Advertisement
UK markets closed
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • FTSE 250

    19,884.73
    +74.07 (+0.37%)
     
  • AIM

    743.26
    +1.15 (+0.15%)
     
  • GBP/EUR

    1.1696
    +0.0003 (+0.02%)
     
  • GBP/USD

    1.2616
    -0.0006 (-0.05%)
     
  • Bitcoin GBP

    55,269.70
    -675.23 (-1.21%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • S&P 500

    5,254.35
    +5.86 (+0.11%)
     
  • DOW

    39,807.37
    +47.29 (+0.12%)
     
  • CRUDE OIL

    83.11
    -0.06 (-0.07%)
     
  • GOLD FUTURES

    2,254.80
    +16.40 (+0.73%)
     
  • NIKKEI 225

    40,369.44
    +201.37 (+0.50%)
     
  • HANG SENG

    16,541.42
    +148.58 (+0.91%)
     
  • DAX

    18,492.49
    +15.40 (+0.08%)
     
  • CAC 40

    8,205.81
    +1.00 (+0.01%)
     

LIVE MARKETS-Closing snapshot: best month since 2016 for European stocks

* European markets edge up

* Sainsbury (Amsterdam: SJ6.AS - news) 's surges on Asda merger

* WPP (Frankfurt: A1J2BZ - news) jumps on results

April 30 - 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

CLOSING SNAPSHOT: BEST MONTH SINCE 2016 FOR EUROPEAN STOCKS (1639 GMT)

April showers haven't stopped European stocks from sealing their strongest month since

December 2016. The STOXX 600 is up 3.8 percent this month, in a sign investors are beginning to

ADVERTISEMENT

feel more optimistic about equities after a messy couple of months.

We'll have more of a picture tomorrow of what May might have in store as earnings season

continues. Tomorrow is however a market holiday in most of continental Europe, with France,

Germany and Italy off for Europe's Labour Day.

(Helen Reid)

*****

MOMENTUM LOSES ITS MOJO (1522 GMT)

Bernstein downgraded its view on global momentum today, saying the investment style - which

was overwhelmingly the leader of the pack last year as stocks climbed up in concert - has had

its day as the cycle rolls on.

Momentum stocks are defined by their performance - they're stocks which keep trending

upwards or downwards relatively consistently over time in certain market environments.

"Momentum has become expensive, more crowded and entails too much sector risk," Bernstein

analysts say, going from long to neutral momentum.

Sentiment towards momentum has become more stretched and the winners have been getting more

highly correlated with each other, creating greater volatility.

In the U.S. especially, momentum has become twice as concentrated in tech as growth, quant

analysts led by Alla Harmsworth said, with a net 30 percent of all the winners being tech

stocks, and industrials the only other sector which the style is net long. Momentum is near its

highest ever valuation globally.

"The long positions in global growth and momentum have been our key trades for exposure to

late-stage cyclical expansion," notes Harmsworth. While the economy is still growing, delivering

support for the growth trade, the deceleration of growth means "it's prudent to be gradually

shifting exposure from the more cyclical to more stable names".

Bernstein's quant team is instead focusing on growth stocks to get their cyclical exposure.

(Helen Reid)

*****

BREXIT: MACRO GLOOM, M&A BLOOM (1445 GMT)

There is quite a sharp contrast between the M&A frenzy which has taken over the FTSE

recently and the economic gloom illustrated by Friday's poor GDP figures.

Just as a growing number of brokers are advising their clients to reinvest in British

shares, Sainsbury's planned merger with Asda is another example of how dynamic the market has

been with Japan's Takeda $64 billion offer for Shire (Xetra: S7E.DE - news) and the bidding battle for Sky (Frankfurt: 893517 - news) .

According to Northern Trust Capital Markets, low valuations and high dividend yields were

getting too tempting to ignore.

"In the past two weeks we have seen interest, be it activist or otherwise in Shire, Smurfit

Kappa Group, Barclays (LSE: BARC.L - news) , Whitbread (Frankfurt: WHF4.F - news) , NEX Group, Micro Focus, Hammerson (Frankfurt: 876140 - news) , Sky and now WPP. In other

words, a broad spectrum of UK companies," the broker said.

