LIVE MARKETS-Closing snapshot: That Brexit thing was good news right? Right?
* European banks jump on Brexit vote
* Britain's FTSE 100 dips as sterling firms
* UK PM May faces confidence vote after Brexit plan defeat
Jan 16 - Welcome to the home for real-time coverage of European equity markets brought to
you by Reuters stocks reporters and anchored today by Josephine Mason and Helen Reid. Reach them
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josephine.mason.thomsonreuters.com@reuters.net and helen.reid@thomsonreuters.com
CLOSING SNAPSHOT: THAT BREXIT THING WAS GOOD NEWS RIGHT? RIGHT? (1722 GMT)
Well, there's only one little shadow lurking over European bourses this evening and that's
the possibility markets got May's historic Brexit defeat completely wrong.
The consensus view is that it makes a chaotic no-deal exit of the EU most unlikely but as a
number of strategists say here that might be jumping the gun a tad.
Here's your closing snapshot:
(Julien Ponthus)
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EXPECT A "YELLOW VEST" HEADWIND TO HIT FRENCH INFRASTRUCTURE RESULTS (1612 GMT)
Amid all the Brexit confusion, another political crisis which reared its head in December is
likely to make itself known in results: the "gilets jaunes" protests in France.
Morgan Stanley's cut its price targets and earnings estimates for Vinci, Eiffage, ADP, and
Getlink, saying a potent combination of the "yellow vest" protests and slowing growth will hurt
the firms' Q4 numbers.
"The 'yellow vests' protests impacted toll road traffic, raised doubts on the 2019 tariffs
hikes and led the government to put forward measures supporting purchasing power at the expense
of a promised corporate tax cut," write Morgan Stanley analysts, cutting their EPS estimates for
2019 by 2-3 percent.
To add insult to injury, falling inflation expectations have hurt infrastructure stocks
which are "fundamentally long inflation", the analysts write. Investors often see infrastructure
as a good investment when inflation is rising.
But it's not all doom and gloom, Morgan Stanley says: they remain overweight Vinci and
Eiffage, saying the market reaction has been "overdone". Indeed Eiffage has been the
worst-performing since Oct 1 last year, as you can see below.
In a trading update Vinci said today it sees flat figures on its French motorways in 2018
due to the protests.
But its shares haven't been particularly bruised, in fact they're rising 0.5 percent today -
potentially buoyed by the comforting comments from MS analysts.
The proof will be in the pudding, though, with Vinci's annual earnings coming in on Feb 6.
Channel tunnel operator Getlink has been the outlier, as you can see below. MS analysts say
Eiffage's purchase of a stake and still-strong Channel traffic have helped the stock.
(Helen Reid)
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THE NEXT RECESSION WILL MAKE CORBYN LOOK LIKE A MODERATE (1610 GMT)
Desperate times call for desperate measures and that's what's to be expected during the next
recession, SocGen's Albert Edwards told us on the margins of his London conference yesterday.
In a nutshell, the permabear believes that because governments and central banks have failed
to normalise policies, they will have no conventional ammunition left and will have to resort to
extreme measures to deal with a new crisis.
Consider this: 10 years after the GFC, the euro zone is still operating with negative
interest rates and the United States' budget deficit is cruising its way to a trillion dollars.
So, in the context of populism rising what will politicians resort to do faced with angry
voters?
Well even more negative rates, ever bigger deficits and debt piles, but the real innovation
could very well be QE 2.0 in the form of helicopter money.
"Things that have been ridiculed, like Corbyn's People QE, where the money just doesn't get
thrown into confetti in the financial markets but is actually channelled into tax cuts or into
public investment projects, that will be normal," Edwards said.
With hindsight, Labour opposition leader Jeremy Corbyn's fiscal and spending plans and his
"QE for the people" might appear quite moderate in the next few years, Edwards argued.
Here's a picture from his presentation:
(Julien Ponthus)
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"ABSOLUTE VALUE" AND RECORD HIGH YIELDS... WHAT'S NOT TO LIKE ABOUT UK STOCKS? (1411 GMT)
To some the answer may be "a lot", but UK stocks are, to others, more than compensating for
political risks and uncertainty.
The average dividend yield for UK stocks has risen to its highest in 10 years recently, as
we mentioned in an earlier post.
David Keir, co-manager of the global income and growth fund at Saracen Fund Managers in
Edinburgh, tells us Saracen's UK income fund has never yielded as much as it does currently (at
5.5 percent) - a measure of how far UK dividend yields have risen.
"Given that - big picture - the UK is a hated market, if you look at some of the value on
offer in mid-cap stocks there are some huge opportunities with lots of bad news in the price,"
says Keir. "If a no-deal Brexit does not come to pass you can be quite bullish on these stocks
in the UK, so no surprise you've seen things like housebuilders bounce."
