LIVE MARKETS-5 reasons to believe the bull isn't dead yet
* European shares rise sharply, STOXX off highs
* Italian banks rally on hopes of budget tweaks
* Melrose (LSE: 136541.L - news) lead losers on report of low bids for unit
* Most sectors trading in positive territory
* Wall St set to open higher on Cyber Monday optimism
Nov 26 - 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
5 REASONS TO BELIEVE THE BULL ISN'T DEAD YET (1452 GMT)
Optimism on the Italy and Brexit fronts and a buoyant Wall Street open are clearly lifting
the mood on European trading floors this afternoon, but looking forward uncertainty over the
cycle remains uncomfortably high.
Not too high, however, for UBS Global Wealth Management which has just upped its overweight
on global equities versus high-grade bonds.
The asset manager says it "believes that the bull market remains intact, valuations look
compelling and there is scope for positive surprises".
UBS (LSE: 0QNR.L - news) analysts see 5 reasons to believe the bull market is still alive and kicking:
1) Data "is not consistent with prior pre-recession experiences"
2) Job creation does not seem to be slowing down
3) "The risk of an oil price spike has receded"
4) "Signs that the Eurozone domestic economy is holding up well, despite some export
weakness"
5) Consumer consumption is accelerating
Another optimistic house is Templeton Global Equity Group where Dylan Ball, head of European
equity strategies, says he believes the continent's stock markets could recover.
"The underlying market fundamentals continue to suggest to us the potential for a near-term
rebound," he says, noting that "corporate earnings and valuations in Europe, in our assessment,
have significant scope for improvement as the market and economic cycle matures".
Underestimate the bull at your own peril:
(Julien Ponthus)
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AN ITALIAN DEFICIT FUDGE? (1328 GMT)
Italian stocks are slightly off their earlier highs but still up 2.5 percent, with the banks
index up 4.6 percent as investors cheer news Italy's governing coalition may reduce
next year's budget deficit target to as low as 2 percent of GDP.
Ahead of a meeting to discuss the move this evening, is everyone opening the champagne a bit
too early, though?
Pierre Bose, head of European strategy at Credit Suisse Wealth Management, reckons they
might be.
"What remains to be seen is if the government were to cut the deficit through more
back-ended government measures. If you take from next year and give to another year it doesn't
do anything to change their fiscal balance which is their main vulnerability," he notes.
The government could, in other words, fudge the lessening of the budget deficit by pushing
some reforms into later years.
"They alluded a week ago that they would cut back on excessive government spending, they
might try in the first instance to do it that way. First (Other OTC: FSTC - news) it will be by reducing expenditure on
other items and potentially increasing tax receipts somewhere but I don't see them changing
their core election promises," Bose adds.
Those key policies are the Citizens (NYSE: CIA - news) ' Income and the reduction in pension age, which are
unlikely to be changed.
You can see below that bad loans are still a prominent issue for Italian lenders, part of
the reason why international investors have fled the shares since the prospect of higher
national indebtedness reared its head.
(Helen Reid)
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NAVIGATING THE BREXIT FOG: NO FLASHING RED LIGHTS YET (1224 GMT)
Sterling is getting a slight boost from yesterday's Brexit deal agreement, and UK stocks are
rising - but a little less than their European counterparts as the stronger pound dampens
multinationals' performance.
Yesterday's deal is all very well but markets are still confused and cautious as to what
comes next for UK stocks, which are trading far under their 20-year average valuation (see
below).
"It is still unclear (or a clear as mud) what the eventual Brexit outcome will be," writes
Jefferies' global strategy team, noting indicators of a hard Brexit are, confusingly, not
pointing in any clear direction.
There were equity inflows last week ahead of the agreement, but Jefferies notes this was "a
mere drop" compared to the $4.8 billion outflows so far this year.
Encouragingly, UK corporate bond spreads have widened but only in line with changes in other
countries, and UK gilts and corporates have not seen refinancing issues.
Less encouraging are PMI figures and BoE (Shenzhen: 000725.SZ - news) reports highlighting tight labour market and
capacity constraints, as well as companies flagging Brexit-related uncertainty.
But overall "there are no signs of obvious panic," writes Jefferies.
