LIVE MARKETS-What could give European equities a helping hand?

March 19 - 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: helen.reid.thomsonreuters.com@reuters.net

WHAT COULD GIVE EUROPEAN EQUITIES A HELPING HAND? (1452 GMT)

Favouring European stocks over Wall Street because of a big valuation gap was consensus

thinking at the start of the year, but just three months on it's clear to everyone that such a

bet is not paying off: the STOXX has underperformed the S&P 500 by 4.7 percent year-to-date.

Natixis (LSE: 0IHK.L - news) economists, who also mistakenly had expected Europe to do better, have taken a look

at which factors have historically (since 1990) helped Europe beat Wall Street to better assess

what is actually needed for a comeback.

Here's their bottom line: "While the EUR/USD can be expected to continue to play against

European equities, their salvation over the medium term could come either from a slowdown of the

US economy and/or from a normalisation on the downside of earnings growth forecasts for US

equities."

Is this going to happen?

Well, it's hard to predict but in this chart you can see how U.S. earnings growth forecasts

for 2018 have been constantly revised upwards while European forecasts have come down a bit.

(Danilo Masoni)

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BANKING ON BANKS M&A (1419 GMT)

The debate is still raging over European banks and whether they're a good investment.

"Generalists and macro investors are doing work on European financials and seem to think

that, despite a widening valuation gap vs. the U.S. (in particular for banks), it still feels

safer to invest in the new versus the old world," write Goldman analysts.

But ABN AMRO is more positive on the prospects for consolidation to turbocharge the European

banking sector.

Total (LSE: 524773.L - news) assets of the euro area banking sector are still far greater than in the U.S. and

Japan, as a share of GDP. Peaking at about 340% of GDP in 2012, they've fallen to around 280% of

GDP - compared to 88% in the U.S. (see graph below).

While regulatory obstacles have been a challenge, analysts at the Dutch bank reckon it's now

time for consolidation to change the landscape of the banking sector.

"As this trend increases it will be essential to be on the side of the banks that are moving

quickest and we will pay attention to the profitability of the smaller banks over the next

twelve months," they add.

(Helen Reid)

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UK REITS: NOT SO UNTOUCHABLE AFTER ALL (1341 GMT)

Klépierre's rebuffed swoop for Hammerson (Frankfurt: 876140 - news) this morning highlights a perhaps surprising

enthusiasm from foreign buyers for a stock in the real estate investment trust (REIT (SES: _REIT.SI - news) ) sector,

one often touted as being the single most exposed to Brexit.

Is UK real estate more resilient than it looks?

"Despite significant political uncertainty and rapid structural change... the UK Real Estate

market is surprisingly robust," Goldman analysts wrote on Friday, adding Hammerson to their

'conviction list' - in hindsight a well-timed move.

Goldman noted, however, that mixed results are likely from different parts of the real

estate market.

They see London office values declining gradually by 29 percent, while residential property

prices could slide 15 percent due to rising interest rates. Industrial rents should increase 33

percent by 2021, however.

(Helen Reid)

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DEMAND AND CAPEX: THE TRADE WAR CUSHION? (1314 GMT)

Morgan Stanley (Xetra: 885836 - news) 's economists point out that a recovery in the global capex cycle "tends to

have a stronger influence on global trade", and that the broader backdrop of global demand

should offset U.S. trade policy uncertainty.

They note the latest round of trade measures from the U.S. will impact an estimated 1.7

percent of U.S. goods imports, taking into account exemptions for Mexico, Canada and Australia.

So not a huge hit.

So how to play this protectionist theme? Morgan Stanley highlight that sectors with the

biggest exposure to exports and a stronger currency are also some of the most expensive and

overbought, such as chemicals, industrials and autos. While they would avoid these, they do like

the European market more broadly.

"What’s odd is that investors appear to be selling the entire market, rather than the

sectors that actually have the largest exposure to exports and a stronger currency," Morgan

Stanley (Shenzhen: 002588.SZ - news) 's strategists say.

(Kit Rees)

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SPIN-OFFS GALORE (1233 GMT)

Last week was thick with spin-offs with Prudential (SES: K6S.SI - news) 's split and German utility giants E.ON

and RWE (IOB: 0FUZ.IL - news) 's deal to break up Innogy, and according to Goldman Sachs (NYSE: GS-PB - news) there's more to come.

Goldman analysts see these as further fueling their corporate simplification and

restructuring theme, with more and more companies turning to portfolio restructuring to create

value.

If the current level of spin-off activity is maintained, it will be Europe's busiest year

since 2006 for corporates spinning off assets, they note (see chart below).

