LIVE MARKETS-Bank stocks euphoria
* European shares return into positive territory
* Banks boosted by report ECB studying tiered deposit rate
* Autos rise on dealmaking speculation
* Renault eyes Fiat bid after Nissan merger - FT
* Sports Direct proposes offer for Debenhams
* Defensives under pressure
March 27 - Welcome to the home for real-time coverage of European equity markets brought to
you by Reuters stocks reporters and anchored today by Danilo Masoni. Reach him on Messenger to
share your thoughts on market moves: danilo.masoni.thomsonreuters.com@reuters.net
BANK STOCKS EUPHORIA (1354 GMT)
When Draghi spoke this morning he appeared to give the clearest hint so far of tiering the
deposit rate to alleviate pressure on bank profitability after years of ultra low interest
rates, and indeed it seems the ECB is looking at options to do so, as economic growth dwindles.
Sources have just told Reuters the ECB is studying options, including a so-called tiered
deposit rate, to lower the charge that banks pay on some of their excess cash as a possible way
to offset the side-effects of its ultra-easy policy.
The report has sent banking stocks spiking higher across the board, sending the eurozone
bank index surging at one point by 3.9 percent. It's now set for its biggest one-day
gain since mid-February. The index is also on track for its best quarter since end-2016.
One of the sources said no policy proposal has been made so far but the objective would be to
return some of more than 7 billion euros a year the ECB collects in interest from banks.
For Barclays analyst Antonio Gracia Pascual the ECB could make the deposit rate less
negative in 2020, alleviating pressure on bank profitability and improving sentiment about
banks' health, but he said the introduction of a tiering system could be a bit tricky given the
huge number of banks and their heterogeneity.
Commerzbank shares are top of the STOXX, up 7.1 percent, while Deutsche Bank leads the DAX
with a 4.6 percent gain. Other top gainers include Credit Agricole, Banco Comercial Portugues,
and Unicredit.
(Danilo Masoni, Helen Reid, Josephine Mason)
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AUTONOMOUS DRIVING: DON'T HOLD YOUR BREATH (1238 GMT)
Another building hype - around driverless cars - is also likely to be premature, with many
hoops still to be jumped through before the technology reaches the mass market.
"There seems to be a widening realisation that the appearance of driverless cars (level 3
and above) is likely to be significantly delayed," write Kepler Cheuvreux's Alexandre Raverdy
and team.
The initial euphoria around autonomy is starting to fade, they reckon, with predicted
adoption pushed further out.
"Worse, fully autonomous cars may never move into the mainstream as regulation, consumer
acceptance, and affordability are key barriers that are likely to remain difficult to overcome,"
they add.
Kepler's forecasts suggest 5 percent penetration of fully autonomous cars (level 4-5) by
2030, largely through robo-taxi fleets. You can see an explanation of the levels of autonomy
Furthermore, they warn, "we may never see retail driverless cars on the road".
Suppliers to the biggest passenger carmakers are the most sensitive to this hype, hence
SocGen's preferred way to get exposure to the sector is through tyres (Michelin and
Nokian) and companies least exposed to the light vehicle cycle (CNH for its
exposure to agricultural vehicles, and Rheinmetall for defense).
(Helen Reid)
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SHOULD YOU BELIEVE THE RECESSION HYPE? (1152 GMT)
"The 'recession hype' took us on a rollercoaster of emotions last Friday," writes Societe
Generale's head of global asset allocation and equity strategy Alain Bokobza.
As today's moves are showing, the recession obsession isn't going away anytime soon. But it
may be just that - hype - without much bearing on economic realities facing investors in the
U.S. or globally.
There's no denying the likelihood of a U.S. recession is increasing, and has probably risen
more as Trump's late-cycle fiscal boost runs out of steam, says Bokobza.
But "near term, we take the view that it is too early to be overly defensive".
Despite investors growing increasingly bearish on earnings (see below), Bokobza and his team
reckon there won't be any major blips in the first half, but the second half could prove more
tricky.
"We would turn more cautious in the second half when profit margins will likely start being
squeezed by companies' inability to pass cost pressures on to consumers, with a potential ripple
effect on share buybacks," they write.
Societe Generale recommends being long EM equities versus the S&P 500, as well as long
Nasdaq 100 versus Russell 2000 to take advantage of a slowdown in the U.S. economy as the fiscal
boost fades while China ramps up stimulus.
