LIVE MARKETS-Closing snapshot: STOXX ends at day's low

Feb 28 (Reuters) - 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: STOXX ENDS AT DAY'S LOW (1707 GMT)

Shares (Berlin: DI6.BE - news) in Europe fell today with the pan-regional STOXX 600 benchmark ending down

0.7 percent, at the day's low, likely dragged by another session of losses on Wall Street

following a big drop on Tuesday on worries over faster rate hikes in the world's largest

economy. A raft of earnings updates in Europe failed to lift spirits.

Here's you snapshot:

(Danilo Masoni)

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YES TO CASH RETURNS, BUT BLEAK OUTLOOK FOR FTSE EARNINGS (1617 GMT)

Even (Taiwan OTC: 6436.TWO - news) though it can be tricky to assess the UK earnings season given that British firms are

not required to report quarterly figures, UBS WM have taken a look at what we've had so far and

singled out a number of key observations.

Caroline Simmons, deputy head of the UK Chief investment office at UBS Wealth Management,

notes that companies were predicting slightly higher drags from currency effects, and those

firms with U.S. exposure have said that they will reinvest around half of the benefits they

expect to see from tax reforms.

And of course, shareholder-friendly measures got a thumbs up from investors.

"Firms whose share prices have risen most are those that announced higher dividends or share

buybacks. It seems we remain focused on cash returns!" Simmons says in a note.

Looking ahead, while Simmons expects the materials sector to benefit from

higher-than-expected commodities prices, the picture is not as rosy for the wider UK market.

"The UK earnings outlook is not as bright as in other regions, such as the Eurozone or the

global equity market, where the rate of increase is expected to be in double digits," says

Simmons.

"So we anticipate the UK underperforming the Eurozone and global equities over the next six

months."

(Kit Rees)

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WHAT TO DO WITH BOND PROXIES? (1552 GMT)

Debate among stock pickers about what to do in a rising rates world looks to be heating up

and sectors that are most sensitive to the direction of bond yields are in the spotlight.

Credit Suisse (IOB: 0QP5.IL - news) 's Andrew Garthwaite has weighed in too, concluding that the relative winners

are financials and tech, while telecoms and consumer staples are the most negatively affected.

But here are some other key takeaways on top market sectors:

1. Since 2010, tech has outperformed 88% of the time when bond yields have risen, twice as

often as

when yields have fallen. The sector's net cash position stands out as the cost of debt rises.

PEs are only middling and thus we stick to our strong overweight (ex semis).

2. Concessionaires have outperformed c.60% of the time when bond yields have risen. With (Other OTC: WWTH - news) a

CPI

link, cyclicality and financial leverage at a decadal low, this should be one of those

occasions. PEs are middling and the sector is a near pure play on the euro area growth story.

Vinci (LSE: 0NQM.L - news) is among our Outperforms.

3. Regulated utilities: This sector has the worst combination of high financial leverage and

low

operational leverage, and hence we stay underweight the UK sector (given the political and

regulatory risk) and the US (disruption risk).

4. REITs: This tends to be the worst performing sector when real (not nominal) bond yields

rise.

Nevertheless, the very attractive fundamentals of German REITs should enable outperformance, we

think, unless Bund yields rise to in excess of 2%. We stay underweight UK REITs.

5. Consumer staples (add to spirits): We stay underweight overall via food and household

products

(which are disrupted, have poor earnings revisions and are still expensive). We take spirits to

benchmark from underweight.

6. Add to underweight of non-financial cyclicals (ex tech): They follow PMIs (which are

peaking),

have discounted a 3.5-4%10Y UST yield, look expensive, have outperformed defensives, and have

extreme positioning, with sector risk appetite in 'euphoria'.

7. Commodities: Materials and gold underperform when real bond yields rise. Gold stocks are

no

longer cheap, and mining is particularly vulnerable to China PMI/US ISM peaking. We are

benchmark mining, underweight gold.

(Danilo Masoni)

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RISING RATES, WHEN RESEARCH AND MARKETS BEG TO DISAGREE (1510 GMT)

There is quite a sharp contrast between how analysts believe rising rates will impact shares

- nothing dramatic - and how nervous stock markets are to the prospect of the Fed rising rates

four times instead of three, hardly a game changer for many pundits.

