LIVE MARKETS-Closing snapshot: "Tremendous success" with a pinch of salt

Jan 10 - Welcome to the home for real-time coverage of European equity markets brought to

you by Reuters stocks reporters and anchored today by Helen Reid. Reach her on Messenger to

share your thoughts on market moves: rm://helen.reid.thomsonreuters.com@reuters.net

CLOSING SNAPSHOT: "TREMENDOUS SUCCESS" WITH A PINCH OF SALT (1717 GMT)

Trump is given the credit to have pushed markets slightly higher when he claimed "tremendous

success" in the trade talks with China during afternoon trading.

As IG's Joshua Mahony puts its, investors are probably taking the claim with a pinch of salt

which explains why the market move, even if positive, is quite limited.

But hey, the European rally is still technically alive:

(Julien Ponthus)

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"BRAKES-IT": HOW HARD WOULD A NO-DEAL BREXIT HIT AUTOS? (1452 GMT)

With (Other OTC: WWTH - news) so much bad news around the autos sector today - Jaguar Land Rover's job cuts, Osram

Licht's warning on slower autos growth, UBS (LSE: 0QNR.L - news) downgrading Faurecia (Swiss: EO.SW - news) and Continental (IOB: 0LQ1.IL - news) for the same

reasons - it's no wonder investors are rushing out of the stocks which already had a terrible

2018.

Perfect timing then for a bit of analysis on what could make the situation even worse for

carmakers in the UK and Europe: a no-deal Brexit.

Morningstar (NasdaqGS: MORN - news) argues - in a note titled "Brakes-It" - that Britain's auto industry is highly

integrated with the EU, with ties especially strong between the UK and Germany, and any

disruptive no-deal outcome would impact the whole region.

In a no-deal Brexit scenario auto sector fair values would fall on average by 12 percent,

Richard Hilgert, senior equity analyst at Morningstar, estimates.

Morningstar's base case forecast is for flat demand for the major European markets in the

coming years, but a no-deal Brexit scenario would result in recessionary light-vehicle demand,

as you can see below.

However, amid the potential chaos Hilgert reckons "Valuations for select stocks look

attractive", pointing to BMW (EUREX: BMWE.EX - news) as significantly undervalued.

"The market has overly discounted the shares on trade conflict, declining EU demand for

diesel powertrain, margin contraction on higher spending for industry-disruptive technologies,

and a European Commission investigation into diesel equipment collusion among German

automakers," he writes.

Spot the difference:

(Helen Reid)

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A YELLOW SHADOW ON THE CAC (1425 GMT)

The CAC 40 is underperforming its European peers this afternoon, down 0.6 percent against

0.19 percent for the STOXX.

While Paris had a better 2018 than most European bourses, it is now a clear laggard of early

2019, growing at half the speed as other benchmarks, year-to-date.

The question is, have the "yellow vests" protests put an end to the Macron trade and killed

its mojo?

Well the impact of the weak macro data published this morning seems to be providing an

answer.

"The CAC was hit by a slowdown in French industrial production which has unexpectedly

declined 1.3% in November," wrote Fiona Cincotta of City Index.

Longer run, pundits commenting on the data this morning all seem to believe the riots are

inflicting more than a superficial wound to the Gallic economy.

"With any hopes of a second-semester rebound now gone, we now expect industrial production

to grow by a mere 0.5% in 2018," ING writes.

Barclays (LSE: BARC.L - news) revised its Q4 GDP forecast down to 0.1 percent from 0.2 percent and said it does

not rule out "a flat print".

Oxford Economics made the point that the "protests made a larger than anticipated damage to

the French economy" which clouds the outlook for Q1 as the crisis goes on.

Much of the bet on the French stock market has been based on the view that France could play

catch-up with Germany, once structural reforms implemented by Macron kick in.

Looking at industrial production, which was today's focus, there's indeed a lot of catching

up to do, as you can see below in this BNP Paribas (LSE: 0HB5.L - news) chart.

If the CAC 40 is a gauge of the market's faith in France being able to do so, it doesn't

look good.

(Julien Ponthus)

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WANNA BET ON BREXIT STOCKS? DO IT, BUT DON'T FORGET TO DIVERSIFY (1225 GMT)

Times are highly uncertain and not only on Brexit and many of the winners that drove the

long bull market, which stumbled last year on a mix of political and economic worries, have

rapidly turned out of favour, even in the UK mid-caps space.

But there's an antidote: diversify, diversify, diversify, according to Robert Chantry, UK

mid-cap analyst at Berenberg.

