LIVE MARKETS-Closing snapshot: A bumpy start to Q4 with Italy and UK lagging
* European shares rise, Italian stocks bounce back
* FTSE lags as focus turns to Tory meeting, Brexit
* Ryanair profit warning keeps airlines under pressure
* Linde (IOB: 0H3X.IL - news) jumps as China regulator clears Praxair (NYSE: PX - news) merger
* Wall Street jumps on 'NAFTA' deal
Oct (Shenzhen: 000069.SZ - news) 1 - Welcome to the home for real-time coverage of European equity markets brought to you
by Reuters stocks reporters and anchored today by Julien Ponthus. Reach him on Messenger to
share your thoughts on market moves: julien.ponthus.thomsonreuters.com@reuters.net
CLOSING SNAPSHOT: A BUMPY START TO Q4 WITH ITALY AND UK LAGGING (1547 GMT)
It's been a relatively good start to the quarter for the major European benchmarks with
Germany's DAX shining, up 0.8 percent thanks to Fresenius (Swiss: FRE-EUR.SW - news) and the new U.S.-Canada-Mexico trade
pact.
Italian stocks were the weak link, down 0.5 percent with banks the worst performing as EU
Commission officials criticised the government's budget plans, while uncertainty still swirled
with an EU source telling Reuters that finance minister Tria told Eurogroup peers the details
were still under discussion.
The FTSE 100 also dipped 0.2 percent as Royal Mail (LSE: RMG.L - news) sank 18 percent and after the pound
jumped on a report the UK government was proposing a compromise on the Irish border issue.
Turbulence for airlines too with Ryanair down 12.5 percent after cutting its profit outlook
due to strikes and fuel costs, dragging easyJet and Lufthansa (Xetra: LHAB.DE - news) down with it.
(Helen Reid)
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BUYBACKS BUOY UK MARKET (1424 GMT)
Besides all the Brexit bluster and headlines coming out of the Conservative Party conference
which kicked off yesterday, Goldman Sachs (NYSE: GS-PB - news) analysts say there's another "B" which investors
should focus on - Buybacks.
For the first time in five years, UK buybacks have overtaken issuance, GS finds (see below).
UK firms are not as ravenous as their U.S. counterparts in terms of buybacks, but more active
than Europe where equity supply is around 5 times the level of buybacks.
"Buybacks are the most cyclical use of cash," write GS analysts led by Sharon Bell, adding
that the increase in commodity prices is driving more commodity companies to buy back.
The 2018 dividend yield for the FTSE 350 should be above 4 percent and buybacks will add 1
percent to the yield, they forecast.
"With (Other OTC: WWTH - news) a debt to equity ratio below the S&P, we think there's room for more," GS concludes.
Buybacks could also be part of the reason why global stock markets just keep rising:
(Helen Reid)
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ANOTHER REASON THIS BULL MARKET IS HATED (1347 GMT)
A shockingly small minority of stock pickers are able to beat the market over 10 years it
seems, adding to the crowd of financiers who hate this bull market with all their guts.
In only two of the 49 categories examined by Morningstar (NasdaqGS: MORN - news) 's European Active/Passive Barometer
over the last decade does a majority of active managers fare better than their average passive
peer.
"The findings show that in most cases over the past ten years, investors would have
benefited from taking a passive approach, despite some pockets of active outperformance," said
Dimitar Boyadzhiev, an analyst at Morningstar.
Here are a few of their findings, the 10 year horizon is particularly challenging:
(Julien Ponthus)
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AFTERNOON SNAPSHOT: FTSE AT THE MERCY OF BREXIT HEADLINES (1323 GMT)
While European shares continue to move in positive territory and Italian stocks bounce back
from Friday's sell-off, the FTSE has suddenly turned lower, as yet another Brexit
headline sent sterling higher.
Here's the Bloomberg headline : *U.K. SAID TO ACCEPT SOME CHECKS IN IRISH SEA TO GET BREXIT
Here's the impact on the FTSE and the pound:
Meanwhile, US stock index futures point to a strong open on Wall Street as investors
welcome the last-minute deal to save NAFTA.
(Danilo Masoni)
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DAWN OF Q4: "A MIX OF RELIEF, HOPE AND TREPIDATION" (1221 GMT)
That's how JP Morgan characterises the mood as investors put a messy third quarter behind
them.
* The relief: "closing the books on another quarter of losses on EM assets and parts of the
commodity complex due to the U.S.-China trade war"
* The hope: "that risk premia in these markets are high enough to withstand the likely
further
escalation of this conflict into 2019"
* The trepidation: "wildcards around persistent funding stress in Italy, a potential supply
shock
due to U.S. sanctions in a tight oil market, and U.S. mid-term elections"
Among those risks ahead, monetary supply seems notably absent...
"Compared to the prospect for Italy, China, and oil, Fed policy seems more like ambient
noise in Q4, unless core inflation starts surprising consistently to the upside," analysts at
the U.S. bank write.
