LIVE MARKETS-Closing snapshot: February delivers monthly gains

Feb 28 - 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

CLOSING SNAPSHOT: FEBRUARY DELIVERS MONTHLY GAINS (1718 GMT)

This session was a small step (0.06 percent) for a Thursday, a nice one (3.9 percent) for a

month and quite a sizeable one (10.1 percent YTD) for a year.

If offered three or four months ago a return of 10 percent for 2019, how many portfolio

managers would have signed immediately on that kind of return?

With that in mind, wouldn't it be a good idea to call it a year and take the rest of 2019

off? As you may have seen, our poll shows European shares are running out of steam. Just sayin'

...

(Julien Ponthus)

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AND THE UNLIKELY WINNER IS... (1535 GMT)

With the end of the month nearly upon us, we took at look at how the bourses have fared in

the first two months of the year and the contrasting fortunes between northern and southern

Europe are on clear display.

Milan wins the award for best performer for the year so far. So good, it's even

outperforming S&P 500.

Not surprising given it was the laggard of the pack last year mired by Rome's budget spat

with Brussels. With the budget crisis out the way (sort of) and hopes that the ECB will embark

on more "TLTRO", or multi-year cheap bank lending scheme, bailing out its beleaguered banks, the

bourse is now having its day in the sun.

Then again, with the euro zone's third largest economy officially in recession, it's perhaps

an unlikely candidate for best performer.

To the north, the FTSE 100 has been struggling of late - breaking rank with its continental

cousins in recent weeks as sterling has powered higher as no-deal Brexit fears have eased.

Here's an overview of the year-to-date gains:

(Josephine Mason)

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TRUMP'S TRADE FOCUS "LIKE THE EYE OF SAURON" (1422 GMT)

There's a comparison you don't hear every day: President Trump's trade policy vision is like

the Eye of Sauron, a fund manager told us this morning, and a sealed trade deal with China would

just prompt that gaze to shift to Europe, spelling trouble for the region.

Another fear, which has already dented stocks sensitive to China, is that Europe ends up

being the fall-guy from a deal as China sources goods from the U.S. instead.

"I would be more concerned by Trump turning his attention (to Europe) than the displacement

fear," says Ian Ormiston, Europe ex-UK smaller companies fund manager at Merian Global

Investors.

"It's like the Eye of Sauron: you do get the feeling that Trump can only focus on or damage

one thing at a time," he adds, referring to the iconic eye ruling Mordor in The Lord of the

Rings.

As a result, Ormiston has reduced his exposure to industrial and autos sectors and added to

more domestic and higher market-cap stocks.

"Although Europe is not particularly growing, the domestic part has not been causing

negative surprises," he says.

He cut his exposure to Belgium-based electrical components maker Bekaert, Finnish

cargo and port machinery firm Cargotec, and German car wiring and cable provider

Leoni.

On the other hand, he's increased his holdings of what he calls "boring stuff".

The "boring" holdings include Grandvision, a Dutch company providing prescription

frames, lenses, and contact lenses.

Ormiston also holds Euronext which he reckons is less sensitive than many think to

market downturns.

Hibernia REIT is another of his holdings, which gives exposure to the Dublin

property market.

Although nobody has "lifted up their London HQ and dumped it in Dublin" as a result of

Brexit, the marginal addition of Dublin roles from the English capital is "helpful", Ormiston

says.

(Helen Reid)

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TLTRO HOPES BOOST ITALIAN BANKS AGAIN (1243 GMT)

Italy's had a nice rally into midday trading driven by its bank stocks as traders have got

excited once more about what they hope is an imminent announcement by the ECB of a new "TLTRO",

or multi-year cheap bank lending scheme, seen as a lifeline for ailing Italian banks especially.

The FTSE MIB and Spain's IBEX are the only bourses making gains and Italy's bank stocks

index is up 2.1 percent as talk of TLTROs gets louder.

"It could be linked to expectations surrounding a possible TLTRO announcement by the ECB

next week," said Vincenzo Longo, analyst at IG in Milan.

Banks ended yesterday as the best-performing sector too as rumours swirled that hawkish

Bundesbank President Jens Weidmann could succeed Draghi.

