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LIVE MARKETS-Are active contrarian investors running the show?

·8-min read

* European shares turn positive: STOXX 600 +1.2% * Profit warning hammers Imperial Brands shares * Reports on virus breakthrough lifts markets Welcome to the home for real-time coverage of European equity markets brought to you by Reuters stocks reporters. You can share your thoughts with Thyagaraju Adinarayan (, Joice Alves (, Julien Ponthus ( in London and Danilo Masoni ( in Milan. ARE CONTRARIAN ACTIVE INVESTORS RUNNING THE SHOW? (1301 GMT) Who's running this coronavirus rebound rally? Many analysts are fuming at the apparent lack of rationality behind the market rebound and the fact we're basically back to where we were before fears that a deadly epidemic would disrupt Q1 growth in China and beyond rattled trading floors. Rabobank's Global Daily railed for instance against "a combination of the algos that can't catch coronavirus if they wanted to, and the young traders who have never worked a day in a market in which they haven't had at least one central bank somewhere promising to push asset prices higher". Frustration is palpable for sure but Nomura has an explanation at hand as to why the bulls are back in stampede mode and chasing the market higher. "We believe that yesterday's global risk rally can be attributed to active stock market investors buying the market up in contrarian fashion just as hedge funds in general had started finishing the job of trimming their net long positions", strategist Masanari Takada wrote this morning. If indeed hedge funds are done now with their usual seasonal selling while individual investors are lining up to join a some kind of greed momentum (Tesla anyone?), there'll probably be some interesting price action down the road. "If stock market sentiment manages to stay in line with its usual seasonal pattern after avoiding a major irregular downswing, then the rebound in sentiment off its recent pessimism may still have further to go", the Nomura note argued. Here's Nomura's chart showing how hedge funds have recently trimmed their exposure to DM equities: (Julien Ponthus) ***** TESLA FEVER IN EUROPE, VOLS OFF THE CHARTS! (1235 GMT) Welcome to our customary Tesla blog of the day from Europe and we have some fun facts and stats for you. Fun stuff first, when you type "should I..." on Google the first thing that pulls up is "Should I buy tesla stock" (see it, to believe it!) That frenzy is clearly visible in volumes of Tesla's German-listed shares which are already at more than 6 times daily average in just the first half of the trading day. Oh, we forgot to point out something very important, Tesla shares which have doubled in value year-to-date are down today. The company warned a one to 1.5-week delay in the ramping up of production of its Shanghai-built Model 3 cars due to coronavirus. "We had a full blown panic on Xetra (German index) in Tesla," a Berlin-based trader says. Here's the chart showing volume surge and the "panic" sell-off at European open. (Thyagaraju Adinarayan) ***** WHY STOCK MARKETS DISREGARDED PMI DATA (1159 GMT) Service PMI strong data barely moved the needle today. The euro zone and the UK released final PMI service figures this morning but despite the weight of the service sector across the region, the numbers barely moved the pan European index or Britain's blue chip index. The reason for the limited reaction, even if the numbers were higher than previously released flash figures, is that markets had already priced in the jump. "We know that the business surveys reacted well to fading political stress and waning no-deal Brexit expectations," says Ipek Ozkardeskaya, senior analyst at Swissquote Bank. It is also true that the European bourses were already rallying on easing coronavirus fears when the UK reported services companies enjoyed the strongest influx of new orders since mid-2018 and when the euro zone reported that business activity accelerated last month. (Joice Alves) Write to Joice at or ***** WHAT VIRUS FEARS? STOXX ONLY 2 POINTS FROM RECORD HIGH! (1020 GMT) It's hard to believe but there you go: at one point this morning the STOXX 600 was only 2 little points from its all time record high of 424.36 points reached on January 24. While it was expected that the outbreak of the new coronavirus would trigger at least some kind of correction, today's optimism about possible cures are bringing us back to the levels of the end-year / new year rally. European stocks have somewhat reduced speed a tad, now