LIVE MARKETS-Art of the deal: global M&A boom nothing to worry about, yet
* European shares climb
* Euro zone stocks set for 6 week of gains
* SocGen (Paris: FR0000130809 - news) , BNP (Paris: FR0000131104 - news) , HSBC tumble
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ART OF THE DEAL: GLOBAL M&A BOOM NOTHING TO WORRY ABOUT, YET (1005 GMT)
While surging M&A is one of the indicators Citi considers in its "bear market checklist",
strategists at the U.S. bank don't see the uptick in dealmaking as a concern just yet.
2018 is on track to be the biggest M&A year in history if we annualise current rates of
dealmaking, notes Citi. The latest Thomson Reuters (Dusseldorf: TOC.DU - news) data shows worldwide M&A totals $1.7 trillion
so far this year, up 64 percent compared to the same period last year.
And the deals are not close to stopping: "Robust global economy, attractive financing
conditions and high CEO confidence should drive further activity," says Citi's global equity
strategy team.
But they're comforted by their measure of six-month trailing M&A which currently sits at 3.2
percent of global market cap, below the 5-6 percent reached in previous bull market peaks.
Citi's Robert Buckland and team say they would be wary if this measure rises above 3.5 percent.
The UK has been the strongest driver of M&A globally so far, with cheap valuations and a
weakened currency offering an opportunity for what they call "overseas predators".
So, with nothing big to worry about yet, investors positioning for dealmaking should be
overweight the UK and U.S., while they should avoid Japan. Sector-wise, healthcare and consumer
discretionary have seen the most activity, Buckland notes.
On the same subject yesterday: M&A in the UK: which stocks are targets?
(Helen Reid)
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HAVE WE REACHED PEAK EARNINGS? (0924 GMT)
While global earnings upgrades still outnumber downgrades, the trend suggests EPS revisions
may have just peaked, and investors are getting less confident about the global profit cycle,
says JP Morgan European equity strategist Khuram Chaudhry and team.
U.S. and Japanese stocks dominate the upgrades while most of the downgrades are coming from
Europe and EM, they note.
"We are increasingly nervous that the global profit backdrop will deteriorate further over
the coming months, based on investors' focus on EPS growth (which lags EPS revisions), a
potential pickup in inventories versus a slowing order book as inflation expectations moderate,
and continued deterioration in money supply growth across the regions," the strategists argue.
On a sector level, they find cyclicals' earnings expectations are peaking while defensives
are hitting a bottom - indicating a turndown in cyclicals could be around the corner.
"The trend in U.S. technology and global material stocks makes us most nervous, but
interestingly utilities appear to be bottoming," they note.
As you can see below, a turn down in European earnings revisions has often accompanied a
fall in cyclicals' performance relative to defensives.
(Helen Reid)
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OPENING SNAPSHOT: BAD DAY FOR FRENCH BANKS, AIR FRANCE TUMBLES (0717 GMT)
Overall it's a strong start for European stocks with Italy's FTSE MIB outperforming, up 0.7
percent.
But results are sending some sharply down. Societe Generale (Swiss: 519928.SW - news) and BNP Paribas (LSE: 0HB5.L - news) are both
suffering at the open, down 6.3 percent and 3.2 percent respectively. Weaker than expected
revenues from SocGen are the culprit, traders say, saying the bank's fixed income, currencies
and commodities (FICC) and equity segments both underperformed peers. The stock has hit a
6-month low.
BNP Paribas meanwhile had a drop in profits and traders also pointed to a "light" capital
ratio.
Air France (Paris: FR0000031122 - news) is also suffering at the hands of investors, falling 5.5 percent after saying it
expects strikes in France to hit 2018 profits.
Meanwhile German materials and chemicals firm Lanxess (IOB: 0H7I.IL - news) is leading the STOXX, up 7.2 percent
after hiking earnings guidance.
Ferrari (Xetra: 30092157.DE - news) is rising 4.2 percent, with traders still citing CEO Marchionne's comment in results
yesterday midday that most of its models were sold out for 2018.
(Helen Reid)
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WHAT YOU NEED TO KNOW BEFORE THE BELL (0650 GMT)
European shares are set to bounce back today following losses in the previous session as
earnings continue to roll in, while the recent strength in the dollar has put the euro zone
STOXX index on track for its sixth straight week of gains - its longest winning streak since
September 2017. Stock index futures on main country indexes were up 0.3-0.6 percent.
It's a heavy day of results for financials with HSBC reporting an unexpected 4 percent drop
in first-quarter pre-tax profit due to a surge in investments, sending the stock down 2 percent
in premarket although the pill may be sweetened by a new share buyback plan of up to $2 billion.
