* European stocks in the red on gloomy data
* Fed says will be 'patient' on future rate hikes
* Asia stocks climb to 4-mth high
Jan 31 - Welcome to the home for real-time coverage of European equity markets brought to
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M&A speculation usually spices things up and only very rarely does it pour cold water on
But the Bloomberg merger story on Deutsche and Commerzbank certainly did that and more.
A possible government-brokered merger between the two rivals is spooking the market with
Deutsche Bank down 4.2 percent and Commerbank sinking 6.2 percent.
Not clear at that point whether it's worse to be married to Deutsche Bank or to be Deutsche
"probably tells you all you need to know about what investors think of this story".
OLD FAITHFULS SHINE (1556 GMT)
To understand the STOXX 600's stellar run-up this month even as investors grapple with a
swathe of geopolitical and economic risks, it's worth a look at one of the star performers:
During the prolonged rout of the past three months amid worries about U.S. interest rate
hikes, the slowing global economy and the U.S.-China trade spat took off, the sector has
outperformed the STOXX 600 by 11 percent.
That compares with other old faithfuls - telecoms and real estate which are outperforming by
just 1 percent and 5.5 percent respectively:
Utilities hit their highest since November 2017 this afternoon, and are on track for its
best monthly performance since October 2015 as investors flock to the safety of old-reliables.
Today's Q4 euro-zone GDP data is a case in point.
Deutsche Bank analysts note the sector outpaced the broader market by 13 percent in 2018,
only its second year of outperformance since the financial crisis.
While some of the gains are due to a rotation into utilities late last year, Deutsche also
notes the improving fundamentals.
"A sharp rebound in power prices has turned almost a decade-long headwind into a tailwind
with repaired balance sheets enabling utilities to start lifting investment," the bank's
analysts James Brand and Duncan Scott say. They expect strengthening earnings growth in 2019
with scope for companies to give fairly positive outlooks.
moderating sovereign risk.
Willem Sels, chief market strategist at HSBC Private Banking, is underweight European ex-UK
equities, but is nibbling at utilities and telecoms given the uncertainties facing the region.
(He's overweight EM and U.S.)
(Josephine Mason and Helen Reid)
INVESTOR CONFIDENCE DECLINING IN MYSTERIOUS WAYS (1317 GMT)
State Street just released its Investor Confidence Index which measures risk appetite
through buying and selling patterns and shows global confidence hit its lowest on records back
to the start of 2012.
The most interesting fact is perhaps not its sharp fall but perhaps that it has continued to
pull back while markets were rising.
"Noteworthy is that this retreat has continued through the third week in January, even as
stock prices had over January partially recovered from Christmas-eve lows," State Street
Associate Kenneth Froot writes.
Another oddity is that "while the market narrative focuses on the deteriorating global
environment, whether it be weaker data in China or rising recession risks in Europe, investor
confidence is deteriorating faster in the US than it is in other regions," notes Michael
Metcalfe, head of global macro strategy.
The index for North America decreased to 66.8 points in January from 74.5 points a month
earlier, while it fell by 2.6 points to 90.3 points in Europe and decreased in Asia by 10.3
points to 100.2 points.
"This panic, and it is no longer an exaggeration to use this term, is as much about bursting
a bubble in US expectations, as it is about weakness in fundamentals outside of the US,"
Here's a link to State Street's index and here a snapshot of the January index:
AMID "BREXIT FATIGUE", BUYING OPPORTUNITIES IN UK STOCKS (1243 GMT)
Diagnosing investors with an acute case of Brexit fatigue, Jefferies global equity
strategists have some ideas about how to make the most of a confusing and intractable problem
which is driving many to look elsewhere.
So, why buy British?
"The FTSE 100 equity market offers at least a two-decade high spread between free cash flow
yield (excluding financials) versus Gilts," writes Jefferies' chief global equity strategist
Sean Darby and team.