European corporates including Ascential (LSE: 31120035.L - news) , Standard Life (LSE: SL.L - news) , Accor (EUREX: 485822.EX - news) , GKN (Frankfurt: 694194 - news) , Altice (Other OTC: ATSVF - news) and Rolls Royce (LSE: RR.L - news)

have had spin-offs recently, and these have generally been met with positive reactions from the

market.

Not only did the parent companies perform well but the off-spins also outperformed in the

six and twelve months following. GS says since 2005, companies that have divested an asset worth

more than 5 percent of market cap have tended to outperform the broader market by 3.6 percent on

a 12-month horizon from the divestment date.

The sectors where GS sees most opportunities for simplification and restructuring are autos

and utilities. They highlight FCA, Enel (LSE: 0NRE.L - news) and Standard Life as potential gainers from this theme.

(Helen Reid)

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POUND CELEBRATES, FTSE NOT SO MUCH (1204 GMT)

"The pound is celebrating this morning on positive headlines regarding a Brexit transition

deal," writes Jane Foley, Senior FX Strategist at Rabobank, as cable is up at a 3-week high

against the dollar.

And here are the latest headlines with EU's Barnier saying "we have a transition deal".

On the equity market however the FTSE is hovering at 2-week lows, down 1.3 percent

and underperforming other European markets, as strength in the sterling clearly doesn't help the

internationally-exposed index.

After the Brexit referendum in June 2016 the FTSE has tended to move inversely to the pound

although the negative correlation looks to be evaporating, as you can see in this chart.

(Danilo Masoni)

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TARIFF FEEDBACK FROM TEXAS (1141 GMT)

Barclays (LSE: BARC.L - news) analysts travelled to Texas last week to find out the potential impact of steel

tariffs on makers (Tenaris (Amsterdam: TS6.AS - news) , Vallourec (LSE: 0NR2.L - news) and Voestalpine (IOB: 0MKX.IL - news) ) and distributors (CTAP, Sooner,

PremierPipe) of the so-called OCTG (Oil Country Tubular Goods) tubes used in oil and gas

production.

The result? Spot prices have already risen 20-25 percent, although further material price

increases appear unlikely as the system looks already well supplied of pipes, they say.

And there is one winner among the stocks they cover.

"In this environment we see Tenaris as a key beneficiary of the new tariff regime, while for

Vallourec its relatively small U.S. exposure (24% of capacity) would merely offset headwinds

elsewhere," they add.

As you see in the chart Tenaris has clearly outperformed its peers since the U.S. first

unveiled the tariffs plan last month.

(Danilo Masoni)

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KLEPIERRE OFFER TO HAMMERSON - WHAT NOW? (1126 GMT)

Though Hammerson rebuffed Klepierre (LSE: 0F4I.L - news) 's offer, saying it under-values the

company, the market is abuzz as a potential successful takeover could jeopardise Hammerson's

ongoing merger with Intu (Swiss: OXIGTU.SW - news) and burn merger arbitrage funds.

Merger arbs are positioned long Intu, short Hammerson, says one trader. "If a deal breaks,

arbs will suffer as Hammerson will roof and Intu could go down," he notes.

Jefferies analysts argue Hammerson's protracted merger process with Intu is losing

credibility, hence Klepierre swooping in today.

"The positive of a rival offer for Hammerson is a partial cash element (rather than the

allstock swap at 0.4765 HMSO per Intu share) so Klepierre's interest in Hammerson could upset

the marriage proposals with Intu," they say.

This is reflected in today's moves: Intu shares are up just 2 percent while

Hammerson is still up 24 percent, suggesting the market is worried about Intu.

The offer of course makes sense for Paris-based Klépierre seeking to secure a foothold in

the UK market, with Hammerson shares at their cheapest in nine years (see below) - made even

cheaper for the French company thanks to a favourable euro-sterling exchange rate.

(Helen Reid)

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TIME TO MOVE INTO DEFENSIVES? (0958 GMT)

Tech is no longer unshakeably the favourite, it seems, as UniCredit (EUREX: DE000A163206.EX - news) strategists downgrade

the sector and argue investors should increase exposure to more defensive areas of the market.

Micro Focus' 55 percent slump today indicates investors have very limited patience for any

signs of strain in tech stocks whose valuations have surged up in the past years.

Strategists at the Italian bank downgrade tech to neutral, and upgrade utilities from

underweight to overweight.

"The latest developments and the levels of leading indicators suggest a period in which

defensive sectors will become more attractive," write Unicredit strategists.

The mammoth deal last week between RWE and E.ON to break up Innogy would have helped

sentiment on utilities, but Unicredit also argues the sector is relatively insulated from "trade

war" fears.

