LIVE MARKETS-Closing snapshot: and the rally goes on....
* European shares sharply higher, STOXX up 1.2 pct
* Best day for miners, autos, banks since Jan
* China March factory activity unexpectedly grows
* UK parliament votes on Brexit options at 1900 GMT
* EasyJet launches Brexit warning, DSV to buy Panalpina
* Wall St opens higher on trade progress, China data
April 1 - 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: rm://danilo.masoni.thomsonreuters.com@reuters.net
CLOSING SNAPSHOT: AND THE RALLY GOES ON.... (1604 GMT)
Europe's stocks staged quite the recovery today, logging their best day in six weeks and
getting Q2 off to a flying start as investors piled into autos and mining stocks, some of the
most sensitive sectors to trade, after better-than-expected manufacturing data from China.
Mining stocks and carmakers and their suppliers jumped more than 3 percent
for their best day since January. The mining sector hit its highest since June last year.
Chinese data helped stir hopes that the world's No. 2 economy has bottomed out and in the
throes of a (fragile) recovery. All bourses were in positive territory with the DAX, with its
large number of car stocks, up 1.4 percent and outperforming its European peers.
Here's your snapshot:
(Josephine Mason)
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CHINA'S SIGNS OF LIFE (1540 GMT)
The flurry of strong data from China over the weekend and earlier today was just the ticket
to add further fuel to the year-to-date rally and stir hopes that a government stimulus
programme from tax cuts to infrastructure spending is kicking in.
Some asset managers have cautioned recently that the positive factors - easing trade
tensions between Washington and Beijing and dovish central bank policy - have been priced in and
there was little to warrant further gains until Chinese data or corporate earnings improved.
Two sets of numbers have shown China's manufacturing sector unexpectedly returned to growth
for the first time in four months in March, easing fears about a deepening downturn.
It's hard to overstate the economy's influence - it has accounted for
around one-third of global growth since 2011.
It's too soon to call a full revival though.
Growth in new domestic and exports orders was marginal, suggesting the world's No. 2 economy
will remain under pressure in coming months and will likely require more policy support before
it can convincingly stabilise.
The timing of Lunar New Year was also favourable for manufacturing readings this year.
Still, Goldman Sachs expects its current activity indicator for China to rise by 6 percent
or slightly more in Q2 and move into the low- to mid-6-percent range in the second half of the
year.
That compares with 5.8 percent in February and a low of 5 percent towards the end of the
year.
"Though unspectacular compared to past growth rebounds, markets may take comfort if this can
be achieved with less reliance on leverage than in the past," says Andrew Tilton, chief Asia
economist at the bank in a note today.
Following meetings with fund managers and banks in Shanghai, BAML echoes this cautiously
optimistic view. Claudio Piron, emerging Asia fixed income and forex strategist, says the
economy is stabilising but it will be a shallow recovery.
"What matters now for China is whether investor confidence in China's policy makers can be
reinforced," he says.
The key component for this will be credit growth and the outcome of March aggregate
financing data that will be due out from April 10.
BlackRock's global chief investment strategist Richard Turnill expects stimulus to lead to a
bottoming out of the economy in Q2 and should feed through to global capex spending and provide
a welcome temporary respite from late-cycle worries about slowing global growth.
"We remain risk-on. Yet we acknowledge the recent rally across markets looks fragile and
hard to replicate, and believe expectations of Fed policy have become too dovish," he says in a
Q2 strategy note.
As such, this warrants selective risk-taking, he says, with the U.S. and emerging markets
the asset manager's preferred equity markets and health care and tech firms its preferred
sector.
(Josephine Mason)
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ROTATION INTO VALUE? MIGHT NOT TAKE MUCH (1433 GMT)
Negative bond yields are shaping market action these days and Barclays believes that value
stocks could be in for some tactical buying as the safety plays that benefit from low rates now
look a pretty crowded and expensive trade.
"Flight to safety accelerated in March with bonds & cash seeing further inflows while equity
market internals turned defensive. Quality/growth stocks are in demand, but value is out of
favour," strategists at the UK bank led by Emmanuel Cau say.
"Growth/Value valuation dispersion is at extreme levels... It might thus not take much of a
bounce in bond yields to trigger some near-term rotation into value," they add in their latest
strategy piece.
As you can see in the chart, the PE relative of growth vs value is the highest in 13 years -
a gap that could play in favour of the less expensive and neglected corner of the market.
(Danilo Masoni)
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BREXIT AFTERSHOCK (1243 GMT)
Counter to what you'd expect given the mounting uncertainties over Brexit, the Netherlands
has increased its exposure to the UK economy, leaving it more vulnerable to any trade and
migratory aftershocks from the process, a S&P Global Ratings analysis shows.
From the end of 2015 to end-2018, Dutch exports to the UK rose by nearly 0.6 percent of GDP
and Dutch banks are still carrying high exposure to UK counterparties, the report says. S&P has
tracked the level of risk by country since two weeks before the referendum in June 2016 in what
it calls its Brexit Sensitivity Index (BSI).
Ireland and Luxembourg still top the list, but the Netherlands has moved up four places to
the third most vulnerable economy.