"UK bank stocks offer good value at a time when the market is not concentrating on the
They argue some Brexit indicators suggest the most likely outcome of Tuesday's parliamentary
votes is an extension to Article 50, saying UK CDS have dipped, the UK economic uncertainty
index has dropped, forward pound currency volatility has retreated and the FTSE 250 has
outperformed the FTSE 100.
Indeed, the domestically-focused FTSE 250 is up 7.8 percent this month - set to seal
As you can see below, Jefferies' view doesn't necessarily chime with many other investors'
deal Brexit as a result of the votes. https://tmsnrt.rs/2See2B9
GLOOMY MACRO BUT HEY, ECB SAYS QE REDUCES INEQUALITY (1136 GMT)
There's been a hailstorm of horrible macro data this morning, from German retail falling on
its fastest rate in 11 years, to British car production posting its biggest drop since the
The bitter cherry on the cake is certainly Italy landing a recession and the euro zone
economy slowing down to its lowest growth in four years.
The takeaway of today's data is that prospects for monetary normalisation remains as elusive
"We expect the ECB to revise down its GDP forecasts, of 1.7% growth this year and next, in
March and to make clear that it does not expect to raise interest rates until next year at the
earliest", commented Andrew Kenningham, chief Europe Economist at Capital Economics.
Kenningham isn't the only one to expect some extra dovishness from the ECB, with speculation
about another TLTRO and even another round of QE if more bad stuff hit the fan.
purchases program had reduced inequality in the eurozone was met with quite a lot of sarcasm,
including by Rabobank strategist Michael Every.
"The ECB have made a (false) economic case that QE helps inequality, when actually it
exacerbates it", he wrote while his colleague Christian Lawrence quipped that "next the ECB will
be telling us negative interest rates help the homeless".
ill-prepared for what's to come.
"Our global institutions, like central banks, are in serious trouble even before we have to
deal with a trade war, Hard Brexit, geopolitical risk, the May EU elections, or the next US
recession, any of which could happen".
Here's a link to the ECB's Twitter account and a video in which it explains why QE reduces
EUROPEAN STOCKS CURB THEIR ENTHUSIASM AS ECONOMIC CONCERNS LINGER (0956 GMT)
Although the headline news that the Fed is stalling rate hikes, heeding the market's
signals, was taken very positively, the fact euro zone stocks have already erased all their
early gains and the STOXX is close to doing so indicates investors are looking more closely at
the reasons why the Fed is taking a breather: and they're not good news.
The central bank removed its assessment that risks to the economic outlook are "roughly
balanced", and slightly downgraded its assessment of economic activity to rising at a "solid"
rate from a "strong" rate.
With trade tensions also still bubbling, there is no shortage of risks to equity investors.
Maya Bhandari, portfolio manager of multi-asset at Columbia Threadneedle, has written a note
considering those other risks. Here are her main calls on the trade war, recession fears, and
* a likely de-escalation of the trade war: "by all counts a zero-sum game"
* as a result, Asian and Japanese stocks in particular are likely to re-rate
* asset markets appear to be pricing in around a 50 percent chance of recession over the
* because of that bearish outlook, Bhandari reckons recession hedges "appear to be somewhat
* Columbia Threadneedle expects slower but above-trend economic growth in most regions,
mid-single-digit earnings growth
* on Brexit, the asset manager sees a 60 percent chance of an orderly exit, 20 percent
an extension of Article 50, and 20 percent chance of a no-deal
* multi-asset portfolios have continued to build sterling exposure across sterling-based
"further desensitise client portfolios to Brexit-induced swings in value"
Despite all this, the MSCI AC World stock index is still set for its best January ever - and
FED PATIENCE IS MUSIC TO MARKET'S EARS (0826 GMT)
The Fed's strong signal of stalling rate hikes has sent European markets rallying strongly
this morning, following yesterday's gains on Wall Street. The STOXX is up 0.5 percent at its
highest since Dec 4, and the DAX is up 1.1 percent.
used the word 'patient' seven times in the press conference."