Those rumours have fuelled bets of possible rate hikes by the end of the year, another

supporting factor for bank stocks, added Longon.

Italian government bond yields edged away from Wednesday's highs, though the

moves were minimal as poor economic indicators in recent days have dented investor sentiment

towards the euro zone's third largest economy.

Italian two-year yields have dropped sharply over the past three months on expectations of a

new round of TLTROs; at around 0.42 percent, they are a third of what they were in late

November.

(Helen Reid, Danilo Masoni, Abhinav Ramnarayan)

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AIR FRANCE KLM : NATIONALISATIONS, A SIGN OF THE TIMES (1227 GMT)

The Dutch government's raid on Air France KLM has got all the ingredients of a great story

for business journalists: drama, suspense, big share price moves, you name it!

Looking a bit beyond the short-term news cycle, the battle to control the airlines may also

be exposing a structural shift in capitalism following the rise of populism and the slow death

of 20th century style multilateralism.

"A lot of countries don't want to play by the book of European rules on the institutional

front, (so) why would they respect the same rules on the economic front?" asks Philippe

Waechter, chief economist at Ostrum.

Waechter argues that more nationalisations can be expected moving forward with individual

states and governments seeking to rely on their own means rather than cooperating with markets

or other countries through institutions like the WTO or the EU.

Brexit, Trump's trade policy, Xi's Belt and Road Initiative, Corbyn's nationalisation plans,

the potential buyback of EDF by the French state are all pointing to the same conclusion.

"The world which is emerging is no longer compatible with the globalisation dynamics of the

recent past," Waechter warns.

Funny to note, one might add, that the confrontation of France and the Netherlands on Air

France KLM follows the failure of France and Germany to create a European rail champion by

merging Alstom and Siemens because of EU competition rules.

(Julien Ponthus)

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WHAT HAPPENS AFTER PEAK MARGINS? (0954 GMT)

An interesting quirk of this cycle is that margins have been the main driver of earnings

growth, contributing more than 60 percent of EPS both in the U.S. and Europe, according to

Goldman Sachs.

That's in contrast with previous cycles during which revenue growth - largely a function of

GDP growth - was responsible for over 70 percent of the rise in profits.

European margins are now at a record high of 7.6 percent, meaning from here the only way is

down. Margins tend to come under pressure when economic growth slows (as we've seen in several

company results) and restructuring is politically more difficult in a downturn, GS says.

"We think margins are unlikely to expand further, depriving EPS growth of its main driver,"

strategists at the U.S. bank write, cutting their 2019 EPS growth forecast from 4 percent to 2

percent.

The sectors they see as likely to struggle most to expand margins are food & beverages,

utilities, telecoms, and autos.

Another damning piece of data from Goldman Sachs' analysis: in terms of post-crisis

recovery, European margins are lagging far behind the U.S..

U.S. margins are about 280 basis points above their pre-crisis peak, against just 40 basis

points for European margins.

(Helen Reid)

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OPENING SNAPSHOT: ZALANDO, ALTRAN, VIVENDI SHINE WHILE SUNRISE, HOWDEN SLIDE (0826 GMT)

European shares are sliding across the board today with the STOXX and DAX both down 0.5

percent and mining stocks the worst-performing.

"Sentiment is on the weaker side after China’s soft PMIs," says Deutsche Bank strategist Jim

Reid.

The spotlight is really on results, though, with some superb gains for Zalando and Altran

while Sunrise and Howden are being punished by investors.

Europe's biggest online-only fashion retailer is leading the pack today with a steep 16.7

percent gain after it said sales rebounded in the fourth quarter and it won 1.3 million new

customers, its biggest quarterly increase in five years.

French engineering consultancy Altran Technologies is gaining 12 percent after free cash

flow beat expectations.

M&A is also driving some moves.

Vivendi, meanwhile, is top of the CAC 40 after a Reuters report, citing sources, said KKR

and China's Tencent are preparing bids for a stake in Universal Music Group.

Switzerland's Sunrise Communications is sinking 11 percent after it agreed to buy Liberty

Global's Swiss unit in a 6.3 billion Swiss francs deal to create a bigger challenger to

Switzerland's dominant mobile and internet provider Swisscom.