At the same time, telling a very different story is the retreating pound, which gives an

accounting boost to the FTSE but also illustrates a negative sentiment for Britain's prospects

ahead of tomorrow's PMIs.

"Helping sentiment is fresh GBP weakness. This is derived from political uncertainty,

both from a shift in Brexit influence within Theresa May's Cabinet (replacement Home Secretary

Sajid Javid being pro-Breixit while Amber Rudd, who resigned following an immigration scandal,

is anti) and continued difficulties with the North Irish border," Accendo Markets said.

"With (Other OTC: WWTH - news) both weaker growth and softer inflation than anticipated, the Bank of England will

hardly hike rates already in May but rather in autumn," said David A. Meier, economist at Julius

Baer.

Berenberg also said that given the recent developments, it saw a "25% chance of a Corbyn

government ahead of the next scheduled elections in 2022".

See also: UK equities fans, please form an orderly queue

(Julien Ponthus)

*****

INDUSTRIALS: DON'T MIND THE CATERPILLAR (1241 GMT)

Results from U.S. industrial heavyweight Caterpillar (LSE: 0Q18.L - news) last week - and in particular

management's comments that earnings are at a "high water mark" - sent the European sector into a

spin, but Goldman Sachs (NYSE: GS-PB - news) analysts reckon the company seen as a bellwether for the sector

shouldn't have had as much of an impact.

"Our US team argues that Caterpillar's comments have been over-interpreted, pointing out

that half of CAT (Taiwan OTC: 4990.TWO - news) 's portfolio is closer to trough than mid cycle, let alone peak," write GS

analysts.

Overall in Europe it's been an encouraging earnings season so far, with positive surprises

in orders. Atlas Copco (LSE: 0R82.L - news) and Sandvik (LSE: 0HC0.L - news) fell despite delivering reasonable numbers, indicating it was

a sentiment-driven move. It's all down to how investors see this cycle playing out, whether we

are at "peak growth" yet or not.

"The bulls argue that there is no sign of slow down yet (Sandvik’s April comments imply a Q2

acceleration) and many of the names are simply too cheap (relative), while bears argue that this

is clearly the best it gets and multiples can’t expand from here," write GS strategists.

The bank's European sector barometer finds there's been a 2.2 percent upgrade to consensus

rating of industrials over the past month, and the RSI is pretty muted at 53 (The Relative

Strength Index measures momentum of a security from 0-100 where 30 is oversold and 70 is

overbought.)

(Helen Reid)

*****

MIDDAY SNAPSHOT: SAINSBURY'S, WPP SHINE WHILE OIL STOCKS TUMBLE (1201 GMT)

Star of the day is of course Sainsbury's, whose shares are still up 17 percent comfortably

at the top of the STOXX. Traders point to a large short interest (as high as 19 percent) as part

of the reason driving the sharp reaction, with the stock on track for its best ever day.

The Sainsbury's deal may have a broader read-across for the UK market, which investors have

been getting more positive about recently and which has seen a lot of M&A approaches. "The

Sainsbury/Walmart announcement is further evidence, we believe, of the growing interest in UK

asset markets at a time many fund managers, it seems, remain underweight," write Northern Trust

analysts.

WPP is also impressing investors, up 7.2 percent after results. It's the second ad

agency after French rival Publicis (Paris: FR0000130577 - news) to report strong results sending the shares

shooting up. Agency bears won't be too pleased.

On the other side of the scale are energy shares, down 0.7 percent after a rising rig count

knocked oil prices. They're keeping the STOXX from rising wholeheartedly.

(Helen Reid)

*****

TARIFFS EXEMPTION COUNTDOWN: KEEPING AN EYE ON TRUMP'S TWITTER FEED (1139 GMT)

After giving investors some respite during the beginning of the Q1 earnings season, trade

war anxiety is making a swift comeback ahead of Europe's Labour Day.

The exemption from U.S. tariffs on steel and aluminium expires tomorrow for European Union

countries and speculation is in full swing over what happens next as Mnuchin just said Trump has

not made any decision yet.

"Economists will monitor the Trump Twitter Feed for policy signals (so far, the Twitter Feed

has been occupied with other matters)," wrote Paul Donovan, chief economist at UBS Global Wealth

Management.

Indeed, the mere possibility of fully-blown global trade war is enough to weigh on economic

growth.