(Helen Reid)
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STOCKS SURRENDER AS YIELDS CAUSE CONSTERNATION (1034 GMT)
European stocks have taken a turn for the worse, with the STOXX now down 0.3 percent along
with the major euro zone indices and the FTSE 100. Banks also gave back most of their gains.
The culprit for this sudden slide? 10-year Bund yields, traders say, which slipped under the
-6 basis point level for the first time since October 2016. The inversion between U.S.5-year and
2-year Treasuries has also deepened to 5 basis points while the 3-month/10-year spread is its
lowest since Feb 2007, and U.S. futures have been dragged down into negative territory.
"For the last week the equity/yield relationship has been positive... Now that's reversing,"
writes a trader.
"The inversion of part of the US yield curve continues to cause consternation among
investors," writes Marc Chandler, chief market strategist at Bannockburn Global Forex, adding
however that it is "partial and shallow" and, given many economists already expect a recession
in 2020 or 2021, the inversion merely reinforces what many already anticipated.
Paul O'Connor, head of the UK-based multi-asset team at Janus Henderson, is also sceptical:
"My instinct is the fear about yield curve inversion has been somewhat overplayed," he tells us.
"Macro momentum has been spluttering for some time, I don't think there's anything the bond
market knows about the global economy that the rest of us don't know."
(Helen Reid)
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THE RETURN OF "SUPER MARIO"? (1011 GMT)
Euro-zone banking stocks were on track to break their five-day losing streak today, gaining
as much as 1.2 percent and outpacing the broader markets, after comments from ECB chief Mario
Draghi inspired renewed confidence in the battered sector.
The gains were pretty short-lived, though, as the sector has fallen back to flat as
markets take a turn for the worse.
Speaking at a conference in Frankfurt, Draghi said the central bank may need to mitigate the
side effects of sub-zero rates, a comment which has been interpreted as a sign that the bank may
orchestrate a tiered depo facility.
That would be helpful to banks because it would reduce the cost for them to deposit excess
liquidity at the ECB and boost net interest income. Bigger banks with more surplus - i.e.
northern European ones - would likely benefit the most, traders say.
"It's a hint to the possibility of (depo rate) tiering. That would ease pressure on banks,"
says JCI fund manager Alessandro Balsotti.
It would offer some respite to the banking sector, which is on track for a 5.5 percent drop
this month, its worst since December, after the ECB reversed course earlier this month and
delayed raising interest rates until at least next year as the region's economic outlook gets
bleaker.
It would also help offset disappointment over the less generous terms of the central bank's
plans to issue more cheap loans to banks as part of its latest effort to boost lending and
flagging growth in the region.
Benjie Creelan-Sandford, banks analyst at Jefferies, agrees the comments about offering some
respite to negative interest rates are boosting the sector this morning.
"He's certainly not promising anything but opening the door to reviewing different options –
e.g. some form of deposit rate tiering could yet be on the table," he says.
Banks aren't out of the woods yet - in his speech today, Draghi warned the bank may even
postpone rate hikes further.
But for now, investors are hoping for the return of "Super Mario" whose pledge to save the
euro in 2012 won the confidence of financial markets and arrested the bloc's debt crisis.
(Danilo Masoni, Helen Reid and Josephine Mason)
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AUTOS & BANKS SNAP LOSING STREAK, DEFENSIVES DIP, DEBENHAMS ROCKETS (0837 GMT)
European shares have opened up slightly but there is little conviction around as worrying
signals from the bond market over the outlook for the US economy and Brexit uncertainty continue
to linger in the background, keeping investors on the edge.
The STOXX 600 is trading just flat.
"For now, the extreme nervousness that the inverted yield curve brought has died down, but
it has by no means disappeared," says London Capital Group head of research Jasper Lawler. "Weak
data is hard to ignore, and this is being weighed up against a more accommodative approach from
central banks".
Perhaps reflecting the less anxious mood is the fact that banks - which had been
particularly hit by the bond market dynamics and worries over slowing growth - are up following
five consecutive session of losses.
Autos, another cyclical play and which is highly exposed to the U.S., are also
rising after five days of weakness with M&A chatter coming to the rescue and making the index
the top sectoral gainer in Europe, up 1 percent.
Fiat Chrysler shares are up more than 3 percent and the second-biggest gainer on
the STOXX after the FT report Renault is eyeing a Fiat Chrysler bid after a Nissan
merger.