The BSI measures goods and services exports to the UK, bidirectional migrant flows,
financial sector claims on UK counterparties on an ultimate risk basis and foreign direct
investment (FDI) in the UK. S&P has tweaked its methodology slightly to more accurately reflect
financial linkages between the European economies and the UK.
Portugal is also included for the first time, but ranked 16, reflecting its relatively low
exposure stemming from low FDI and financial sector claims on the UK, despite significant export
and migratory exposures.
Compared with end-June 2016, the banking systems of Belgium, Germany, Ireland, and
Switzerland have cut their exposures to UK counterparties -- a trend in place long before Brexit
was contemplated.
In contrast though, since the referendum, banking systems in the Netherlands, France, and
Spain have increased their UK business, when measured on an ultimate risk basis.
At the same time the financing of the country's large external deficits has shifted away
from FDI towards portfolio equity and debt.
S&P reckons that shows concerns about the consequences of Brexit for the UK have led to a
weaker global and European appetite to make long-term investments in the British economy.
"This is something to watch, in light of the UK's current account deficit of 5 percent of
GDP, the second highest in the world in absolute terms," it says.
(Josephine Mason)
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Q1 WAS MEMORABLE... NOW WHAT? (1150 GMT)
After a disastrous Q4, a remarkable Q1 followed for markets and Deutsche Bank has done a
nice recap showing the solid performances recorded across the board.
"The first quarter of 2019 will undoubtedly go down as one of the most memorable on record
given the sheer broadness of positive total returns across asset classes," say Deutsche Bank
strategists Craig Nicol and Jim Reid.
Their highlights include WTI Oil (+32.4 percent) and the S&P 500 (+13.6 percent) with both
posting their best quarter since Q2 2009.
U.S. HY (+7.5 percent) posted its best quarter since Q4 2011, the Shanghai Comp (+23.9
percent) since Q4 2014 and the STOXX 600 (+13.3 percent) since Q1 2015.
On top of that 11 assets ended Q1 with double-digit returns, the most since Q1 2012, they
say.
The stark contrast between Q1 and Q4 has come even as worries over the global economy, trade
and political risks in Europe don't seem to have settled down.
One may thank the Fed's U-turn but now that this appears to be priced in, making an
assessment on what's next for markets is quite a difficult exercise. (Check out our story this
morning on this:)
"The multi-billion dollar question now is how far can this momentum run into Q2 and beyond,"
the DB strategists say.
(Danilo Masoni)
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SHOOTING FOR THE MOON (1100 GMT)
A new space race is heating up following U.S. vice president Mike Pence's call to NASA last
week to put astronauts on the moon again within five years.
That's some four years earlier than NASA's own target.
The move was partly inspired by China's robotic lunar landing mission earlier this year
while Israeli nonprofit SpaceIL also has its sights set on a robotic landing in April.
Whoever ends up ahead, the modern-day space race is a big opportunity for investors with a
2024 timeline for a manned lunar mission requiring significant government spending.
Not surprisingly, the bank says it prefers aerospace, satellite and communications segments,
while new space startups may offer investment opportunities in private markets.
(In November, NASA named nine U.S. companies, including Lockheed Martin Corp, that
would compete for funding under the space agency's renewed private-public partnership for
developing technology to explore the lunar surface.)
But it's the value the bank puts on the space economy that's eye-catching.
UBS reckons it could grow to almost $1 trillion in the next couple of decades from $340
billion currently.
To put that into context, that's the same as the GDP of the Netherlands or Turkey.
In a previous note on the potential economy of space travel and tourism, UBS estimated that
by 2029 space tourism could be a market worth $3 billion per year and growing at double digits.
Below is their timeline on how this could pan out:
(Josephine Mason)
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WANNA PLAY NEGATIVE BOND YIELDS? OPT FOR HIGH-DIV (0947 GMT)
With 10-year Bund yields back in the red following the recent policy shifts by central
banks, quality and high-div stocks are back on the radar screens with investors pondering which
one is better placed to benefit from the latest shift in market conditions.
Morgan Stanley would put their money on high-div.
"We prefer to play low bond yields through High Dividend Yield stocks rather than Quality as
valuations are much less demanding," analysts at the US bank say in a note.
"Quality has been the biggest beneficiary of low bond yields in this cycle but going forward
we prefer the risk-reward of High Dividend Yield stocks," they add.
They also highlight that buying high dividend stocks is not necessarily a defensive, low
beta trade.
"Buying dividend stocks isn't an entirely defensive strategy as sectors that currently have
the highest dividend yield in the market are a mix of traditional defensive (Utilities,
Telecoms) and high beta/cyclical sectors (Banks, Energy, Autos)," they note.
That being said, they update their high & secure dividend yields basked.
Within this basket of 41 stocks, 18 are rated overweight: DNB, KBC, Lloyds
, Siemens, Rexel, BAE Systems, Saint-Gobain,
Volkerwessels, Greene King, BP, Total, AXA, Direct
Line, Covestro, Merlin Properties, Evry, Orange
and Iberdrola.