Going forward they advise investors keep an eye on Ireland (Other OTC: IRLD - news) : "Perhaps the best indicator to
watch is Irish stock indices since there is no doubt that Ireland would be the worst-affected
economy in the event of a no-deal Brexit given the deep trade and labor market links with the
UK."
(Helen Reid)
*****
GROWTH SURPRISE NEXT YEAR? DON'T BANK ON A BOOST TO EUROPEAN STOCKS (1111 GMT)
This year has been full of hand-wringing over European growth slowing, and Credit Suisse (IOB: 0QP5.IL - news) 's
2019 outlook has some good and some bad news on the subject.
Overall analysts at the Swiss bank are reducing their underweight on continental European
equities, saying cyclicals are likely to bounce back from oversold levels, China's economy
should stabilise, and valuation is attractive on some measures. As you can see below, valuations
outside the U.S. are relatively low still.
So why are CS staying underweight?
Analysts at the Swiss bank see European economic growth accelerating again, but this will
likely boost the euro, and 70 percent of the time the euro appreciates, continental Europe
underperforms.
While many have been calling Europe a value play, Credit Suisse argues that sector-adjusted
valuations don't look half as good. Europe's adjusted P/E is only on a 5 percent discount to the
US currently (compared to a norm of 8 percent).
Finally, the outlook hinges on earnings which aren't looking great.
"For Europe to significantly rerate relative to the US, we would need to see EPS growth
clearly above that of the US," write CS analysts. "On our model, European EPS growth is only 7.6
percent for 2019 compared to 6.2 percent in the US."
Regionally, Spain is CS' biggest overweight, and they reduce Switzerland - a highly
defensive market - to underweight from benchmark. They also trim their underweight on Italy,
saying it's the most sensitive to a recovery in PMIs.
Globally, they increase their underweight on U.S. equities, saying "the most recent period
of U.S. exceptionalism is over".
(Helen Reid)
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OPENING SNAPSHOT: BEST POSSIBLE BREXIT DEAL, LOWER ITALIAN DEFICIT. WHAT ELSE? (0836 GMT)
European shares are bouncing across the board today as a string of good news welcomes
investors as they return to their desks following a weekend of shopping.
European Union leaders finally sealed a Brexit deal on Sunday which Junker said was the best
possible, while an Italian government source has just told Reuters that the
governing coalition is discussing reducing next year's budget deficit target to as low as 2
percent of gross domestic product to avoid a disciplinary procedure from Brussels.
As a result, the pan-regional STOXX 600 index is rising more than 1 percent with
all sectors trading in the black, up between 0.5 and 2.4 percent in early trading. Italy's FTSE
MIB is up a whopping 3 percent - set for its strongest day since June.
And here are your top 10 movers on the STOXX 600. Italian banks including UBI (Taiwan OTC: 6562.TWO - news) ,
UniCredit (EUREX: DE000A163206.EX - news) and Intesa are dominating the leaders board, while Melrose
is being hit following reports it received low bids for its Powder Metallurgy unit:
(Danilo Masoni)
*****
WHAT'S ON THE RADAR: DEALMAKING NEWS AND ITALIAN RALLY ON BUDGET HOPES (0746 GMT)
With (Other OTC: WWTH - news) the “best possible” Brexit deal sealed on Sunday, European stocks were set to rise
strongly on Monday with futures all up 0.8-0.9 percent, following in the footsteps of Asian
shares and U.S. equity futures.
With earnings season behind us, politics and dealmaking news should drive the market.
Shares (Berlin: DI6.BE - news) in Faroe Petroleum (LSE: FPM.L - news) are indicated rising as much as 15 percent after DNO (LSE: 0MHP.L - news) offered to
buy the firm for $780 million in cash.
The CEO of Swiss logistics group Kuehne & Nagel told a Swiss newspaper it wouldn't shy away
from large acquisitions, and is ready to talk with smaller rival Panalpina. But the takeover
target said it's keen to remain independent, and traders see its shares rising 4 to 5 percent on
Monday.
Logitech also ended talks to acquire U.S. maker of Bluetooth earpieces and gaming headsets
Plantronics (NYSE: PLT - news) .
Traders see Lufthansa (Xetra: LHAB.DE - news) shares rising 2 percent after Kepler Cheuvreux upgraded its
recommendation on the stock. A sharp drop in the oil price also takes the pressure off airlines.