"The trade tensions stoked by Trump pose the key risk to our positive outlook for the global

economy," Berenberg wrote this morning.

"If the US now goes ahead and the EU responds in kind, sentiment and investment intentions

would probably be hurt again in May, especially if the US then threatens a further round of

tit-for-tat tariffs targeted for instance on EU car exports to the US," it added.

France's Macron's and Germany's Merkel came back from Washington last week with very little

visibility on what to expect next.

German business leaders fear U.S. tariffs after Merkel-Trump talks

(Julien Ponthus)

*****

SAINSBURY'S ASDA DEAL: VIEWS FROM THE STREET (1057 GMT)

The merger between Sainsbury's and Asda is the big news investors are digesting today.

Tellingly, Walmart bought Asda for 6.7 billion pounds in 1999, and the current deal values

it at 7.3 billion pounds.

"When you consider Walmart payed $10 billion for Asda all those years ago, it makes you

realise how bad it's been. Had it for 20 years almost and the price is the same," notes a

trader.

Several analysts also mention regulatory risks as the deal awaits approval from the

Competition and Markets Authority (CMA).

"A CMA gamble," says Bernstein's Bruno Monteyne. "Everything swings on CMA store disposals."

Exane analysts are pretty pessimistic. "The risks, not just from the competition

authorities, are immense so we'd sell into any strength in Sainsbury's," they write. "The

prospect of a counter bid might be there but Morrisons now prides itself on disciplined capital

allocation so it seems an unlikely suitor and Tesco (Frankfurt: 852647 - news) seems too big."

Goldman Sachs notes Sainsbury's is dominant in the South while Asda is more present in the

North of England. "There's a good demographic fit," says the trader. "There are suggestions that

it doesn't go through but that is harsh in my view."

And what about the impact on the rival retailers? Monteyne sees the biggest negative impact

on Morrisons if the deal is very successful, while uncertainty is likely to hurt both it and

Tesco in the shorter term.

(Helen Reid)

*****

EARNINGS OVERCONFIDENCE AND WHERE IT COULD STING MOST (1000 GMT)

We're still cruising through the Q1 earnings but so far it seems fair to say that corporate

results have broadly held to expectations and kept bulls running.

But what if 2018 is as good as it gets and earnings remain flat in the next two years?

"Given the absolute valuation as well as relative valuation of equity markets are both rich,

the ability of equity markets to absorb any reduction in earnings growth is rather limited,"

Société Générale analysts argue in a research note, in which they also acknowledge headwinds

from higher bond yields.

Using "risk premium tools", SocGen (Paris: FR0000130809 - news) looked at two different scenarios: one in which earnings

reach a peak in 2018 and remain flat for the next two years, and another in which results don't

rise between 2019 and 2020.

According to the French bank's data, the U.S. and Canadian markets are the most exposed to a

peak in earnings while India is the most vulnerable among emerging countries:

(Julien Ponthus)

*****

EUROPEAN STOCKS TO BOTTOM OUT VERSUS THE U.S. (0905 GMT)

JP Morgan is still positive on European stocks, arguing their relative underperformance

against the U.S. will reach bottom soon.

The main drivers behind the U.S. outperformance over Euro zone, namely earnings, tech and

FX, are fading, say JPM strategists. They're predicting the tech sector will stall, denting U.S.

equities' dominance, and that negative currency effects from a strong euro should fade.

"The worst of the Euro headwind happened in Q1, and in the second half positive sales

surprises should shift from the U.S. to Euro area," writes JPM's Mislav Matejka.

And with the sugar rush triggered by significant tax cuts in the U.S. largely behind us,

Europe's attractive qualities may come back to the fore.

"Euro area is earlier in the cycle than is the U.S., its shareholder yield vs bond yield is

significantly more attractive at 4.4 percent versus 1.6 percent, and valuations are cheaper," he

adds.

JPM's top pick is Italy, which is also by far the best-performing among Europe's benchmarks

this year, up 9.5 percent. "DAX is also becoming increasingly attractive if Euro turns lower,"

adds Matejka.

(Helen Reid)

*****

WHAT'S ON THE RADAR FOR THE EUROPEAN OPEN (0643 GMT)

European stocks are set to close the month of April on a high note, with futures indicating

slight gains at the open and the pan-European STOXX 600 index on track for a 3.7 percent rise on

the month – after suffering losses in February and March.