You can see the damage Q3 caused, below:
(Helen Reid)
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HERE'S WHY SOME HEDGE FUNDS HATE THIS BULL MARKET (1127 GMT)
As a merger-arb manager recently said, there's a good reason for some hedge funds to agree
with the saying that this bull market is the most hated in history.
In a nutshell, with the U.S. stock market rising continuously, it's paradise for long-only
pension funds but a frustrating headache for alternative strategies which struggle to outperform
the market.
Today's Weekly Brief from Lyxor gives a crystal clear view of why hedge fund managers are
entitled to suffer from FOMO. Just look at the S&P 500 vs other strategies:
(Julien Ponthus)
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ITALY'S BUDGET CRISIS: HOW CONTAGIOUS IS IT? (1119 GMT)
As we mentioned earlier, the Italian budget announcement triggered a sharp selloff on Friday
and today there's a lot of head-scratching as to what the implications of this budget are.
Goldman Sachs analysts have modelled the potential contagion to other economies, and
conclude spillover should be limited and shouldn't threaten the growth outlook.
The contagion effects into the European periphery have (so far) been much smaller than
during 2010 to 2013, they find, and the impact on the euro has been weaker, while the flight to
safety reaction in Bunds has remained steady.
But rising tensions could have substantial knock-on effects for global markets, particularly
in the euro area (see below their modelled effect of a 100 basis point BTP increase on 10-year
yields and equity prices of European countries, the U.S., and Japan).
An Italian slowdown would have significant trade effects on the euro area, but not beyond,
GS adds - meaning the possibility for global contagion is likely limited.
(Helen Reid)
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EUROPEAN M&A: YOU AIN'T SEEN NOTHING YET (1043 GMT)
Law firm CMS (HKSE: 0867-OL.HK - news) has published its European M&A outlook and it suggests dealmaking has scope to
accelerate way further even as Thomson Reuters (Dusseldorf: TOC.DU - news) data shows activity was already up 75 percent as
of September 6.
CMS' Mergermarket survey of 170 corporates and 60 private equity firms, who have all
themselves worked on transactions, shows two-thirds of respondents expect activity to increase.
Here are the survey's key takeaways:
(Julien Ponthus)
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DAX AT 30,000 IN 2029: "BUY, HOLD AND SIT TIGHT"! (1014 GMT)
UniCredit (EUREX: DE000A163206.EX - news) strategist Christian Stocker takes a very long view and says investors would be
better off if they avoided the perils of emotionally-driven short-term moves.
"The idea of timing markets may sound seductive but it can be a treacherous strategy for
investors. Those with the discipline to buy, hold and sit tight (and rebalance as necessary)
have been rewarded with a respectable compounding of wealth over long periods," he says.
Stocker says net stock market returns since the 1920s show that those who invested in the
S&P 500 for 20 straight years never lost money, even during such big setbacks such as the Great
Depression, Black Monday, the dotcom bubble and the financial crisis.
So what could this mean for investors choosing to put money now in the DAX and remain
invested until 2029? They could nearly treble their investment with the German benchmark
currently trading around 12,000 points.
"Even (Taiwan OTC: 6436.TWO - news) in terms of conservative estimates of economic growth... the DAX might reach 20,000
around 2024 but, after five more years, the DAX might already be at 30,000," he says.
In this UniCredit chart to 2040, you can see the estimated long-term development under
various p/e assumptions for the DAX and the Euro STOXX 50 indexes.
(Danilo Masoni)
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A COMFORTING PULSE CHECK FROM CENTRAL EUROPE (0953 GMT)
It's no scientific survey but Baader analysts say they got relatively positive feedback from
the 194 German, Swiss, and Austrian companies which attended their September investment
conference in Munich.
"The overall impression we got from the delivered presentations was that most companies
remained rather constructive about the business outlook," Baader analysts write.
"Even though several representatives mentioned various challenges and acknowledged that
increasingly protectionist trade policies represent a risk, most managers remained optimistic to
overcome recent macro or operational headwinds over time," they add, also noting optimism about
demand growth in the second half of this year.
Here's how they sum up the business updates they got versus expectations:
(Julien Ponthus)
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BOUNCEBACK FOR ITALY: WAS FRIDAY AN OVERREACTION? (0914 GMT)
There's still a healthy debate in the market over what exactly Italy's new budget implies
for the country, and for investors.
Today we're seeing a pretty strong bounceback from Italian stocks, up 1.5 percent,
indicating the market is leaning towards a more bullish interpretation.
Interestingly Italian bond yields are still rising, though, and the equity bounce is being
driven mostly by Italy's international consumer stocks Fiat Chrysler, Moncler, Ferrari (Xetra: 30092157.DE - news) ,
Luxottica (Milan: LUX.MI - news) and Salvatore Ferragamo (LSE: 0P52.L - news) .
Unicredit economist Erik Nielsen is one of those who thinks Friday's selloff was overdone.
