* European shares recover some losses
* STOXX set for third straight week down
* BT CEO to step down, shares up
June 8 (Reuters) - 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
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CLOSING SNAPSHOT: IN A RISK-OFF MOOD AHEAD OF THE G7 (1541 GMT)
Sentiment has been quite low this session with notably fresh trade war fears after Trump
lashed out at Canada and the European Union, setting the tone for a hostile Group of Seven
"Investors remain on high alert for any sign that this weekend’s G7 meeting will develop
Here's your closing snapshot:
WHY IS BREXIT RISK NOWHERE TO BE SEEN? (1510 GMT)
Every day a new blizzard of negative Brexit headlines hits the wires, but at least in stock
markets, the reaction to developments in negotiations has been pretty minimal.
The FTSE 100 did budge slightly earlier after a dip in sterling when EU chief negotiator
Barnier called the UK's approach to future trade "fairly paradoxical", but its sensitivity to
Brexit news seems to have faded considerably.
The FTSE 100 was the best-performing European index in May, and a string of brokers have
turned outright bullish on the prospects for UK equities, all this less than a year from the
official Brexit date.
Part of the reason is a surge in M&A, but part may also be that the fog around Brexit simply
makes the risk too complicated to price in.
Here's Markus Schomer, chief economist at Pinebridge:
"I don't want to say markets are not rational but the way rational market actors deal with
risks that you're unable to price is either you just assume the worst case, or you just move it
to the side and assume nothing until you know something."
"Noone knows what's going to happen (with Brexit), noone has a clue," he adds, saying "I
think the market is reacting much more to changing interest rate expectations for the UK."
Investors may continue to feel pretty tepid about Brexit even after 30 March 2019, as a
transition period is likely to dilute and delay the blow.
A red flag Schomer is looking out for, however, is sterling falling below the range it's
traded in since the Brexit vote.
Here is a selection of today's harvest of Brexit headlines:
- Business needs to prepare for worst-case on Brexit - German finance minister
- Sterling falls after EU's Barnier calls UK approach to trade talks paradoxical
Read more on the UK's mysterious outperformance here:
REPLACE THE PHRASE "NON-PERFORMING" WITH "SUBPRIME" (1415 GMT)
Offloading non-performing loans (NPLs) has been a key driver in the share price recovery of
Italian banks even if the latest political turmoil has recently blurred the picture.
In a report sent as feedback on the European Commission's plans to better regulate soured
loans, the NGO Finance Watch argues that selling NPLs spreads their toxicity through the
financial system rather than addressing the problem at its core.
"Replace the phrase ‘non performing’ with ‘subprime’ and we are back to the fatal and
discredited game of ‘pass the parcel’ that was at the root of the last financial markets
cataclysm," writes Finance Watch senior adviser Christian Stiefmueller.
"The financial crisis of 2008 should serve as a potent reminder of what happens when
unsuspecting investors were sold complex, non-transparent securities whose primary raison d’être
was to conceal the poor quality of the underlying assets they contain."
You can find the Finance Watch report here: https://bit.ly/2sELZ02
And here's a cool way to pass a parcel on:
A CASCADE OF OUTFLOWS FROM EUROPEAN STOCKS (1314 GMT)
"Massive" outflows continue to bleed out of European equities, BAML's flow show notes today.
Some $4 billion was whisked out of the region while the U.S. and Japan continued to enjoy
Part of the reason could be that tech is still the hottest sector - drawing in its
second-largest ever inflows, at $2.3 billion (see chart below), and Europe is not the place to
be to get exposure to tech.
Here's a take from Charles de Boissezon, deputy head of global asset allocation and equity
"People really underestimate more regulation and tax on tech. The tech sector could be a
source of volatility. If you look at big cycles the financial sector was the one with most
regulatory pressure and these days it's the tech sector. You can really envisage it's in the
cross-hairs of governments," he says.
"In Europe you don't have the convexity to these 'new economy' tech stocks, but the economy
is in good shape," he adds.
Overall the past 13 weeks have seen more than $33 billion of redemptions from European
stocks, BAML strategists note, making it one of the big four flow losers of the second quarter
along with high-yield bonds, investment-grade bonds, and emerging markets.
Here's our full take on today's flow show:
"PAINFUL": ONE INVESTOR GRITS HIS TEETH THROUGH ITALIAN BANK PAIN (1151 GMT)
While many have shed their holdings of Italian bank equity and Italian government bonds in
the past weeks, some are sticking with it, grinning and bearing it through volatile market
analysis of the macro picture, being more of a bottom-up investor, he invests in several
European banks which inevitably have heavy exposure to broader financial markets - including one
through this volatility is the capital situation is much much stronger than it has been, making
it more able to ride out financial volatility."
Nunn says the capital impact on Unicredit from the selloff in Italian bonds is
"manageable", but fee growth in the asset management arm could be hurt by more risk averse
sentiment making Italians less likely to invest.
The selloff in Italian banks was pretty indiscriminate, meaning some of the better quality
stocks could present opportunities now. Below you can see the price to book value of Italian
banks fell across the board, but actually declined more sharply for the higher-valued lenders
banks in Northern Europe, which have a good position in relatively oligopolistic markets and are
not so dependent on change in interest rate policy," he explains.