To conclude here's an MS chart showing that the UK and Europe offer the highest 12-month
forward dividend yield in the DM world after Australia.
(Danilo Masoni)
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CHINA DATA POWERS UP EUROPE (0801 GMT)
Data showing that factory activity in China unexpectedly grew for the first time in four
months in March has ignited a rally in European shares at the open, lifting the STOXX 600 up 0.9
percent in a broad-based bounce led by cyclical stocks.
"Some thankfully better than forecast data from China set the European markets up for a
decent open as April got underway," says Connor Campbell, analyst at Spreadex.com.
The export-oriented auto sector is up an outstanding 2.9 percent, with activity
peppered up by ongoing talk about possible deal-making in the industry, while among other
cyclicals, basic resources stocks are up 2.4 percent and banks up 1.1 percent.
Defensive sectors are underperforming but only utilities are trading in the red,
down 0.1 percent, while a 7 percent fall in easyJet (after the airline warned that
demand and pricing were suffering from Brexit jitters) kept its sectoral index around
parity.
All country indices are trading in positive territory in early deals.
(Danilo Masoni)
*****
WHAT'S ON OUR RADAR BEFORE THE OPEN (0652 GMT)
European shares are set to rise sharply on the first trading day of the second quarter with
stock index futures rising 0.8 percent following unexpected growth in Chinese factory activity
in March. FTSE futures are up 0.2 percent ahead today's parliament votes on different Brexit
options.
On the corporate front, Panalpina is expected to rise as much as 15 percent at the open
after Denmark's DSV agreed to buy the Swiss freight forwarder in a share swap valued at 4.6
billion Swiss francs.
Still in dealmaking, Fiat Chrysler could rise further (up 1-2 percent premarket) after
Bloomberg reported that PSA Group and the Italian American carmaker are exploring a partnership
to share investments to build cars in Europe, while oil services firm Saipem could also get a
lift from media speculation it could exit its drilling business.
In earnings, traders said a better-than-expected update from Apple supplier Foxconn could
help lift shares of European suppliers of the U.S. tech giant, such as AMS and Dialog Semi or
STMicro, while Easyjet could fall 3-5 percent at the open after giving a cautious outlook for
the second half of the year. A sequential rise in Macau gambling revenue could
support shares in Asia-exposed luxury stocks.
Here are some UK headlines (check out the previous post for other headlines):
EasyJet warns of Brexit hit to European demand
Network International announces pricing for up to $3bln listing
Cabot Energy sees higher FY revenue
Joules Group ceo will retire before end of FY 2020
Britain's Serco extends contract with Dubai Metro for up to $185 mln
Thames Water Submits Revised Business Plan For 2020-2025
Astrazeneca: Selumetinib gets breakthrough therapy designation
Ferrexpo Updates On Review Of Charity Donations, Delays Results Again
-MJ Gleeson Says Appointed Lazard To Explore Options For Strategic Land Business
Failed LK Bennett chain circled by Ashley, Dune and Feng https://on.ft.com/2HTgx7k
Novartis pays $310 mln upfront for inflammation specialist IFM
(Danilo Masoni)
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FUTURES RALLY, EYES ON PANALPINA-DSV (0614 GMT)
European stock futures have opened sharply, up 0.4-0.9 percent, confirming earlier
indications from spreadbetters for a strong start of the second quarter following an unexpected
growth in Chinese factory activity in March.
On the corporate front, Panalpina is on the watchlist after Denmark's DSV
agreed to buy the Swiss freight forwarder in a share swap valued at 4.6 billion Swiss francs.
Meanwile talk about a possible dealmaking in the auto sector contines with Bloomberg
reporting at the weekend that PSA Group and Fiat Chrysler are exploring a
partnership to share investments to build cars in Europe.
Here's your early morning headlines roundup:
Denmark's DSV to buy logistics company Panalpina in $4.6 billion deal
PSA Group and Fiat Chrysler explore European venture - Bloomberg
Rio Tinto cuts 2019 iron ore shipment outlook after cyclone
Wirecard says compliance manager's departure not connected to investigation
ECB extends mandate for Italian bank Carige's administrators to Sept. 30
Daimler asks EU antitrust regulators to probe Nokia patents
(Danilo Masoni)
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EUROPE SEEN STARTING Q2 ON THE UP ON STRONG CHINA DATA (0550 GMT)
European shares are expected to start the first session of the second quarter on the up
after China's official purchasing managers' index released on Sunday showed factory activity
unexpectedly grew for the first time in four months in March.
Financial spreadbetters expect London's FTSE to open 32 points higher at 7,311,
Frankfurt's DAX to open 98 points higher at 11,624 and Paris' CAC to open 42
points lower at 5,393, a trader said.
Over in Asia, stocks rallied as the positive Chinese factory gauges and signs of progress in
Sino-U.S. trade talks boosted sentiment, although another defeat for British Prime Minister
Theresa May's Brexit deal added to sterling's woes.
The British Parliament will vote again on different Brexit options later today and then May
could try one last roll of the dice by bringing her deal back to a vote in parliament as soon as
tomorrow. Parliament is due to vote at around 1900 GMT.
(Danilo Masoni)
*****