"I don't like the indicated increase in the deficit, but the math just does not justify the
price action we saw on Friday. Not even close!" writes Nielsen (EUREX: 11400372.EX - news) in his Sunday note.
"Roughly speaking, based on history, an increase in the deficit next year to 2.4% of GDP
instead of the widely expected 2.0% of GDP should raise the average funding cost by maybe some 5
to 10 basis points - not by anything like 25-40bp!"
Whether the spread will come back down again will depend on the future path of the budget
from 2020, ratings agencies which may downgrade Italy, and the possibility of President
Mattarella entering the fray, he reckons.
(Helen Reid)
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OPENING SNAPSHOT: EUROPE INCHES UP AS Q4 STARTS (0723 GMT)
European shares are off to a rather subdued start on the first day of the quarter with main
benchmarks hovering slightly above parity.
The NAFTA deal is giving some support and it also seems that Italian equities are attempting
a bounce back following Friday's sell-off on budget expansion worries.
"News overnight of a late agreement between the U.S. and Canada to salvage the NAFTA trade
agreement should give a boost to global risk appetite at the start of Q4, and may offer
encouragement that the other global trade disputes can settled satisfactorily," says Peel Hunt's
Ian Williams in his daily note.
An outlook cut from Ryanair however is weighing a bit, dragging down airlines stocks.
Airlines have recently come under pressure on oil prices surging to multi-year highs.
Here's your snapshot:
(Danilo Masoni)
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ON THE RADAR: M&A AND IPOS AND NO NAFTA EXUBERANCE (0651 GMT)
European futures are pointing to an only slightly positive open. Nothing extravagant as
investors take the view that the U.S. trade war dispute with China is far from over.
Poor macro data from China is also likely to weigh on miners and basic materials, meaning
that the FTSE could actually lose some ground at the open.
Among potential movers is France's supermarket retailer Casino, one of the most shorted
stock on the French market, selling property assets for 565 millions euros in a bid to reduce
debt and answers critics such as Muddy Waters.
More M&A with Veolia selling a 30 percent stake in Transdev to Germany’s Rethmann, Avocet
Mining hinting a breakup and Mitie’s deal to sell its pest control business to Rentokil.
Good news for UK retail with Aldi UK reporting its first profit rise in four years.
Plenty of governance news with Germany's Thyssenkrupp (IOB: 0O1C.IL - news) ending its leadership vacuum, Fiat (Hanover: FIA1.HA - news)
Chrysler (Xetra: 710000 - news) unveiling a new management structure, and Just Group CFO Simon Thomas stepping down.
Also positive news showing equity capital market activity is alive and kicking in Europe:
Denmark's Abacus Medicine says it plans IPO in Frankfurt and Aston Martin saying it has covered
its books.
Here is a roundup of key headlines this morning:
Debt-ridden retailer Casino agrees to sell some property assets for 565 mln euros
Aldi UK reports first profit rise in four years
Mitie to sell pest control business to Rentokil
Carmaker Aston Martin says books covered for IPO
Denmark's Abacus Medicine says it plans IPO in Frankfurt
Just Group CFO Simon Thomas to step down
Fiat Chrysler set to unveil new management structure
Aryzta (IOB: 0MFY.IL - news) posts 470 mln euro loss for 2018, pushed ahead with capital hike
Gold miner Avocet hints at possible break-up
Veolia to sell stake in transport firm to Germany's Rethmann
Chinese regulator signs off on Linde-Praxair merger
Germany's Thyssenkrupp ends leadership vacuum, paves way for split
German regulator worried by banks' loose lending standards- Handelsblatt
Sanofi (LSE: 0O59.L - news) , Regeneron skin cancer drug gets FDA nod
(Julien Ponthus and Danilo Masoni)
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EUROPEAN FUTURES MAKE CAUTIOUS START (0609 GMT)
European futures have made a cautious start this morning with the Nafta deal prompting
measured optimism rather than irrational exuberance among investors.
The FTSE is currently lagging its European peers with miners, index heavyweights, expected
to suffer from poor data in China.
Here's what it looks like at the moment:
(Julien Ponthus)
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NAFTA WHITE SMOKE SEEN LIFTING EUROPE AT THE OPEN (0525 GMT)
There seems to be white smoke coming out of the Nafta negotiations with a Canadian source
confirming a deal, prompting a jump in the Canadian currency.
Financial spreadbetters expect Frankfurt's DAX to open 43 points higher and Paris' CAC to
rise 21 points on trade war relief.
Things are not looking so good for London's FTSE which is seen opening 4 points lower.
"The FTSE is pointing to a lower start to trading on the opening bell, with miners expected
to weigh heavily", wrote Jasper Lawler, head of research London Capital Group as two surveys
showed on Sunday that growth in China's manufacturing sector sputtered in September.
"Metals across the board traded lower overnight following yet another round of disappointing
data from China", he added.
(Julien Ponthus)
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