"Given the particularly wide range of potential macro and political scenarios that could

play out over the next two years, at the start of 2019 we map out a range of potential outcomes

and conclude that this year is one to diversify across several strategies and styles, covering

several bases," says Chantry.

In this exercise, he doesn't rule out even investing in the unloved Brexit basket, where

stocks are so cheap and could get a boost in a relatively benign scenario for Britain.

Stocks with more than 35 percent of their EBIT coming from outside the UK have outperformed

their more domestically-orientated peers by around 70 percent.

"We continue to believe this underperformance has created opportunities in sectors such as

the housebuilders, building products and certain consumer names where fundamentals are holding

up, but also acknowledge the quite specific sentiment risk on a political outcome," he says,

pointing to Cranswick (LSE: CWK.L - news) , Dalata and Bellway (Frankfurt: 869646 - news) as his top three names.

But don't forget to diversify. Where?

Chantry singles out some higher-growth stocks that have gone quickly out of favour in the

recent market rout (Alpha FMC, Ascential (LSE: 31120035.L - news) and GB Group (LSE: GBG.L - news) ), a group of

special situations where sentiment could improve (Cineworld, Burford and

Gocompare), and finally some of the heavily de-rated cyclical names (RHI Magnesita

, DiscoverIE and Morgan Advanced Materials (Other OTC: MCRUF - news) ).

(Danilo Masoni)

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DON'T BE FOOLED BY BUOYANT U.S. JOBS AND THE STEEPENED CURVE (1209 GMT)

Just as new-found belief in the bull market is starting to spread among investors, you can

count on SocGen (Paris: FR0000130809 - news) 's permabear to pour cold water over hopes fuelled by buoyant U.S. jobs and a

steepened yield curve.

"Traditionally the yield curve steepens as the Fed eases immediately prior to a recession,"

Albert Edwards wrote in his latest report, in which he also makes the point that higher than

expected US non-farm payrolls don't rule out bad times ahead.

"Market confidence that the strong December payroll data means a recession cannot be

imminent is equally misplaced," the strategist warns.

"Just ahead of the last recession that started in December 2007, payrolls popped sharply

higher in October, and exactly the same thing occurred before the previous recession began in

March 2001."

So what should you be looking at? Well, Edwards believes technical analysis is key and that

"a collapse in the markets will precede a recession, just as it did in 2007".

Bullish investors can however take some comfort in the fact that SocGen's permabear's views

are far from being consensual and that other strategists see a different future unfolding.

Goldman Sachs (NYSE: GS-PB - news) economic research for instance points to a possible "risk rally" if global

growth proves less disappointing than that priced in the market.

Do note that if GS analysts believe a "bear-market bounce" would likely deliver most of this

year’s equity returns, they take the view that after that "stocks will trade in a relatively flat

and narrow range".

Here's Edwards' graph on NFPs and recessions:

(Julien Ponthus)

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ARE YOU LONG LUXURY HANDBAGS? 2019'S NOT GOING TO BE YOUR YEAR (1129 GMT)

Luxury outlooks aren't as shiny as they used to be. Analysts at UBS and Berenberg have

slashed their expectations for Europe's luxury stocks in anticipation of slower growth as trade

tensions and sluggish China growth (Stuttgart: 3632247.SG - news) hurt consumers' willingness to splash out on expensive items.

"There is undoubtedly more downside than upside risk to organic growth estimates for the

luxury stocks," writes Berenberg in a gloomy note.

UBS has cut its global estimate for luxury spending growth from 13 percent in 2018 to 7

percent in 2019, with a main culprit the Chinese slowdown.

"There are continued risks for Chinese luxury consumption from slower GDP growth, the waning

wealth effect from property and the weaker Renminbi," writes UBS' luxury team led by Helen

Brand.

"We believe the weaker RMB, crackdown on daigou at the borders, and new e-commerce law will

continue to dampen Chinese overseas luxury spending in 2019," they add (Daigou is the practice

of overseas surrogate shoppers buying goods for customers in mainland China).

As you can see below, spending in China is only a third of total luxury spend so that

overseas spending is crucial.

Though the China issues have already been well documented, UBS also highlights stock market

volatility could hurt luxury spending in the U.S.. Brand and team see U.S. luxury spending

growth of around 5 percent in 2019 versus 15 percent in 2018.

However, UBS' evidence lab survey does find that there's still appetite among Chinese

consumers for spending on luxury items, as you can see below.

In terms of stocks, UBS downgrades luxury sector darling and Gucci owner Kering (LSE: 0IIH.L - news) to neutral,

a big move for a stock that's rated a buy by 20 of the 23 analysts covering it.

