* European stocks rise
* Cyclicals underperform after rally
* UK inflation down from November peak
Jan 16 (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: email@example.com
ALL ABOARD THE EQUITY EXPRESS (1422 GMT)
It looks like equities and cyclicals are fast becoming the flavour of the day with BAML's
January fund manager survey revealing that investors have raised their stock allocations to
two-year highs and cut cash positions to five-year lows.
Likewise private bank Coutts also voiced a preference for equities in its investment outlook
U.S. recession on the horizon, we continue to have confidence in equities, with a bias towards
those regions where we see the growth cycle persisting for longer, like Europe and Japan."
STRONG EURO? KEIN PROBLEM! (1329 GMT)
The DAX index remains comfortably close to the all-time high it hit in November, up
1 percent, seemingly unperturbed by the rising euro. But shouldn't the stronger currency be a
headwind for the heavily export-oriented German benchmark index?
DZ Bank chief investment strategist Christian Kahler in Frankfurt doesn't believe so and
says corporate Germany should be able to weather the appreciation, despite possible hits to
"German companies are known for their strong export trade. Based on our analyses, the share
of sales of the German HDAX companies invoiced in USD was 28% (the HDAX comprises the
companies included in the DAX, MDAX and TecDAX indices). This exposes them to increased risks
through changes in exchange rates. However, 23% of the costs are also incurred on a USD basis,
which puts the approach into perspective," he says.
He adds that factors such as natural hedging in the form of local production capacity and
borrowing in USD could also mitigate the rise in the single currency, while the broader strong
economic backdrop is also likely to help.
yesterday continued EUR strength could boost its long-standing recommendation of underweight
Europe relative to U.S. equities.
NORWEGIAN FUND'S NUCLEAR WEAPON BAN LEAVES BAE UNSCRATCHED (1228 GMT)
fund this morning to exclude the British group from its portfolio, citing its policy regarding
firms involved in the production of nuclear weapons.
As you can see on this chart, the fund's statement around 0900 GMT triggered a spike in
volumes but didn't prevent BAE from ticking slightly higher. BAE shares later edged down to
their initial levels. At the beginning of 2017 the fund held 1.47 percent of BAE.
Here's a link to the statement of Norway's sovereign fund, which has excluded other
corporations for the same reason but also on other grounds such as "risk of severe environmental
damage" or "serious or systematic violations of human rights". https://goo.gl/32GNrw
(Julien Ponthus and Terje Solsvik)
CYCLICAL RALLY: A SIGN OF THINGS TO COME? (1132 GMT)
Cyclicals may be underperforming today but have done great so far this year.
equity strategists think that the cyclical outperformance we've seen at the beginning of 2018
could be a sign of things to come: "With the recent rise in yields, cyclicals and especially the
Banks have again gained support. We believe this year might carry on largely as it started: with
cyclicals leading the way."
SOME BIOTECH "FEEL-GOOD" FROM SAN FRANCISCO (1110 GMT)
While the European Healthcare index has been quite an underperformer since the
beginning of the year, analysts from Jefferies posted an upbeat note after meeting the
management of over 30 European biotechs during a conference in San Francisco.
"Overall the tone was notably upbeat", they said noting exciting clinical results in the
pipeline, satisfactory funding and, cherry on the cake, M&A activity such as Novo's
bid for Ablynx .
So far however, as you can see from the snapshot below, few sectors (travel and leisure
, personal and household goods, food and beverages and real estate
) have fared worst:
EURO PARITY? WRONG PREDICTION! (1043 GMT)
A number of investors had predicted the euro to remain weak throughout 2017 only to
be wrong footed by its rapid and seemingly unstoppable surge that started last summer. While the
jury is still out on whether this could stop gains in euro zone equities, predictions
on the single currency are being revisited.
admits it got it wrong and in a note today it formulates a new forecast for 2018:
"No question of parity, but rather of just when the EUR/USD's ascent will peter out. The
euro has been under the spotlight since the start of the year. It could be the factor that
scuppers the mood of optimism that has carried out over from 2017... a strong euro would end up
affecting the economic recovery in the eurozone".
They conclude however: "we do not see the EUR/USD as having much more upside potential."