Another big faller is British kitchen cabinet and equipment company Howden Joinery, down 8

percent. Traders and analysts say its results missed expectations and show ongoing margin

pressure.

(Helen Reid)

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WHAT YOU NEED TO KNOW BEFORE THE OPEN (0757 GMT)

European shares are set for a weaker start as they consolidate further from over

fourth-month highs hit earlier this week with investors turning less upbeat about a Sino-U.S.

trade deal and after a disappointing reading from Chinese official PMI. Futures were down

0.2-0.5 percent.

On the corporate front there are a number of earnings updates to digest with some

good-looking numbers from heavyweights that could help limit losses.

AB InBev shares could rise after the world's largest beer maker forecast strong revenue and

profit growth in 2019, while Swiss engineering company ABB also reported better-than-expected

earnings.

In the UK, British American Tobacco, the second-biggest international tobacco company,

reported higher full-year sales, helped by growth in vaping devices. Shares in AB InBev, ABB,

and BAT are all seen up in pre-market trade.

M&A also seems to be heating up. Sunrise agreed to buy Liberty Global's Swiss unit in a 6.3

billion Swiss francs deal to create a bigger challenger to Swisscom, while sources told Reuters

that KKR and Tencent Music are exploring rival bids for up to half of Vivendi's Universal Music

division, a deal potentially worth up to 20 billion euros.

Also seen rising after results are shares in BA owner IAG and Rolls-Royce after

forecast-beating numbers, while shares in Zalando and Duerr were also set to rise.

For more headlines check out the previous post.

(Danilo Masoni)

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FUTURES SLIP, EARNINGS IN FOCUS, M&A HEATS UP (0715 GMT)

While European stock futures have opened slightly in the red, down 0.2-0.5 percent,

confirming earlier indications from spreadbetters, on the corporate front there are some

good-looking updates that could limit losses.

ABB and AB InBev both reported forecast-beating profits, while in France

Carrefour said its turnaround plan was well on track and raised its savings goals.

On a more downbeat note, staffing group Adecco posted a fourth quarter loss and

said hiring in Europe continued to slow at the start of this year.

M&A also appears to be heating up.

Sunrise agreed to buy Liberty Global's Swiss unit in a 6.3 billion Swiss francs

deal to create a bigger challenger to Swisscom, while sources said KKR and Tencent

Music Entertainment are exploring rival bids for up to half of Vivendi's Universal

Music division, a deal potentially worth up to 20 billion euros.

Here's your futures snapshot and below your headlines roundup.

ABB reports forecast-beating Q4 profit as robotics shines

AB InBev profit beats forecasts, sees strong growth in 2019

Adecco sees hiring slow further after German business spoils Q4

Retailer Carrefour raises cost savings goal under overhaul plan

Panalpina FY profit lifted by ocean freight recovery

Sunrise challenges Swisscom with $6.29 bln deal for Liberty Global assets

KKR, China's Tencent eyeing bids for Universal Music - sources

Saipem sees higher sales this year after beating guidance

Zalando targets more growth after strong end to 2018

Erste Group sees 2019 operating profit increase

Shell, PetroChina JV Arrow wins leases for big Australian gas project

(Danilo Masoni)

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CONSOLIDATION SET TO CONTINUE IN EUROPE (0636 GMT)

European shares are expected to open a tad lower this morning, as they consolidate further

from the more than 4 months peak reached earlier this week.

Financial spreadbetters at IG expect London's FTSE to open 12 points lower at 7,096,

Frankfurt's DAX to open 1 point lower at 11,487 and Paris' CAC to open 4 points lower at 5,221.

Over in Asia, stocks struggled for traction after cautious comments from U.S. Trade

Representative Robert Lighthizer deflated some optimism that China and the United States were

closing in on a trade deal. MSCI's broadest index of Asia-Pacific shares outside Japan slipped

in and out of the red and was last down 0.5 percent.

The session in Europe may be livened up by several companies reporting their earning updates

with the reporting season drawing to its close.

On the macro front all eyes are on the first estimates of the U.S. GDP, while in China data

has shown that factory activity contracted to a three-year low in February, highlighting

deepening cracks in its economy.

(Danilo Masoni)

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