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LIVE MARKETS-The contrarian bet on European banks

(Correcting to show in latest blog it was Parliament rejection, not government)

* STOXX 600 up 0.8 pct

* Hopes of U.S.-China truce lift stocks further

* Spain's IBEX lags after parliament votes down govt budget

Feb 13 - 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

THE CONTRARIAN BET ON EUROPEAN BANKS (1540 GMT)

European banks? Seriously?

European lenders have quite a serious reputation of being dangerous value traps so any

suggestion to jump on that ship is likely to be met with a sizeable amount of scepticism.

But here it is: Sentix sector sentiment for banks has hit another very low level, which

could signal an opportunity, reckons Manfred Hübner, the managing director of the behavioral

finance firm.

"This is only the eighth time since 2001 that we have measured such negative investor

expectations," he writes adding that a these low levels, a rebound is usually not that far.

"In the last seven times, however, bank shares were on average able to increase by around

20% within a year. An interesting opportunity for contrary thinking investors!"

Here's the sentiment indicator over the last ten years.


(Julien Ponthus)

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TAKING SPAIN'S VOTE IN ITS STRIDE (1407 GMT)

The markets are taking the Spanish Parliament's rejection of the 2019 budget proposal in

their stride this afternoon. So, the veto was expected, but still it raises the likelihood the

minority government will call an early snap general election.

After a brief drip into the red, the Madrid stock exchange is in positive territory and hit

its session high, up 0.4 percent, shortly after U.S. CPI data, a sign that investors are looking

elsewhere for their cues.

This reaction is in marked contrast to big gyrations we saw on the IBEX - and particularly

bank stocks - in late 2017 after Catalonia's independence referendum.

In bond markets, the closely-watched gap between 10-year Spanish and German government bond

yields widened to around 111 basis points in the immediate aftermath of the

results and is now back at 109, where it stood late on Tuesday.

The more volatile, smaller Lisbon market is getting dragged lower by the political

uncertainty in Madrid. It's the only European market in the red this afternoon.


The two most likely election dates are April 14 followed by April 28. Prime Minister Pedro

Sanchez knows that the last thing left-leaning voters want - including even those who favour

Catalan independence - is for the right to come back into power.

Mohammed Kazmi, a portfolio manager at UBP (Taiwan OTC: 6471.TWO - news) in Geneva, says "If they do call elections we may

see a bit of noise in the near term, but for us that would be one to fade because you could get

a positive scenario and the tail risks are pretty low in terms of getting a party that's

negative for markets."

He adds that the Spanish economy is performing well, and if the bond yields rise further he

would see it as an opportunity to add to Spanish bonds.

(Josephine Mason and Helen Reid)

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A LOVE LETTER TO RISKIER ASSETS (1219 GMT)

With Valentine's Day almost upon us, SocGen (Paris: FR0000130809 - news) 's head of global asset allocation and equity

strategy, Alain Bokobza, and team are in the mood for love of riskier assets ... specifically

Chinese equities.

It's too early to be extremely bearish but also too late to be extremely bullish, so for the

time being, the team says it's best to keep a tactical positive bias for equities.

That's because of the paradigm shift with the Fed indicating it wouldn't raise interest

rates as quickly as expected. They're bearish the dollar for the same reason.

"As the dust settles, we are building the case for adding more protection for portfolios,

notably through gold but also China equities," they write.

The reason for giving Chinese equities some love? Equity valuations are extremely low, with

the market P/E back to October 2014 levels and expectations are for the trade war tensions to at

least not turn totally ugly, they say.

But will Beijing and Washington feel the romance as talks to hammer out a truce to end the

protracted trade spat continue tomorrow?

(Josephine Mason)

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SANTANDER COCO POPS: "AN EARTHQUAKE OF THE SCALE OF 1" (1140 GMT)

Banco Santander (Amsterdam: 817651.AS - news) 's decision on Tuesday not to call a 1.5 billion euro ($1.7 billion) is

definitely grabbing a lot of attention. (Our story here:)

Here are a few quotes from our conversation with Jerome Legras, head of research at Axiom

Alternative Investments who doesn't think it's such a big deal.