They also have overweight recommendations on the defensive food & beverage, and healthcare,

sectors.

(Helen Reid)

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OPENING SNAPSHOT: EUROPEAN STOCKS OPEN LOWER AS MICRO FOCUS DIVES (0818 GMT)

A drop in Micro Focus' shares and Henkel (LSE: 0IZ8.L - news) are contributing to the muted mood among European

shares this morning, which have opened lower.

Likewise falls among energy stocks and basic resources are also weighing.

On the positive side, Hammerson is the biggest gainer after that takeover approach from

Klepierre, while British betting firms have jumped after a report from the UK's gambling

commission which recommended a stake limit of at or below 30 pounds sterling for fixed odds

betting terminals (FOBTs).

Here's your opening snapshot:

(Kit Rees)

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WHAT WE'RE WATCHING AHEAD OF THE OPEN (0752 GMT)

European stock futures were down 0.2 to 0.5 percent, pointing to a more feeble start to a

busy week with investors’ eyes on Wednesday’s Federal Reserve meeting and the EU summit on

Brexit.

With (Other OTC: WWTH - news) earnings season drawing to a close, there are however results from Henkel and Micro

Focus which could jolt the shares.

Henkel warned the year was off to a slow start, its shares are indicated down 2-3 percent.

Micro Focus meanwhile is seen falling as much as 15 percent after it said annual

revenue would fall more than expected due to lower licence income and complications from its

purchase of Hewlett Packard (NYSE: HPQ - news) assets, prompting its CEO to quit.

M&A continues apace, and Hammerson’s rejection of Klépierre’s takeover

offer is likely to boost the UK commercial real estate firm’s shares.

It is offers such as these that many UK investors are hoping for when they buy into what

many see as the stocks most at risk from a disorderly Brexit, such as commercial real estate

investment trusts.

European companies like Klépierre have all the more to gain from buying the depressed shares

with the euro/sterling exchange rate so favourable. With the offer valuing Hammerson’s shares at

a 40.7 percent premium to Friday’s closing price, and the market’s short position on Hammerson

growing in the past month, the shares are likely to jump this morning.

News that activist investor Sherborne acquired a more than 5 percent stake in Barclays (Swiss: BARC.SW - news)

should shake up the British bank’s shares too.

(Helen Reid)

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COMPANY HEADLINES: MORNING ROUND-UP (0741 GMT)

Melrose (LSE: 136541.L - news) pledges to inject 1 bln stg in GKN pension scheme

Apple (NasdaqGS: AAPL - news) is developing own MicroLED screens - Bloomberg

Pilots set up pan-European association to challenge Ryanair

Daimler (IOB: 0NXX.IL - news) cars unit invests to ramp up output to 3 mln vehicles

Sherborne acquires voting rights over 5.16 pct in Barclays

France's Klepierre says offer to buy Hammerson rejected

Micro Focus downgrades 2018 revenue forecast, CEO steps down

UK gambling commission makes recommendations on FOBT machines

Henkel warns that delivery woes in North America damp Q1 start

CEO of Germany's GEA Group (IOB: 0MPJ.IL - news) to leave in April 2019

Societe Generale (Swiss: 519928.SW - news) hopes for resolution to IBOR, Libya investigations within weeks

Shipping firm CMA CGM sees industry rebound continuing

Rocket Internet (Swiss: OXRKET.SW - news) explores IPO of online shopping group Jumia - sources

Kering (LSE: 0IIH.L - news) says Swiss activities tax-compliant

(Tom Pfeiffer)

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FUTURES POINT TO SLOWER START AS FED LOOMS (0712 GMT)

Futures are down 0.2 to 0.4 percent across the main European benchmarks, confirming

spreadbetters' calls of a more cautious start to the week.

With earnings season drawing to a close, corporate news is thin on the ground but M&A news

is still coming in: Hammerson has just announced it rejected an acquisition offer by

Klépierre which valued the UK real estate company's shares at a 40.7 percent premium

to their closing price on Friday.

(Helen Reid)

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MORNING CALL: CAUTION DOMINATES FIRST DAY OF BUSY WEEK

Good morning and welcome to Live Markets.

European stocks are called down this morning, following the lead of Asian markets which hit

a speed-bump in the first trading day of a busy week. Britain prepares for a critical EU summit

this week, and investors are also eyeing Jerome Powell's first press conference as Federal

Reserve Chair and the central bank's decision on Wednesday.

Asian shares were mixed as tension built ahead of this week's Fed meeting which will likely

result in an interest rate hike.

Spreadbetters call the DAX 17 points lower at 12,373, the CAC 40 down 17 points at 5,265,

and the FTSE 100 16 points lower at 7,149.

(Helen Reid)

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