular stagnation' playbook, when market pressure can keep

central banks from excessive hiking, which favours Quality & Yield in Europe equities," write

BAML strategists.

They reckon UK stocks benefit most from this - and they cite the big spread between

dividends and gilt yields, the same one Jefferies equity strategists pointed out yesterday.

(Helen Reid)

*****

TIMID START TO FEBRUARY AS CAIXABANK, DEUTSCHE BANK SLIDE (0844 GMT)

After a super-strong start to the year (the strongest Jan since 2015), where to from here?

Well for today so far it's a tepid open with the STOXX 600 and the FTSE 100 up just 0.4

percent as poor manufacturing data out of China dampened any possible excitement about Trump and

Xi coming closer to a deal.

Trump said on Thursday he will meet with Chinese President Xi Jinping soon to try to seal a

comprehensive trade deal as Trump and his top trade negotiator both cited substantial progress

in two days of high-level talks.

Autos are up 1.7 percent, however, thanks to relief on the trade front.

Caixabank shares are the biggest European fallers, down 6 percent after results fell short

of expectations. Banco Sabadell is also falling 3 percent after its net profit slumped by 54

percent due to poor performance at its British bank TSB.

Deutsche Bank is another drag on the bank stocks, down 2.8 percent after it reported a

bigger than expected loss in the fourth quarter.

On the positive side Electrolux is jumping 8.1 percent to the top of the STOXX after its

results, helped by its forecast of easing cost headwinds in 2019. Shares (Berlin: DI6.BE - news) in billboard

advertising firm JC Decaux (Dusseldorf: 1140587.DU - news) are up 7.3 percent as investors cheer its results.

Here are your top movers:

(Helen Reid)

*****

CORPORATE UPDATES: A FEW SWINGS EXPECTED AT THE OPEN (0757 GMT)

With the Italy recession shocker yesterday, the batch of European PMI and inflation data

this morning will be closely watched.

The strong Facebook (NasdaqGS: FB - news) results are nevertheless a morale booster for investors worried about

on-going Q4 earnings downgrades.

Speaking of which, a lot of corporate results this morning with notably Deutsche Bank which

announced it swung back to profits after speculation yesterday about a

government-brokered merger with rival Commerzbank.

Still in the banking sector, contrasting headlines with BBVA (LSE: 931474.L - news) 2018 net profit up 51 percent,

Caixabank up 17.8 percent and Banco Sabadell 2018 net down 54 percent. Also Danske, embroiled in

a major money laundering scandal, offers a lower pay-out than expected.

Some disappointment with drugmaker Novo Nordisk (LSE: 0QIU.L - news) 's fourth-quarter profit lagging forecast.

In terms of sharp moves expected at the open, Talktalk is seen down 5 pct after its trading

update and Electrolux jumping 4-7 pct with profit beating forecasts.

(Julien Ponthus)

*****

NOT SO MIXED AFTER ALL: FUTURES OPEN IN THE BLACK (0714 GMT)

Ok, so the picture is a bit less blurred than expected with all main European futures in the

black, albeit very slightly for the CAC, at the open.

It seems the buzz kill of China's Caixin/Markit (NasdaqGS: MRKT - news) index of manufacturing falling to its lowest

since February 2016 isn't that lethal after all.

After all, prospects of a meeting between Donald Trump and Xi Jinping to end the trade war

is enough to fuel substantial optimism on the trade floors.

The caution one would expect ahead of the U.S. jobs data later in the session is

nevertheless palpable with analysts unsure what impact the government shutdown might have had

employment.

(Julien Ponthus)

*****

I KNOW WHAT YOU DID LAST FEBRUARY (0700 GMT)

As Chris Bailey from Raymond James argues this morning, "in the context of the very poor

December, January was the best month for global equities in seven years".

What a difference a month makes with the gloomy last quarter of 2018 and its spooky "Red

October"!

So after such a stellar January what could go wrong?

Well remember February 2018? Not many saw the sell-off coming but it still marks, for a

number of analysts at the least, the beginning of the end for the bull market.

The U.S 10-year yield was then giving cold sweats to investors and the comeback of inflation

had analysts scrambling to reassess equity risk premia in a volatility spike that was arguably a

pretty messy business.

Wth the Fed now in a dovish mood and so many strategists placing their faith in the "Powell

Put", February 2019 sure doesn't look like 2018 but can be a reminder that things can't very

quickly go wrong.

(Julien Ponthus)

*****

A MIXED START EXPECTED AT THE OPEN (0635 GMT)

Good morning and welcome to Live Markets! Not much of a trend for the open at the moment

with rather a mixed bad of indications from financial spreadbetters.

According to IG (Frankfurt: A0EARV - news) , London's FTSE is seen opening 9 points higher, the DAX 6 points lower and

Paris' CAC up 4 points.

Not much eastern wind in the European sails with Asian shares creeping back from four-month

highs as a dismal survey on Chinese factory activity dulled optimism about the Sino (Dusseldorf: 1205802.DU - news) /U.S. trade

talks or the strong Facebook earnings.

With much of Britain under the snow, a picture of white hills in the British countryside

coud have seemed in order but for some reason, this one taken yesterday seems more pertinent for

European equity markets:

(Julien Ponthus)

*****