French bank BNP Paribas (down 1-2 percent premarket) posted a 17 percent fall in quarterly
net profit on revenues falling short of expectations, weighed down by a weaker dollar and
sluggish fixed income trading. Shares (Berlin: DI6.BE - news) in Societe Generale could also fall with one trader saying
its quarterly profit was below consensus and its capital ratio slightly light.
Numbers from insurance heavyweights Swiss Re (LSE: 0QL6.L - news) and Generali (EUREX: 566030.EX - news) showed better than expected
profits, while a stronger euro impacted the value of sales at France's biggest insurer AXA (Paris: FR0000120628 - news) .
Elsewhere, forex headwinds were also blamed by German luxury carmaker BMW (EUREX: BMWE.EX - news) for its 3 percent
drop in quarterly operating profit.
Eyes also on Telecom Italia (Amsterdam: TI6.AS - news) on the day when its top two investors - Vivendi (LSE: 0IIF.L - news) and activist
fund Elliott - will face off for the first time as they put their battle over board seats at the
Italian phone group to a shareholder vote.
News that Bayer (IOB: 0P6S.IL - news) sold a further Covestro (IOB: 0RBE.IL - news) stake for 2.2 bln euros may also be welcome as it
could reduce the cash call the company will need to fund its takeover of Monsanto (Hamburg: 1132157.HM - news) .
(Danilo Masoni)
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FUTURES POINT UP AS BUSY EARNINGS WEEK DRAWS TO A CLOSE (0630 GMT)
Futures have opened higher, indicating gains for the main European benchmarks on a busy
earnings day at the end of the second heaviest week of results. Futures are trading up 0.2 to
0.5 percent.
All eyes today are on non-farm payrolls, which Goldman Sachs (NYSE: GS-PB - news) expects to come in at a 180k
increase for April, a little below consensus estimates for a gain of 190k.
Some more headlines to watch as UK results start coming in. British Airways owner IAG is
keeping quiet on its potential takeover of Norwegian Air, and publisher Pearson (Xetra: 858266 - news) could see relief
after results suggested it's on track with its turnaround.
Pearson on track after first quarter revenue rises 1 pct
Hotelier IHG posts 3.5 pct rise in first-qtr global room revenue
National Grid CFO Bonfield steps down
British Airways-owner IAG profit jumps, silent on Norwegian
Smurfit Kappa Q1 earnings up 22 pct, FY seen materially better
(Helen Reid)
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EARLY MORNING HEADLINE ROUNDUP (0549 GMT)
HSBC Q1 profit misses estimate, unveils $2 bln new share buyback
BNP Paribas Q1 profit falls on back of trading weakness in Europe
Swiss Re Q1 net profit down 30 pct on year but beats expectations
Generali gets non-life lift in Q1 to top forecasts
Insurer AXA's Q1 revenues dip 2.7 pct
Air France-KLM (LSE: 0LN7.L - news) reins in profit and growth expectations amidst strikes
Bayer sells further Covestro stake for 2.2 bln euros
BASF Q1 operating profit gains slightly on basic chemicals, oil
Lanxess hikes guidance as specialty chemicals demand boosts Q1
Boardroom showdown could alter Telecom Italia's future
Norway oil firms, workers agree 2.8 pct wage rise
Ex-Volkswagen CEO Winterkorn charged in U.S. over diesel scandal
Vonovia (Milan: VNA.MI - news) launches capital increase to fund Victoria Park (LSE: 0QIC.L - news) buy
Sweden's Vattenfall boosts its EV charging market with Volvo Cars deal
(Danilo Masoni)
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MORNING CALL: EUROPEAN SHARES SEEN BOUNCING BACK (0527 GMT)
Following losses in the previous session, European shares are seen bouncing as earning
updates continue to flow, while the recent surge in the dollar has put the the euro zone STOXX
benchmark on course for its sixth straight week of gains, the longest winning streak
since September 2017.
"The rise in the US dollar is starting to exert some downward pressure on US stock markets,
while European markets, despite a negative session yesterday look set for their sixth
consecutive positive weekly finish," says Michael Hewson, analyst at CMC Markets (LSE: CMCX.L - news) .
Financial spreadbetters expect London's FTSE to open 29 points higher at 7,532, Frankfurt's
DAX to open 53 points higher at 12, 744 and Paris' CAC to open 19 points higher at 5,521.
Over in Asia, shares stepped back while the dollar ran into some profit-taking after a
strong week of gains as financial markets turned their attention to looming U.S. payrolls data
for fresh catalysts.
(Danilo Masoni)
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