Here's a sarcastic point found on Twitter (Frankfurt: A1W6XZ - news) :

The point most research notes we receive make at the moment is that global growth

translating into corporate earnings is likely to offset rising bond yields, even if portfolios

have to be adjusted and rotation implemented to adjust to this new economic environment.

"Risk assets may wobble while adjusting to a world where yields also rise – but they can

still do well", BlackRock (Sao Paolo: BLAK34.SA - news) said in a note this morning.

"Stronger growth will lift company earnings and help offset a higher discount rate", it also

said adding that "aggressive monetary tightening" could however pose a threat.

DNB (LSE: 0O84.L - news) made the point that "the direction of the US 10-year yield is likely to be the key

catalyst for equities near-term", drafting a Bullish scenario if yields stay below 3 percent and

bearish if they go above.

But even in that case, DNB is fairly optimistic: "Economic growth appears to be strong

enough that even in the bear case scenario, new cycle highs for equities should be achievable

when 10 yields stabilise again".

(Julien Ponthus)

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FTSE HITS SESSION HIGH AS STERLING FALLS (1230 GMT)

We're seeing a bit of action on the FTSE as sterling falls on the back of comments from the

EU's chief negotiator Michel Barnier on Brexit, with British blue-chips down just 0.1 percent,

outperforming a more negative European market.

Barnier saying the transition deal is not a given is weighing on the pound.

This brings the possibility of a 'hard Brexit' into the picture.

"It has just become more murky and uncertain with the respective motives behind the

differing approaches riddled with political agendas. That doesn’t usually bode well for domestic

markets," Guy Stephens, technical investment director at Rowan Dartington, said in a note.

"Overseas (Tel Aviv: OVRS.TA - news) opportunities continue to be much easier to identify and sit more comfortably on a

two-year view."

Here's a chart showing the FTSE and sterling's inverse moves:

(Kit Rees)

*****

STOCK PICKS FOR A WORLD OF HIGHER BOND YIELDS (1202 GMT)

As markets are now pricing in the possibility of four rate hikes in the U.S., Deutsche Bank (IOB: 0H7D.IL - news)

just published a timely note about what higher yields mean for stock markets and how to go

beyond the current "bond yields up, stocks down" play.

Companies which are capital intensive and need to borrow a lot in the short term could suffer

but obviously, those facing a debt wall with piles of debt to pay off or refinance are set for a

rough ride.

Here's DB's list:

One other point, which was also highlighted in a Citi note we mentioned earlier on, is that

financial stocks are highly correlated with bond yields. DB finds that "European banks, in

particular, are undervalued given the steeper forward yield curve and low deposit beta in

Europe."

Here's their stocks list and as you can see, they are a few bond proxies on the other side

of that trade. Caution is particularly advised against groups which have financed generous

dividends through debt rather then earnings redistribution.

(Julien Ponthus)

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BRACE FOR "ABOVE AVERAGE" ITALY STOCKS VOLATILITY AFTER VOTE (1131 GMT)

While government bonds may be somewhat pricing in an uncertain outcome for Italy's general

election, the picture looks quite different when you look at the FTSE MIB: Italy's top

share index has left the STOXX 600 behind year to date with a 3.8 percent surge, mainly driven

by gains among bank and autos.

That could make Italian stocks vulnerable to a spike in volatility when markets open on

Monday, potentially creating some extra trading opportunities.

"Most election outcomes should have a limited impact on Italian equities, although they may

lead to some temporary, above average market volatility," UBS WM strategists say.

According to UBS WM, who are neutral on Italy, MSCI Italy is trading at a 12-month-forward

PE ratio of around 13 times, which is two points above its 10-year average but below the MSCI

EMU P/E of 14.5 times. This 10 percent discount is broadly in line with the 10-year average.

(Danilo Masoni)

*****

BANKS IN "POLE POSITION" FOR DIVIDEND DELIVERY (1040 GMT)

One day after the market read Fed's Powell's remarks as hawkish, banks in Europe are

understandably doing quite well compared to the broader market's weakness.