GERMANY, LIKE DIE MANNSCHAFT, HAS A LOT TO PROVE (1221 GMT)
Germany disappointed again this morning with weak industrial output and exports which are
weighing on the euro.
The data could very well signal that the euro zone's current "soft patch" is not that
temporary and lead the way to slower than expected growth.
Germany is supposed to be the powerhouse of the Euro zone but so far this year, it hasn't
much to show for it, ING argues.
"The German economy shows increasing parallels with the national football team, which
although entering the World Cup in Russia next week as defending champion, has not won a single
match this year," the bank's analysts write.
Another interesting read on the poor German statistics was from Oxford Economics for which
the word 'ouch' is becoming closely associated with German data. "This ('ouch') has become the
default reaction to the release of German high frequency business cycle data as a series of
gloomy data points since the end of last year."
also change our H2 forecasts... these changes imply annual real GDP growth in Germany of 2% in
2018 and 2.1% in 2019, down from 2.3% and 2.4%".
LUNCHTIME SNAPSHOT: OFF LOWS (1156 GMT)
It looks like some appetite for risky assets has returned with the STOXX 600 last
trading down just 0.1 percent, having fallen as much as 0.8 percent in morning trading.
In the snapshot you can the stocks that are contributing most points to the pan-European
index. Leading them is Kering, up as several price target upgrades helped shares in
the luxury group recover from a heavy drop suffered yesterday on worries that margins and growth
in the sector may have peaked.
BOND PROXIES VS BANKS: TIME TO SWITCH? (1106 GMT)
deliver a hawkish surprise on their massive bond buying programme cannot be taken for granted.
What looks certain instead is that the European Central Bank is keeping its options open as
its moves towards policy normalisation. And that may well prompt some investors to start
reconsider their sectoral allocations.
Much in focus will be sectors highly sensitive to the direction of interest rates - bond
proxies and banks.
Over the last four months, utilities and real estate, which tend to benefit from lower bond
yields, have clearly outperformed banks, which instead benefit when rates increase.
For Deutsche Bank strategists, however, the days of this outperformance may be numbered and
say it's time to position for higher bund yields. Here's what they recommend:
* Upgrade banks to small overweight from benchmark
* Downgrade real estate to underweight from overweight
OPENING SNAPSHOT: IN THE RED (0721 GMT)
The market is selling off pretty sharply this morning with the DAX and FTSE MIB both falling
as much as 1.2 percent at the open, and the STOXX down 0.5 percent.
Every stock on the German index is in the red, and overall it's financials that are taking
the brunt of the selling. Meanwhile German Bund yields are falling as investors turn back to
Looks like there is more than just a bit of anxiety in markets ahead of the G7 leaders'
summit which starts today. Here's our latest on the build-up to that:
"I am going for a big sell-off," says one trader. "Way too much complacency."
3.6 percent after the U.S. Federal Communications Commission expanded market access for SES' O3b
WHAT YOU NEED TO KNOW BEFORE EUROPE OPENS (0650 GMT)
European shares are expected to open lower today with futures pointing to declines of
0.6-1.1 percent. The STOXX 600 regional benchmark is on track for its third weekly loss in a row
as expectations of tighter monetary conditions, renewed strength in the euro and growing
political worries take their toll.
Expectations the ECB could signal plans to wind down its bond buying programme as early as
next week could continue to support banking stocks, as well as fresh reports about possible
dealmaking in the sector.
reported that top shareholders had been consulted about a potential tie-up between the two
Other stock movers: BT's CEO Gavin Patterson to step down (+1% pre-mkt); Hermes to replace
sale of naval vessels business - source (+0.5% pre-mkt); Sports betting passes New Jersey
paper Borsen; Lloyds sells Standard Life Aberdeen stake
EARLY MORNING HEADLINE ROUNDUP (0554 GMT)
Deutsche Bank sounds out investors about Commerzbank deal-Bloomberg
Deutsche Bank says chairman sees no need to bring up Commerzbank deal [nL5N1T96HL
Novo Nordisk considers laying-off up to 3,000 staff - Danish paper Borsen
Hermes to replace LafargeHolcim in France's CAC 40 stock index from June 18
Sports betting passes New Jersey legislature, moves to governor
RBS CEO says wants to buy bank's shares back from UK government
Lloyds sells Standard Life Aberdeen stake
Thyssenkrupp examines sale of naval vessels business - source
BPER CEO says fighting pressure to cut bad debt with collection unit sale
Ex-Volkswagen CEO summoned to testify in emissions lawsuit-Bild
Geordie Greig named as neweditor of Daily Mail
MORNING CALL: EUROPEAN SHARES SEEN LOWER (0524 GMT)
European shares are expected to start the session in the red with financial spreadbetters
expecting London's FTSE to open 24 points lower at 7,680. Frankfurt's DAX is set to open 98
points lower at 12,713 and Paris' CAC to open 30 points lower at 5,418.
Over in Asia, shares stepped back from a 2-1/2 month high as risk appetite soured on bets
that Europe's massive monetary stimulus was nearing an end, compounded by uncertainty over trade
relations ahead of a key meeting of global leaders.