It's a pause investors are cheering and using as an opportunity to buy back into stocks.
Otherwise, it's earnings galore this morning with heavyweight FTSE 100 companies Shell,
The oil and gas sector is up 1.8 percent to its highest since Dec 5 - nearly two
months - thanks to strong results from oil major Shell.
Unilever, on the other hand, is down 3 percent after its Q4 sales missed expectations due to
inflation in Argentina and flat volume growth in developed markets.
Here are today's top movers:
WHAT WE'RE WATCHING: EARNINGS ALSO FROM UNILEVER, BT, SHELL (0752 GMT)
European shares are expected to open higher today after a dovish policy decision by the
Federal Reserve sent Wall Street rallying and Asian equities to a 4-month high.
Futures on main European benchmarks are up 0.3-0.6 percent, setting the pan-European STOXX
600 index to open at its highest in nearly 2 months.
The gloomy macro backdrop that made the Fed more patient could help support the shares in
companies that pay stable dividends and are less exposed to the economic cycle such as utilities
and telecoms, while banks and cyclicals could face more headwinds.
On the corporate front, there are plenty of corporate results to digest.
stronger-than-expected quarterly results but traders called the stock to fall 2-7 percent at the
open saying its network guidance disappointed.
fall around 2 percent after it reported lower-than-expected fourth-quarter sales, hurt by flat
volume growth in developed markets. Swatch posted lower-than-expected results, hit by a downturn
in Asia and weak sales in France, sending its shares down 4-5 percent in premarket. Shell is
seen rising after Q4 profit beat expectations.
Other stock movers: H&M sticks to dividend despite surprise Q4 profit fall; Diageo's
half-year sales rise on India, China demand; announces share buyback; Berry Global considers
For more headlines check out the previous post.
HEADLINES ROUNDUP: NOKIA CONFIDENT, SWATCH DISAPPOINTS, BID WAR FOR OSLO BORS (0641 GMT)
Turning to the corporate front the session is likely to be livened up by some more earning
updates and one to watch this morning will be Nokia after the telecom network
equipment maker forecast stronger-than-expected 2019 results. News like this --> EU considers
proposals to exclude Chinese firms from 5G networks may also help.
On a downbeat note is Swatch, whose results missed expectations amid a downturn in
Asia and weak sales in France, while in M&A there's an nice development for Oslo Bors
Here's your headlines roundup:
Nokia sees strong 2019 profit
Swatch Group FY results disappoint, slowdown in Q4
Nasdaq bids $771 mln for Oslo Bors in Euronext challenge
Roche says operating profit rises, helped by Ocrevus
Essity Q4 core profit tops forecast
Deutsche Bahn discusses selling assets to boost finances - sources
Italy's Nexi set to sign up banks for IPO this week - sources
Italy's Popolare Bari says to beef up capital ratios in H1
Flybe dismisses top investor call for chairman removal, sale inquiry
PATIENT FED TO SEND EUROPEAN SHARES HIGHER (0622 GMT)
Indications from spreadbetters point to a stronger start on European stock markets today
after the Federal Reserve kept interest rates steady, signalling a possible end to its drive to
tighten monetary policy amid signs of slowing global growth.
The U.S. central bank discarded its promises of "further gradual increases" and said it
would be "patient" before making any further moves.
"Only a few months ago, the Fed was extremely confident and expected to hike three times in
2019 and a final time in 2020. Today, the Fed adopted a wait-and-see approach and carefully
removed references to further rate hikes," says Rabobank strategist Philip Marey.
"All’n all, both the FOMC statement and Powell’s press conference confirm our view that the
Fed’s pause is in reality the end of the hiking cycle. We expect the Fed’s target range for the
federal funds rate to remain unchanged for the remainder of the year, followed by rate cuts in
2020 as the economy starts to slide into a recession," he adds.
Frankfurt's DAX to open 54 points higher at 11,236 and Paris' CAC to open 24 points higher at
In Asia, stocks rose to a four-month high following the Fed's policy decision.