Italian banks and stocks could see a relief rally after Italian government bond yields fell
to two-month lows as press reports pointed to a more conciliatory tone on the budget from
Italy’s government, which a source said will meet on Monday evening to discuss a potential
reduction of its deficit goal.
Shares in Britain’s Melrose Industries (Frankfurt: 27MA.F - news) are indicated down 1 to 3 percent after Sky News
reported the company may call off its auction for GKN’s powder metallurgy business following
lower than expected initial bids valuing the unit at about 1.6 billion pounds. A trader said
analysts had a 2 billion pound sale in their models.
Vectura is seen dropping 10 percent, one trading desk said, after it said it would stop
developing its asthma treatment after a late-stage failure.
Polar Capital H1 profit buoyed by rising assets under management
Would market shock force UK parliament's hand on Brexit?
Italian govt bond yields drop as Salvini hints at deficit tweak
Ghosn in firing line again as Mitsubishi Motors board meets
French group St Gobain launches new strategy to improve its results
(Helen Reid)
*****
FUTURES OPEN HIGHER AFTER BREXIT DEAL SEALED (0711 GMT)
Futures have opened higher across European benchmarks this morning, rising 0.6 to 0.7
percent the day after the "best possible" Brexit deal was agreed by EU leaders and Prime
Minister Theresa May.
But the UK Parliament's vote on the deal looms around the corner.
"Markets will shift their focus away from the EU deal to the “meaningful vote” due by mid
December," write Societe Generale (Swiss: 519928.SW - news) analysts. "The government’s task in trying to win this vote is
immense and there will be a rising volume of forecasts that it will be lost, with the fears
rising of a no deal."
(Helen Reid)
*****
HEADLINES TO WATCH: ITALY BUDGET, KUEHNE & NAGEL, LOGITECH (0656 GMT)
With earnings season over, investors' focus turns to political developments and corporate
news. Brexit will certainly dominate newsflow in the UK after the EU agreed a deal on Sunday,
and Italian developments could also drive the market.
Italy could consider "fine tuning" its deficit goal to avoid market turbulence, a junior
minister told Il Messaggero in an interview this morning, signaling a possible negotiation
between Rome and Brussels to avoid a disciplinary procedure against Italy.
Italy's government is set to meet on Monday evening to discuss a potential reduction of its
deficit goal, a government source said.
M&A chatter is likely to move stocks as well. Swiss logistics group Kuehne & Nagel told a
Swiss newspaper it wouldn't shy away from large acquisitions, and is ready to talk with smaller
rival Panalpina. But the takeover target said it's keen to remain independent.
Logitech also ended talks to acquire U.S. maker of Bluetooth earpieces and gaming headsets
Plantronics.
Takeover target Panalpina keen to remain independent
Logitech ends negotiations to acquire Plantronics
INSIGHT-In China's hinterland, car market growth engine sputters
Mitsubishi Motors' board meets to remove Chairman Ghosn
Japan's Daikin to buy Austria's AHT Cooling for about $885 mln
Aston Martin to more than double production by 2025 - CEO
UK's Drax starts pilot of Europe’s first bioenergy carbon capture project
(Helen Reid)
*****
EUROPE TO RISE IN STEP WITH ASIA, BUT OIL SLIDE AND BREXIT WEIGH (0623 GMT)
European stocks are set for a slightly stronger open, having enjoyed a modest recovery on
Friday as well. Sagging oil prices could weigh on the market, though, and tension is building
ahead of a parliamentary vote on the Brexit deal which the EU agreed to on Sunday after 18
months of gruelling talks.
Asian stocks and U.S. equity futures posted modest gains on Monday on hopes of solid U.S.
holiday sales, though plunging oil prices fanned worries about a dimming outlook for the global
economy.
European Union leaders finally sealed a Brexit deal on Sunday, saying the package agreed
with Prime Minister Theresa May was the best Britain will get in a warning to the British
parliament not to reject it.
The parliamentary vote is likely to take place just before the next EU Summit of Dec (Shanghai: 600875.SS - news) 13-14.
According to CMC Markets (LSE: CMCX.L - news) , the FTSE 100 is expected to open 25 points higher at 6,977, the
DAX is expected to open 58 points higher at 11,250, and the CAC 40 is expected to open 21 points
higher at 4,967.
(Helen Reid)
*****
(Reporting by Helen Reid, Julien Ponthus, Danilo Masoni)