Defensives meanwhile are showing a bit of fatigue after rallying in the last few days:
utilities, food & beverage and healthcare are the top fallers.
The outstanding mover today is Debenhams, up more than 60 percent after Mike
Ashley's Sports Direct said it is considering an offer for the ailing department store
group.
Here's Debenhams and below your opening snapshot which is showing a rather mixed picture.
(Danilo Masoni)
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WHAT YOU NEED TO KNOW BEFORE EUROPE OPENS (0755 GMT)
European shares are expected to open up slightly but stay below the five-month peak hit last
week as worries over a possible US recession and Brexit uncertainty ahead of today's UK
parliament votes keep investors side-lined after a strong start of the year. Futures on main
country benchmarks are up 0.2-0.3 percent.
On the corporate front, deal-making speculation could animate the auto sector after five
straight session of losses with the Financial Times reporting that Renault intends to restart
merger talks with Nissan and then set sight on a bid for Fiat Chrysler. Renault shares
were indicated up 2 percent, while Fiat could rally as much as 5 percent. Daimler
shares will also be eyed after the same newspaper said it is close to selling half of
its Smart unit to China's Geely.
In the healthcare sector, recently supported by investors seeking refuge into defensive
plays amid the worrying economic signals, Novartis was up 2 percent in premarket trade
after winning FDA approval for its $88,000-per-year Mayzent multiple sclerosis drug.
In earnings, Imperial Brands was up 2 percent in premarket after saying full-year
net revenue growth will be at or above the upper-end of its 1-4 percent range. Meanwhile,
unlisted Lloyd's of London recorded a loss of 1 billion pounds due to major natural
catastrophes.
Still in M&A, Sports Direct, the British sportswear firm controlled by Mike Ashley,
has proposed a 61.4 mln stg possible offer for Debenhams, sending shares in the ailing
department store group up 100 percent in pre-market. The possible offer would be 5 pence a share
in cash vs Debenhams' closing price yesterday of 2.2.
For other headlines check out the previous post.
(Danilo Masoni)
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FUTURES INCH UP, AUTO-SECTOR DEALMAKING IN FOCUS (0704 GMT)
European stock futures have opened up slightly, confirming earlier indications from
spreadbetters, while on the corporate front dealmaking activity in the auto sector will take
centre stage. The Financial Times reported that Renault intends to restart merger
talks with Nissan within 12 months and then set sight on a bid to buy Fiat Chrysler
. The FT also reported that Daimler is close to selling half of its Smart
unit to China's Geely.
Here's your futures snapshot and below your headlines roundup:
Renault eyes Fiat Chrysler bid after Nissan merger - FT
Daimler nears deal to sell half its Smart unit to China's Geely -FT
German finance minister says he's not pressuring Deutsche and Commerzbank to merge
Novartis gets U.S. approval for new drug to treat multiple sclerosis
Swiss drugmaker Roche says to shutter Rio de Janeiro plant
Ten more Brazilian states' soy growers join Bayer patent dispute
Lufthansa plans to buy either Boeing 737 MAX or Airbus A320neo
Amazon, Volkswagen agree strategic partnership for "industry cloud" - report
Electrolux looks to U.S. to boost professional products sales
Telenor bags $213 mln as Veon exit continues
Orpea reported on an EBITDA for FY up at 604 million euros
Carige closes 69 mln euro sale of Creditis unit to Chenavari
(Danilo Masoni)
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EUROPE SEEN STEADYING AT THE OPEN (0620 GMT)
European shares are expected to open flat to slightly higher today as uncertainty over the
Brexit process continues to keep investors sidelined and following an uncertain session in Asia
on worries over a possible economic recession in the United States.
Yesterday gains in defensive sectors and indications that UK PM Theresa May's deal to exit
the European Union could gain some support helped the pan-European STOXX 600 index rise
0.8 percent to snap a four-day losing streak.
Financial spreadbetters at IG expect London's FTSE to open 13 points higher at
7,209, Frankfurt's DAX to open 17 points higher at 11,437 and Paris' CAC to
open 4 points lower at 5,304.
Over in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan was
last up slightly, having dipped earlier into the red as investors try to come to terms with a
sharp shift in U.S. bond markets and the implications for the world's top economy.
For a Brexit recap, read our latest update from London yesterday: UK's weakened PM May still
hoping to push her Brexit deal through.
(Danilo Masoni)
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