up 1.1%. An extra 0.6% rise from here is all it would take to go back unchartered highs: (Julien Ponthus) ***** CORNONAVIRUS: IT'S HEADLINE TRADING (0928 GMT) Markets are back to risk-on mode with European equities rapidly erasing opening losses, bond prices falling and the yuan spiking higher, as investors take heart from a series of reports raising hopes about a cure to the deadly cornoavirus. And it's all about the headlines below, although caution remains high, traders tell us. China’s Changjiang Daily, the official newspaper of the city of Wuhan where the virus outbreak began, reported that a team of researchers led by Zhejiang University professor Li Lanjuan have found that drugs Abidol and Darunavir can inhibit the virus in vitro cell experiments. This other headline on Sky News -- Coronavirus: 'Significant breakthrough' in race for vaccine made by UK scientists -- is also giving a boost. (Danilo Masoni and Vincent Se Young Lee) ***** OPENING SNAPSHOT: CORONAVIRUS WARNINGS, SIEMENS, IMPERIAL (0830 GMT) We're back to coronavirus plays with sectors such as luxury/retail and travel & leisure underperforming the broader market. As expected, losses in those sectors were led by Adidas and Puma, both down 1.5%, after Nike's warning overnight on the financial impact from coronavirus in China. In earnings-related moves, Imperial Brands is the top faller sliding 9.6% after the tobacco group said FDA's decision to ban vaping flavours is seen taking a toll on its annual profits. Larger rival BAT down 1.1%. Danish hearing aid maker GN Store tops the risers list +7.7% to record highs after its fourth quarter profit easily beats estimates. Siemens is dragging down the European blue-chip index STOXX 50 after its industrial profits came well below estimates. Here's your STOXX 600 opening snapshot: (Thyagaraju Adinarayan) ***** ON OUR RADAR: SIEMENS, IMPERIAL, ADIDAS & PUMA (0752 GMT) It's a busy earnings day here in Europe with reports coming from banks to industrials to tech. So far the picture has been slightly negative with some major misses and stock futures for now point to slight declines after yesterday's stunning risk-on rally. Siemens tops the disappointments list after the German industrial conglomerate reports a sharp drop in industrial profits due to the ongoing downturn in European manufacturing sector, prompting traders to call its shares 4% to 5% lower. Warning from Imperial Brands that it expects lower profits this fiscal year due to the U.S. regulatory ban on some flavours of cartridge-based vapour devices is seen pushing its shares down 3% to 5%. Footwear makers Adidas and Puma are likely to come under pressure after Nike warned that the deadly coronavirus may have a financial impact on its operations. Adidas has the largest exposure to mainland China. In the UK, housebuilder Barratt Developments is seen rising 2% after solid first-half and strong sales rate in January. Britain's biggest pizza delivery company Domino's reported strong fourth quarter sales. Other notable moves: BNP Paribas seen slightly higher after reporting profit beat on strong fixed income/equity trading; Infineon reports in-line numbers in seasonally weak Q1; Novo Nordisk reports inline results but outlook disappoints, dealers see shares down 1%; Qiagen seen 5% higher after Q4 earnings beat. Other key headlines to digest: France's Vinci eyes further revenue, profit growth in 2020 China lab seeks patent on use of Gilead's coronavirus treatment ABB Q4 profit tops estimates, sees higher operating margin Novo Nordisk sees slower growth this year vs 2019 Budget carrier Ryanair ordered to drop low-emissions ad claims Stainless steel maker Outokumpu posts Q4 profit fall, sees better Q1 Vodafone posts 0.8% third-quarter growth, driven by South Africa (Thyagaraju Adinarayan) ***** EUROPE ON BACKFOOT ON BUSY EARNINGS DAY (0646 GMT) European stocks are seen opening slightly lower after a stunning risk-on rally on Tuesday which wiped off year-to-date losses caused by the coronavirus. Bourses are seen opening 0.2% to 0.4% lower amid fading optimism that China's additional stimulus would cushion the economic blow from the virus which has claimed nearly 500 lives so far. In corporate news, it's a busy earnings day here and so far we have: Infineon Tech reporting in-line results, BNP Paribas' Q4 profit beating estimates and industrial conglomerate Siemens profits taking a hit from a downturn in the manufacturing sector. (Thyagaraju Adinarayan) ***** (Reporting by Danilo Masoni, Joice Alves, Julien Ponthus and Thyagaraju Adinarayan)