Berenberg luxury analysts also downgrade Burberry (from buy to hold), Prada (HKSE: 1913-OL.HK - news) (from buy to

hold) and Tod's (from hold to sell), saying "we turn more defensive about the turnaround stories

due to their relatively elevated multiples".

(Helen Reid)

*****

WEAK MARKETS + "REASONABLY" SOLID MACRO DATA = OPPORTUNITIES (0954 GMT)

Next Tuesday we'll know whether Germany has avoided a technical recession and while concerns

over a global slowdown were indeed corroborated by a string of poor data, markets may have gone

a bit ahead of themselves.

HSBC in fact says it is still constructive on Europe's growth prospects despite forecasting

eurozone GDP to slow to 1.4 pct growth in 2019 and 1.3 pct in 2020 from 1.9 pct in 2018.

"The divergence between reasonably solid economic data and weak capital markets suggests

there could be opportunities," says Joerg-Andre Finke, head of equity research Germany at HSBC.

"Supporting factors include rising wage growth and employment as well as a lower oil price.

The global picture too does not look too bad, with strong U.S. data (eg U.S. consumer confidence

at an 18-year high in October) and stimulus likely in China," he adds.

Finke notes that the DAX and the MDAX indexes are both trading at a discount to their

ten-year PE average for the first time in several years, indicating some valuation upside.

That being said, he has taken a look at German mid-caps scanning for firms with ongoing

strength in sales and earnings, along with attractive valuations and visible catalysts.

Here are his 6 top picks which he says offer an implied upside of 35 pct: Adler Real Estate (IOB: 0N5H.IL - news)

, Fuchs Petrolub (Swiss: FPE3.SW - news) , Grenke (Swiss: GLJ.SW - news) , KION, Krones (IOB: 0LQ4.IL - news) and

Puma (Swiss: PUM.SW - news) .

(Danilo Masoni)

*****

OPENING SNAPSHOT: EUROPE IN THE RED ON AUTOS, LUXURY GOODS (0831 GMT)

A lack of concrete news from the U.S.-China trade talks have stalled the European stock

rally this morning, hitting the autos and luxury goods stocks, which are exposed to health of

the world's second-largest economy, hardest.

Frankfurt, whose auto and industrial giants are also vulnerable to China trade frictions,

and Paris are falling the most, down 0.8 percent and 1 percent respectively. Germany's Osram

Licht has fallen sharply after its CEO cautioned that slowing autos demand would lead to

weaker-than-expected Q4 results, dragging Valeo (LSE: 0RH5.L - news) , Faurecia and other car suppliers with it.

The retail sector continues to capture the headlines with the UK high street staples -

Halford, DFS Furniture (Frankfurt: DF0.F - news) , M&S and Tesco (Swiss: TSCO.SW - news) - issuing Christmas trading statements. Tesco (Frankfurt: 852647 - news) 's been

crowned king of holidays, up 2.3 percent and top FTSE 100 gainer while Halfords has plunged to

multi-year lows after its downbeat assessment.

French electronics and household appliance chain Fnac Darty gave a glimpse into impact of

the 'yellow vest' protests with a warning it will take a 45 million euro hit on revenue.

(Josephine Mason)

*****

FTSE 100 AND STOXX NEAR OVERBOUGHT TERRITORY (0753 GMT)

Some European bourses may be on shaky ground technically after their impressive run higher

since the start of the year.

Hard to believe given the FTSE 100 hit its lowest since July 2016 just two weeks ago, but

the UK blue chip index closed yesterday with a relative strength index (RSI) reading of 55.5,

its highest since end-September.

That's just shy of 60, which would push the index into oversold territory on a technical

basis for the first time since last May when the bourse hit all-time highs.

It's similar with the STOXX 600 whose RSI is just under 54, its highest since November.

(Josephine Mason)

*****

WHAT'S ON THE RADAR: UK RETAILERS AND ASSET MANAGER WOES (0741 GMT)

A two-day rally taking European stocks to three-week highs was set to fizzle out on Thursday

with futures pointing to a weaker open after U.S. and Chinese statements following trade talks

in Beijing failed to deliver sufficient practical details.

Results took centre stage with UK retailers in focus after Christmas trading figures from

Marks & Spencer (Frankfurt: 534418 - news) , Tesco, and Debenhams (Frankfurt: D2T.F - news) , while on the continent disappointments from Germany’s

Suedzucker (IOB: 0G7B.IL - news) and France’s Sodexo and Fnac Darty were likely to weigh on those shares.