Likely to drive the day is a merger between Sainsbury's and Walmart's ASDA, a deal which

will create Britain’s biggest supermarket group by market share, surpassing current leader

Tesco. In a sector struggling globally to adapt as the Internet increases price transparency,

the deal is a defensive move to increase scale and pricing power.

The pressure of a depreciated pound and lower consumer confidence in the UK are more reasons

to merge in order to offer cheaper prices. Bernstein analysts said they expect Britain’s

Competition and Markets Authority to take one year to examine the deal and approve it, but noted

there is a “non-negligible” risk it could be met with outright rejection.

Sainsbury's shares are indicated up as much as 10 percent at the open as the

supermarket also reported first-quarter results. Rivals Tesco and Morrisons are

seen losing 2 to 4 percent as the merger ramps up competition for them.

Deal news is also likely to buoy shares in Deutsche Telekom (IOB: 0MPH.IL - news) , whose majority-owned T-Mobile

US business clinched a $26 billion deal with Sprint, merging the third and fourth largest U.S.

wireless carriers. AccorHotels added to its hotel portfolio with Movenpick Hotels for $567

million.

It's also a heavy day for first-quarter results, with the world’s biggest advertising group

WPP reporting stronger than expected first-quarter sales, while profits from Sweden’s SEB (LSE: 0MGS.L - news) bank

lagged forecasts.

(Helen Reid)

*****

EUROPEAN STOCK FUTURES POINT UP (0611 GMT)

Futures have opened higher, indicating a positive start for Europe's stock markets today as

April draws to a close.

Sainsbury's has indeed announced it's agreed terms for a proposed combination with Walmart's

ASDA in what it calls a "transformational opportunity to create a new force in UK retail". The

deal values ASDA at 7.3 billion pounds, and the combined business will be chaired by Sainsbury's

chairman and led by its CEO and CFO. The supermarket also announced Q1 results.

(Helen Reid)

*****

SAINSBURY'S-ASDA MERGER TALKS AND OTHER M&A NEWS (0542 GMT)

There's lots of M&A news likely to drive the day today.

Walmart's ASDA and Sainsbury's are in talks to merge, it emerged over the weekend,

a deal worth up to 15 billion pounds which would create Britain's biggest supermarket group

surpassing Tesco. The deal would also represent an opportunity for Walmart to stem market share

losses.

Sainsbury's biggest shareholder, the Qatar Investment Authority (QIA), supports the

discussed merger with ASDA.

The UK supermarket said it would make another announcement at 0600 GMT today.

In other mega-merger news, Deutsche Telekom's shares are indicated up at the open after the

German telecoms operator clinched a $26 billion deal to merge the third and fourth largest U.S.

wireless carriers T-Mobile US and Sprint.

Here's a few more headlines to keep an eye on.

Sainsbury's, Walmart's Asda to create UK supermarket powerhouse

AccorHotels agrees to buy Movenpick Hotels for $567 mln

T-Mobile, Sprint say $26 bln deal would give U.S. tech lead over China

Telecom Italia CEO says his position 'untenable' if Elliott wins board majority

SEB Q1 operating profit lags forecast

(Helen Reid)

*****

STOCKS TO RISE ON INTER-KOREA SUMMIT AND EARNINGS BOOST (0525 GMT)

European stocks are set to end April on a high, with gains from easing tensions between the

Koreas easing and a supportive earnings season in Asia likely spreading to the region this

morning.

Asian shares extended gains overnight after a historic summit between North and South Korea

at which the leaders vowed "complete denuclearisation".

Spreadbetters call the DAX 40 points higher at 12,620.9, the CAC 40 up 12 points at 5,494.7,

and the FTSE 100 17 points higher at 7,519.1.

Europe's STOXX 600 is set to end April with a strong gain (+3.7%) after two consecutive

months of losses.

Lots of corporate news, including merger talks between Walkmart's UK arm ASDA and

Sainsbury's, to keep us busy today. We'll have more on that soon.

(Helen Reid)

*****

(Reporting by Danilo Masoni, Helen Reid, Kit Rees and Julien Ponthus)