* "When you look at the bond price, for a shock wave, it's a very, very small shock, it's an

earthquake of 1 on the Richter scale"

* "A shock wave is when everyone expects something and the opposite turns out, when there's

a sudden realization that things are not the way one thought and there's a feeling of betrayal,

it's really not the case here".

* "I think that some people may be in need of sensationalistic news, it's really not a shock

wave, just a few days ago, most people we talked about it were saying there was 50/50 percent

chance they would call."

* "Some people may have been taken by surprise but then again, a lot of people were

expecting it."

* "There is a risk of extension, we're well paid to take it".

Anyhow, Santander share price is flat, another sign that this is not a big issue for the

bank itself.


There's quite a lot of activity on Twitter (Frankfurt: A1W6XZ - news) but this illustration did catch the eye:

(Julien Ponthus)

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BIG OIL: A CASH FLOW STORY (1044 GMT)

Oil stocks haven't grabbed many headlines recently but the sector is up a handsome 9.5

percent so far in 2019 and even though it may face more headwinds from falling crude oil prices,

solid balance sheets are a reason not to worry too much.

Their strength boils down to strong cash flows, a gift of their past restructuring efforts.

"Sector cash flow is back to levels last seen in 2014, when crude prices were above $100/b,"

say HSBC analysts Gordon Gray and Kim Fustier, highlighting how Q4 results from oil majors that

have already reported were solid.

Q1 however is set to be a tougher test, but HSBC remain confident, even if they expect a $9

drop in Brent prices from the previous quarter.

"Even (Taiwan OTC: 6436.TWO - news) with macro pressure across all divisions, cash flow should annualise at levels

comfortably above our expectations for FY19 capex plus dividends. This illustrates the sector’s

robustness, with its FCF breakeven of $53/b in 2019e," they say.


At a $70 Brent price forecast, HSBC sees excess cash flow for US and European oil majors at

around $40 billion per year through 2020-2022.


(Danilo Masoni)

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AT THE OPEN: EUROPE IN JUBILANT MOOD (0838 GMT)

The European market's in jubilant mood again today, with Frankfurt once more leading the

gains as investors cling to hopes of progress in the U.S.-China talks this week.

Individual moves are being driven by earnings: ABN Amro was the standout loser, dropping 7.5

percent and set for its worst day since June 2016 after Q4 profits missed expectations.

Among the winners, Ingenico (Paris: FR0000125346 - news) jumped 6.6 percent after the payment processing firm gave an

upbeat outlook for the year ahead, online gambling firm Kindred Group (LSE: 0RDS.L - news) rose 8.2 percent following

its Q4 report, and Swedish Match (LSE: 0GO4.L - news) was up 6.4 percent after delivering better-than-expected

results.

In M&A, investors didn't like news that Red Electrica (Amsterdam: EL6.AS - news) will buy most of Hisparat for $1.1

billion. Its shares were down 1.5 percent.

Here's your snapshot:

(Josephine Mason)

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WHAT WE'RE WATCHING AT THE OPEN: EARNINGS (DUH!) (0750 GMT)

Risk-on spirit this morning as trade war optimism lifts world markets and a fresh burst of

European earnings are – so far – not spoiling the show.

Better than that, overnight data from Refinitiv shows that earnings growth expectations are

no longer falling even if the big picture show a big fall since November (see post below).

A lot of earnings from the low countries with notably, ABM AMRO posting profits below

consensus, Akzo Nobel (Amsterdam: AKZA.AS - news) above forecast and Heineken (LSE: 0O26.L - news) expecting profit growth to be stable in 2019.

A few setbacks for industrials with German copper producer Aurubis (IOB: 0K7F.IL - news) profits falling as plants

were shutdown for maintenance and Switzerland’s chemical group Clariant (IOB: 0QJS.IL - news) was hurt by softening

demand in Asia.

On the bright side, Europe’s biggest asset manager Amundi (Berlin: 350155.BE - news) said it didn’t expect recent

adverse market conditions in Q4 to undermine its 2020 profit targets.