Marks & Spencer’s Christmas trading figures were weaker than expected with falling

underlying sales in both clothing and food. Its shares were indicated down 2 percent. Tesco

outperformed with a 2.2 percent rise in Christmas sales – driving its shares up 2 percent in

pre-market – while B&M saw sales rise 12.1 percent in its third quarter. Debenhams, meanwhile,

said Christmas trading was weak and it was in talks with lenders, looking to bring new sources

of funding into the business.

Reports of outflows and falling assets under management from asset managers Jupiter and

Rathbone Brothers (LSE: RAT.L - news) underlined the challenging market environment money managers are having to

navigate.

While it's owned by Tata Motors (BSE: TATAMOTORS.BO - news) and not listed in the UK, Britain's biggest carmaker Jaguar

Land Rover offered a concerning insight into the environment for auto companies: a source tells

Reuters it's set to announced "substantial" job cuts in the thousands as it faces double-digit

drops in demand in China and a slump in sales for diesel in Europe.

Premier Oil (LSE: PMO.L - news) cuts more debt than forecast

Jaguar Land Rover to make "substantial" job cuts after China, diesel slump- source

M&S's clothing and food sales fall in Christmas quarter

Debenhams looking for fresh funding, Christmas trading weak

UK retailer B&M's quarterly sales rise

Jupiter reports $1.9 billion Q4 outflows, tough markets trim AUM

Rathbone Brothers Q4 investment management assets down 6.8 pct

Pub firm Mitchells & Butlers (LSE: MAB.L - news) holiday sales rise 9.8 pct

Tesco outperforms market with 2.2 pct rise in Christmas sales

Bank of Georgia names Archil Gachechiladze CEO

Recruiter Robert Walters reports 13 pct rise in quarterly fee income

Delivery service firm Takeaway says quarterly orders rise 55 pct

(Helen Reid)

*****

FUTURES FALL AS TRADE TALK PROGRESS UNCLEAR (0721 GMT)

European futures are down 0.5 to 0.6 percent across the major benchmarks after Asian shares

checked their rally overnight too. The statement from China after trade talks in Beijing left

something to be desired in terms of practical details.

"Overnight the Chinese Commerce Ministry said talks were 'extensive...deep...detailed' but

other reports suggest the talks got bogged down when issues cut across Chinese national security

and/or Chinese subsidies to state companies," writes Chris Bailey, analyst at Raymond James.

(Helen Reid)

*****

RESULTS FLOWING IN: EYES ON SUEDZUCKER, SODEXO, M&S, TESCO (0656 GMT)

There's more results coming in today ahead of the fourth-quarter earnings season kicking off

in earnest. Suedzucker's shares are down 3.8 percent in pre-market trade after it reported a

quarterly operating loss due to low sugar prices. Catering group Sodexo is also not looking so

good after warning investments will eat into its first half margin.

To come in the flurry of UK results at 0700 will be the all-important Christmas trading

figures from retailers Marks & Spencer and Tesco.

Outside results news, Fiat Chrysler could be hurt by our sources-based report that the

carmaker will pay more than $700 million to resolve lawsuits from the U.S. Justice Department

and diesel owners over claims it used illegal software to allow 104,000 of its vehicles to emit

excess emissions.

Suedzucker posts quarterly operating loss on low sugar prices

Catering group Sodexo cautions investments will weigh on H1 margin

Fiat Chrysler to pay more than $700 mln over U.S. diesel emissions claims -sources

Telenor (LSE: 0G8C.L - news) 's Thailand unit to pay nearly $300 mln in legal disputes

MEDIA-Mondelez sues insurer Zurich over $100 mln cyber attack claim - FT

(Helen Reid)

*****

EUROPEAN SHARES EXPECTED TO FLAG (0632 GMT)

After a strong two-day rally taking the market to three-week highs, European shares are seen

faltering at the open with spreadbetters indicating the main indices down 5 to 12 points. A

notable lack of detail in the U.S. and China's statements after this week's trade talks could be

to blame.

Trade talks between China and the United States this week were extensive, and helped

establish a foundation for the resolution of each others' concerns, China's commerce ministry

said on Thursday, but gave no details on the issues at stake.

Asian shares edged up overnight as stimulus expectations and a rise in the yuan helped

Chinese equities erase early losses, while markets awaited more news on U.S.-China trade talks

amid hopes that an all-out trade war can be averted.

Financial spreadbetters at IG (Frankfurt: A0EARV - news) expect London's FTSE to open 12 points lower at 6,895,

Frankfurt's DAX to open 5 points lower at 10,889 and Paris' CAC to open 6 points lower at 4,807.

(Helen Reid)

*****

(Reporting by Helen Reid, Danilo Masoni, Julien Ponthus)