In this two-year chart you can see how euro zone stocks have risen despite the stronger
UK STOCKS TICK HIGHER AFTER INFLATION SLOWS (1014 GMT)
UK inflation has dipped slightly after six months of gains, suggesting the effects of the
pound's slide after the 2016 Brexit vote may be starting to fade.
The FTSE has had a little rally on the numbers but some economists are wondering how to read
the data, with retail prices jumping sharply last month but consumer prices down. With household
incomes still failing to keep pace with rising prices, there appears little relief in sight for
Right now, it's hard to interpret the equity market response. The FTSE is now up 0.24
percent, driven mostly by rate-sensitive consumer staples and banks.
EUROPEAN STOCKS: TOP MOVERS AND SHAKERS (0914 GMT)
While the price action is fairly muted early on in the session, Steinhoff is the
top riser, up 2.8 percent though this is a relatively small move for such a volatile stock.
following a downgrade from Berenberg, who have cut the plastic packaging maker to "hold" from
"The combination of low growth and an uncertain return to acquisitions leads us to
Here are the biggest STOXX movers while we await the UK inflation data:
OPENING SNAPSHOT: EUROPE HEADS HIGHER (0838 GMT)
In the first half hour of trading, European shares are climbing higher. While it's a
broad-based move into positive territory, shares in banks and commodity stocks are notably being
left behind this morning on the back of a weaker oil price and a slide in copper prices.
Here's your early snapshot:
WHAT WE ARE WATCHING (0750 GMT)
Major European bourses are expected to open slightly higher this morning, with a heavier
news flow and the U.S. markets reopening after MLK day.
In the UK, all eyes will be on inflation, which is expected to have gone down from a 3.1
potential break-up and HSH Nordbank suitors J.C. Flowers and Cerberus beginning exclusive talks.
The aftermath of Carillon’s collapse is also a period where its former rivals are under
In terms of earnings, a number of blue chips have published trading updates such as
earnings growth in its core businesses of renewable energy, grids and energy services this year,
after an estimated five percent gain in core earnings in 2017.
While a number of strategists are advising their clients to start investing in banks in a
new world of rising yields, a headline today may look all too familiar with the last ten years.
Deutsche Bank, which is trying hard to convince investors that the bulk of financial
scandals it suffered this last decade is behind it, has been accused in a lawsuit of conspiring
to rig a Canadian rate benchmark.
Still in the financial sector, ABN Amro said Q4 results would include several incidentals
regarding its operating income and expenses.
A BUSY DAY FOR EUROPEAN FOOD AND RETAIL (0734 GMT)
We're getting a flurry of updates in the food and retail sectors today.
Hugo Boss reported quarterly sales growth driven by footfall in its own store
network. Swiss chocolate maker Lindt & Spruengli also posted higher sales.
meet profit expectations in 2017. One trader sees Greggs' shares rising slightly.
JD Sports also had a strong Christmas and expects annual profit to be ahead of
expectations. JD shares only saw a moderate gain in 2017 after four years of stronger growth,
but perhaps today's update can push them higher.
FUTURES POINT UP (0705)
European stocks futures have opened slightly higher, and while London, Paris and Frankfurt
seem set to open in positive territory, the picture is less clear with the pan-European market
and the Euro STOXX 50.
Here's the snapshot:
MISPLACED OPTIMISM ON UK INFLATION? (0645)
Consensus is that headline inflation in the UK edged down from the 3.1 percent peak it
reached in November and therefore back within 3 percent. The answer is due at 0930 GMT but some
analysts have voiced a few "what-ifs?".
analyst Michael Hewson, noting that airfaires and fuel prices might have misbehaved in December.
On the other hand and looking a bit further ahead, ING argues that slower than expected wage
growth could give the BoE room for manoeuvre.
"We caution that a 2018 rate hike still isn't a given - although admittedly it will be a
close call", the Dutch bank's analysts wrote.
MORNING CALL: EUROPE SEEN OPENING SLIGHTLY HIGHER (0615 GMT)
Good morning. Financial spreadbetters see European shares rising slightly, with Germany's
DAX and Britain's FTSE 100 expected both to climb 8 points and France's CAC
Asian shares closed higher, erasing early modest losses while the euro stood near a 3-year
peak on rising expectations that the European Central Bank could pare its monetary stimulus.
U.S. markets will reopen later today after being closed for a public holiday.
(Reporting by Danilo Masoni, Helen Reid, Kit Rees and Julien Ponthus)