On top of that there is an upbeat note from Citi analysts, who highlight the sector's

dividend potential, reiterating their overweigh stance.

"Banks sector remains a stand out... and (is)... in pole position for dividends," they

write. They estimate a Compound annual growth rate for European banks of more than 10 percent in

2017-2019.

Here are their top picks that should benefit from the tailwind of higher rates and strong

PMI (Purchasing Managers Index): Credit Suisse, KBC Groep, Societe Generale (Swiss: 519928.SW - news)

, Standard Chartered (BSE: 580001.BO - news) .

Europe's banks are up 1.7 percent year to date, while the STOXX is down 2

percent.

(Danilo Masoni)

*****

OPENING SNAPSHOT: EARNINGS FAIL TO SHAKE WALL STREET GLOOM (0812 GMT)

Most bourses and sectors have opened in negative territory in Europe and it seems the fresh

new batch of corporate results has not changed the negative mood set in Wall Street with fears

of U.S. rates rising faster than expected.

Here's your opening snapshot:

(Julien Ponthus)

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ON THE RADAR: EARNINGS, LOTS OF THEM! (0752 GMT)

As we said earlier, pushing aside fears that U.S. rates could rise faster than expected,

there is plenty of news to animate the trading session in Europe. Plus, as data showed

yesterday, there isn't currently much of a case for the ECB to accelerate its path to monetary

normalisation.

Anyhow, here are a few stories which could move shares this morning:

Among the blue-chips there is Bayer (IOB: 0P6S.IL - news) with Q4 profit edging lower, Solvay (LSE: 0NZR.L - news) which

sees a slowing of profit growth in 2018 and EFG International (IOB: 0QJX.IL - news) reporting a worse

than expected 2017 loss.

From the Benelux, Bekaert (EUREX: 11962877.EX - news) reports a flat 2018 and supermarket retailer Ahold

confirms Q4 sales.

In the banking sector, Erste Group reported 2017 profits boosted by the economic upswing in

eastern Europe.

Another possible mover is Safran (LSE: 0IU8.L - news) , which according to Reuters sources, is close to an Indian

combat jet engine deal.

On the M&A front, AstraZeneca (NYSE: AZN - news) will spin off its autoimmune drugs into a new biotech company

and Comcast (Swiss: CMCSA.SW - news) 's $31 bln Sky (Frankfurt: 893517 - news) bid is still making front page news.

For more headlines check out:

(Julien Ponthus)

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NOT SO FAST! A CASE FOR CAUTION ON U.S. RATES (0725 GMT)

While some traders are now betting that the Fed will squeeze in a fourth rate hike this

year, will these expectations really sink in and become the new consensus?

According to CMC Markets (LSE: CMCX.L - news) ' Michael Hewson, there is a case for caution here as the American

economy may not be rising as fast as it currently seems.

"There is an argument that we could be heading for further softness, which might cast doubt

on U.S. rate expectations this year, if sustained", he argues, noting recent "economic data

suggests that the US economy could well be heading for a bit of a soft patch".

An answer might be given this afternoon with U.S. GDP data (1330 GMT).

(Julien Ponthus)

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EUROPEAN STOCKS FUTURES OPEN LOWER (0703 GMT)

Down it is, but nothing dramatic as the worst losses at the moment (that's the FTSE and

IBEX) are limited to 0.5 percent:

(Julien Ponthus)

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MORNING CALL: EUROPE SEEN OPENING LOWER AFTER POWELL SPOOKS WALL STREET (0625 GMT)

Good morning from snowy London!

European shares are expected to open lower, following the trend set by U.S. stocks, which

suffered their biggest daily drops since the early February selloff after Fed Chairman Jerome

Powell revived (not necessarily willingly) fears about fast rising interest-rates.

In Asia, shares extended losses and bonds were sold off as weak factory data from China

revived worries about global economic growth.

In Europe, there will be plenty of companies reporting annual results this morning to

animate the session.

Financial spreadbetters expect London's FTSE to open 53 points lower, Frankfurt's DAX to

open down 82 points and Paris' CAC to lose 35 points.

(Julien Ponthus)

****

(Reporting by Kit Rees)