Outside earnings a few significant corporate developments such as Airbus nearing a decision

on its A-380 jumbo plane. On the front of shareholder activism, France’s Pernod Ricard (TLO: RI-U.TI - news) pledging

to embrace constructive talks with Eliott Management and Thyssenkupp bowing to Cevian and

simplifying its structure.

In the UK, another sign that Brexit angst is starting to bite, real estate agent Countrywide

profits halved and British homewares retailer Dunelm became the latest company to start

stockpiling some of its best-selling products to beat potential supply disruptions.

Here's a list of top headlies:

Banco Santander opts to roll-over CoCo bond

Orpea FY Revenue Up At 3.42 Billion Euros

Temenos FY Non-IFRS Revenue Up 14 Pct

French bank Natixis (LSE: 0IHK.L - news) ' Q4 profits shrink after Asian derivatives losses

Heineken sees 2019 profit growth at similar pace to last year

Airbus to give update on A380 shutdown plans -sources

Clariant hits Q4 headwinds in plastics business

Akzo Nobel's fourth-quarter earnings top estimates

ABN Amro Q4 net profit dives 42 pct as loan impairments surge

Aurubis Q1 earnings fall almost half on plant shutdowns

Asset manager Amundi confirms profit target although adverse markets hit Q4

Tele2 (LSE: 0QE6.L - news) sees higher synergies from Com Hem (LSE: 0QV0.L - news) merger, Q4 profit matches forecast

Alpiq, Bouygues (LSE: 0HAN.L - news) fight over price of engineering business

Thyssenkrupp (IOB: 0O1C.IL - news) bows to activist investor by simplifying organisation

German minister backs tougher rules on telecoms suppliers

Mylan (Hamburg: 27249935.HM - news) launches Advair generic at one-third price

Schibsted (LSE: 0MHM.L - news) writes down goodwill ahead of MPI (Other OTC: MNIGF - news) spinoff

Banks seek government support to help firms at risk from no-deal Brexit

Egypt plugs hub status as Shell (LSE: RDSB.L - news) , Eni (LSE: 0N9S.L - news) , Exxon win energy concessions

Pernod CEO pursues change and engages activist shareholder

Abertis (Amsterdam: IF6.AS - news) agrees to sell Hispasat stake to Red Electrica for 949 mln euros

Credit Agricole (Swiss: ACA.SW - news) appoints new top investment bankers

MEDIA-Deutsche Bank Seeks to rebuild in Mideast

(Julien Ponthus and Josephine Mason)

*****

FUTURES ARE UP (0715 GMT)

European futures are trading comfortably in the black as it seems that the content of the

earnings galore this morning isn't going to spoil the risk-on spirit lifting global markets due

to trade optimism.

U.S. futures are also rising by the way.

(Julien Ponthus)

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SPEAK OF THE EARNINGS...(0703 GMT)

Speak of the earnings and they shall appear. It's earnings galore this morning, so much so

that the list of companies reporting today couldn't fit on a single screenshot without

de-zooming from the Reuters Morning News Call !

Just to name a few of the blue chips reporting this morning (a lot of Dutch companies it has

to be said), we've got Heineken, Koninklijke Vopak NV, Clariant

, Amundi or Akzo Nobel.

(Julien Ponthus)

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EARNINGS: Q4 EXPECTATIONS NO LONGER FALLING (0640 GMT)

Good news! Q4 earnings forecast for STOXX 600 companies are no longer in free fall and have

actually edged up to 3 percent year-on-year , I/B/E/S Refinitiv data shows.

Data showed last week a 2.3 percent earnings growth expectation, which constituted a sharp

fall from earlier forecasts.

You can see the evolution of Q4 earnings growth expectations here:

(Julien Ponthus)

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EUROPEAN BOURSES READY TO GO WITH THE (GOOD) FLOW (0620 GMT)

European bourses seem ready to go with the (good) flow and follow their Asian and U.S. peers

higher as optimism that Washington and Beijing might be able to hammer out a trade deal lifts

global markets.

IG (Frankfurt: A0EARV - news) data shows financial spreadbetters expect London's FTSE to open 33 points higher,

Frankfurt's DAX up 53 points and Paris' CAC to rise 15 points.

(Julien Ponthus)

*****