Valuations are indeed very cheap relative to world stocks (as you can see below), and that's
been attracting some contrarian buyers.
"The strategy for us in 2018 was accumulating FTSE on the dips. There was a big dip in Q1
and added in Q4 because we do feel it's a very unloved market," says Paul O'Connor, head of
the UK-based multi-asset team at Janus Henderson.
"We think the fact that it's unloved gives it some contrarian appeal and on valuations, it's
one equity market that offers absolute value," he adds.
(Helen Reid)
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ITALIAN BANKS: A 'TACTICAL BUY'? (1241 GMT)
Given all the uncertainties it's no surprise that trading is choppy today but banks are
holding up well and their gains are helping the STOXX 600 stay afloat, while Brexit
newsflow continues to grab the headlines.
Navigating through the wobbles are Italian banks, which are gaining 2 percent,
recovering from yesterday's slump as news that the ECB wants euro zone banks to set aside more
money for their soured loans appears to be less scary today.
"For many banks it is highly unlikely that the (ECB) indications are going to change their
existing plans which have already led, especially in Italy, to a reduction of soured loans in
their portfolios," argues Alessandro Balsotti, strategist and fund manager at JCI Capital.
"I thus believe that, avoiding the most fragile names, these sell-offs could represent a
tactical buying opportunity," he says.
But why just tactical?
Well, despite the cheap valuations, the list of potential headwinds facing Italian banks is
still long, from Italy's GDP slowdown and risks of a rise in their cost of funding to the
volatility that the European elections in May could bring.
And there is also some newsflow to watch out in the coming months. Here's a recap, courtesy
of an Italian broker which has a neutral stance on the space.
* February: BPER presents strategic plan, ECB update on SREP decisions for
individual banks
* February/March: final decision on Banca Carige rights issue
* March/June: ECB to decide on new round of cheap TLTRO funding
* June: government update on M&A scenarios for Monte dei Paschi
But how cheap are Italian banks? Check out this chart.
(Danilo Masoni)
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WHAT'S THE PLAN B FOR BREXIT? "ONE LAST HEAVE"? (1217 GMT)
The UK government is reeling from what's been the biggest defeat for a sitting government in
parliamentary history (see the handy graphic below, courtesy of HSBC).
But now that this deal is dead in the water, what is May's plan B?
The fog over that question is what's putting the brakes on any budding enthusiasm over UK
equities: the FTSE 250 has now erased its (modest) gains to trade flat on the day. Housebuilders
alone are still enjoying a rally.
Compromising on some elements of the withdrawal bill is one option for May, and Labour's
finance policy chief John McDonnell told Reuters earlier that May could eventually get a deal
through parliament if she negotiated a compromise with Labour.
That would require her agreeing to stay in a permanent customs union with the EU, a close
relationship with its single market and greater protections for workers and consumers, he said.
But HSBC economists argue changing her stance on the customs union would put May in a bind:
"Such a major change would leave Mrs May vulnerable as she would have passed the deal
without a sizeable swathe of her own party and the DUP... moreover she has previously
categorically ruled out the customs union option," they write.
Nick Robinson, presenter on BBC Radio 4's Today programme, reckons May's plan B is simply
"one last heave", making merely cosmetic changes to the deal and working on convincing more MPs:
(Helen Reid)
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CAN YOU RESIST UK DOMESTICS' VALUATIONS? (0947 GMT)
No one really knows how Brexit will pan out but something many agree on is that UK domestic
stocks offer really attractive valuations with some top brokers increasingly telling clients to
keep an eye on this space, where investor positioning remains bearish given the big political
unknowns.
Among them are Barclays strategists led by Emmanuel Cau who point out how UK-focused stocks
are not priced for any good news.
"The value case for selected domestic UK exposure is compelling," they say.
"A 'no deal' may not be fully priced in and rising uncertainty could cause more economic
pain in the months ahead. However, UK domestic plays have already lagged a lot on
materially-lowered EPS expectations, which reduces the odds of further significant
underperformance," they add.
UK market valuations have fallen below European and U.S. peers, while UK dividend yields
have reached their highest since 2009, as you can see in these two charts below.
In the medium term, the Barclays team sees attractive risk reward for banks and home
builders in particular, singling out several possible bottom-fishing candidates.
(Danilo Masoni)
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OPENING SNAPSHOT: EUROPEAN SHARES SHRUG OFF MAY DEFEAT, FTSE 100 LAGS (0820 GMT)
European shares are trading broadly higher at the open with the STOXX 600 briefly hitting a
one-month high and major euro-zone benchmarks shrugging off British Prime Minister Theresa May's
crushing loss in parliament yesterday and assessing possible Brexit options ahead of a
confidence vote over her government later today.
Investors are expecting May to survive the vote, potentially paving the way for a sort of
solution to the Brexit mess, although volatility, uncertainty and headline trading are here to
stay.
"Global investors are implicitly assuming that a 'no deal' outcome is less of a threat, with
a delay to Article 50 and ultimately a softer Brexit looking more likely. Of course, getting
from here to there will not be straightforward," says Peel Hunt economist Ian Williams.
Bets of a softer Brexit have propped up the pound and that explains why the exporter-heavy
FTSE 100 is lagging the bounce and why the more domestically focused FTSE 250 is trading on the
up. Here's your snapshot:
(Danilo Masoni)
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WHAT'S ON THE RADAR AFTER CRUSHING BREXIT DEAL DEFEAT (0744 GMT)
Britain's top stock index is set for a subdued start with futures flat by 0740 GMT, after PM
May's Brexit deal faced a crushing defeat in a parliamentary vote. It's lagging European peers
which are set for 0.3-0.5 percent gains.
While analysts and investors are largely interpreting the vote as a positive for the market,
making a "softer, later" Brexit more likely, uncertainty ahead of a no confidence vote in May's
government Wednesday evening will likely keep any gains muted.
Panalpina shares are expected to rise 21-25 percent, traders said, after the bid from DSV,
while the latter is seen falling 3-5 percent.
Amid the Brexit uncertainty, those investors concerned about the fundamental health of the
British consumer got more fuel for their worries from data and company results: Visa reported
consumer spending was the weakest in eight years in December, and floor covering retailer
Headlam issued a profit warning. Its shares are expected to drop 7-10 percent.
But housebuilder Bovis Homes provided a silver lining, saying it expected full-year profit
to be slightly ahead of market consensus. Its shares were seen rising 1-3 percent.
See the previous post for more headlines.
(Helen Reid)
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FUTURES EDGE HIGHER, EYES ON PANALPINA BID, SANTANDER, BAYER (0719 GMT)
Futures are subdued in early deals with euro zone indices indicating a stronger start, up
0.4 to 0.5 percent, while the FTSE 100 futures are inching up just 0.1 percent.
Besides digesting the Brexit deal vote aftermath, investors and traders also have quite a
lot of corporate news on their plates.
M&A is on the slate with Denmark's DSV offering $4 billion, or 170 Swiss francs per share,
for Swiss logistics company Panalpina. The bid represents a 24 percent premium to Panalpina's
closing price yesterday.
A very unusual bit of news from Santander which made a U-turn on its pick for next CEO,
Andrea Orcel, saying it could not meet his pay expectations. Uncertainty over top management
also at Reckitt Benckiser which announced its CEO would retire by the end of this year.
Potentially bad news for Bayer as a French court cancelled a Monsanto weedkiller permit on
safety grounds, the latest blow to the Bayer-owned business.
And amid the Brexit uncertainty, we've got another data point showing the British consumer
is less than healthy: Visa reports UK consumer spending fell by the most in 8 months in
December.
Here are the company headlines so far:
Denmark's DSV floats roughly $4 bln bid for Switzerland's Panalpina
Spain's Santander drops Orcel as next CEO, blames pay gap
Reckitt Benckiser CEO to retire by end of 2019
French court cancels Monsanto weedkiller permit on safety grounds
France seeks Renault board meeting to replace Ghosn -sources
UK consumer spending falls by most in 8 months in December - Visa
City unites in call for urgent Brexit transition deal
Bovis Homes Group Says Early Signs in 2019 Trading "Encouraging"
Eurotunnel: taking steps so that any 'no-deal' Brexit has minimal impact
Tullow 2019 output to rise to as much as 102,000 boe/d
(Helen Reid)
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RESTRAINED EUROPEAN MARKETS AFTER BREXIT VOTE (0626 GMT)
Early indications point to a subdued open on European stock markets later today, with
investors digesting the consequences of PM Theresa May's overwhelming Brexit defeat in
Parliament overnight.
British stocks may follow the gyrations of sterling, which was slightly higher in early
deals after rallying in the immediate aftermath of the vote last night amid hopes that the blow
was big enough to increase the possibility of a withdrawal of the 2016 decision to leave.
But for now, it looks like caution may reign ahead of the vote of confidence in the
government this evening. UBS Global Wealth Management UK economist Dean Turner advised clients
to limit their exposure to UK assets with market volatility expected to increase until there's a
concrete conclusion to the process.
The FTSE 100 is seen opening 3 points lower and underperforming its European peers,
according to financial spreadbetters at IG, while CMC Markets predict a flat open. Frankfurt's
DAX is seen opening 36 points higher and Paris' CAC 40 will be flat, according
to IG.
(Josephine Mason)
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