LIVE MARKETS-Earnings update: it's getting better all the time
* European shares climb
* Euro zone stocks set for 6th week of gains
* SocGen (Paris: FR0000130809 - news) , BNP (Paris: FR0000131104 - news) , HSBC tumble
LONDON, May 4 (Reuters) - Welcome to the home for real-time coverage of European equity
markets brought to you by Reuters stocks reporters and anchored today by Danilo Masoni. Reach
him on Messenger to share your thoughts on market moves:
danilo.masoni.thomsonreuters.com@reuters.net
EARNINGS UPDATE: IT'S GETTING BETTER ALL THE TIME (1414 GMT)
While flows may still be pointing south for European equities, earnings are starting to pick
up the pace, at least according to number-crunching by Goldman Sachs (NYSE: GS-PB - news) at the end of a heavy
earnings week.
First (Other OTC: FSTC - news) -quarter earnings are beginning to deliver more positive surprises as the season wears
on, GS strategists say.
Overall the average earnings surprise has been +5.7 pct market-cap weighted and +2.9 pct
equal-weighted - better than the historical average surprise of +1.5 pct.
Here are some more nuggets from the European earnings season:
- commodity-related sectors, boosted by higher materials prices, have surprised 5.9 pct to
the upside;
- tech companies have enjoyed 6.5 pct positive surprise, reflecting U.S. tech strength;
Overall year-to-date EPS have been revised up 0.5 percent, which is way better than the past
10 years which saw an average 5 percent downward revision from January to the start of May.
So things may be looking up for Europe! But whether this will attract investors back,
remains to be seen.
Below, a reminder that the gap between U.S. and euro zone forward 12-month EPS (in dollar
terms) has expanded pretty spectacularly recently:
(Helen Reid)
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EUROPEAN EQUITY OUTFLOWS CONTINUE, UK LOOKS INTERESTING (1345 GMT)
This chart (below) from BAML's 'Flow Show' note has caught our eye today. It shows that
around a third of the flows European equities have enjoyed over the past 15 months have been
unwound in the past seven weeks.
BAML's analysts call this "Europe's cyclical capitulation", pointing to a stronger euro
clipping EPS. For the full write-up, see the Reuters story here:
In a separate report, BAML analysts say that UK stocks "stay attractive" as a late-cycle
barbell trade of energy and quality stocks.
"The UK is attractively positioned for a late cycle investor mind-set. We have liked UK
stocks as our preferred late-cycle contrarian trade since early April," say BAML analysts in a
note.
"We continue to like the risk/reward in UK equities given the current macro fundamentals
combined with bearish positioning, improving technicals and attractive relative valuations,"
BAML adds.
(Kit Rees)
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NFPS MARKET REACTION: AS EXCITING AS THE UK LOCAL ELECTION (1302 GMT)
U.S. job growth increased less than expected in April and the market reaction on our side of
the Atlantic (Shanghai: 600558.SS - news) so far has been pretty much as exciting as yesterday's UK local elections: so not
that exciting to be honest.
The dollar and the euro wobbled a bit, European shares declined about 0.15 percent as the
figures hit our screens but are still in positive territory.
No need to hold the front page it seems.
Here's the story: U.S. job growth rebounds; unemployment rate falls to 3.9 percent
Here's a round-up of yesterday's vote: British PM May avoids London wipeout in local
elections
And here's a headline from The Independent that could pretty much sum up these NFPs and the
elections:
(Julien Ponthus)
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"WE'RE IN THE MONEY": MORE RELEVANT FOR BIG OIL THAN RETAILERS (1203 GMT)
"We’re in the money, the sky is sunny. Let’s lend it, spend it, send it rolling along".
Sainsbury (Amsterdam: SJ6.AS - news) 's CEO Mike Coupe singing the song from the musical 42nd Street on ITV (Frankfurt: A0BLQP - news) after announcing
a mega deal to buy rival supermarket Asda was a great moment of British television this week.
Here's a link to Monday's story:
That was fun but when you think about it, the song seems much better fitted for big oil CEOs
than retailers given how energy group are having a ball on the stock markets thanks to rising
oil prices.
In note this morning, HSBC analyst Gordon Gray takes a look at the big rise in cash flows
which were delivered by most oil majors during the Q1 earnings season.
"With (Other OTC: WWTH - news) average organic free cash breakevens of USD54-55/b this year, the oil majors are
moving into strongly free cash positive territory and we expect this year to show the biggest
aggregate FCF (free cash flow) in the sector for 12 years," Gray writes, adding that "big oil
managements' confidence in the outlook is clearly growing, as illustrated by recent dividend
increases from Chevron (Euronext: CHTEX.NX - news) , Exxon, ENI (LSE: 0N9S.L - news) , Statoil (LSE: 0M2Z.L - news) and Total (LSE: 524773.L - news) ".
So the question for the sector echoes that of a famous magazine: how to spend it?
"Results calls continue to focus on cash distributions, and notably the timing of the start
of buybacks at the likes of Chevron and Shell (LSE: RDSB.L - news) . We think these are coming (and in size)," Gray
says, warning however that investors should be careful to manage their expectations on that
front.
Prospects look good in terms of valuation too as HSBC sees a 9 percent upside to the stocks
it has a "buy" rating on.
"Not huge, but still more to go for after the sector's strength, particularly given
attractive dividend yields".
Have a look at the European oil and gas sector versus retail over the last year and have a
guess who should be singing "we're in the money"!
(Julien Ponthus)
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MIDDAY SNAPSHOT: STOXX SETTLES INTO POSITIVE TERRITORY (1117 GMT)
We're halfway through the session and all seems well for European equities, which are being
led higher by well-received earnings reports and a broad bounce among cyclical sectors.
Over in the U.S., stocks futures are pointing to a muted start for Wall Street ahead of jobs
data due at 1230 GMT.
Here's your snapshot:
(Kit Rees)
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WHAT'S THAT SMELL? IT'S THE 2019 DOWNTURN! (1059 GMT)
No need to panic just now but it does make sense to start worrying about an incoming
downturn - that is, in a nutshell, the key takeaway of a research note by BNP Paribas (LSE: 0HB5.L - news) ' chief
market economist.
"A flatter U.S. curve, wider BBB bond spreads and a grudging response of stocks to very good
profit increases all smell sour," writes Paul Mortimer-Lee for whom "the warnings such as from
the yield curve are about next year".
He takes the view that "shortages of supply are having serious effect on growth in some
sectors in some countries, with global value chains helping to transmit this, turning last
year’s story of synchronized growth into synchronized slowdown."
Mortimer-Lee makes what he calls an out of consensus call, that "2019 will see a significant
slowdown, led by the U.S.," which would already be in a downturn if not for the Trump
administration's massive fiscal stimulus.
(Julien Ponthus)
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ART OF THE DEAL: GLOBAL M&A BOOM NOTHING TO WORRY ABOUT, YET (1005 GMT)
While surging M&A is one of the indicators Citi considers in its "bear market checklist",
strategists at the U.S. bank don't see the uptick in dealmaking as a concern just yet.
2018 is on track to be the biggest M&A year in history if we annualise current rates of
dealmaking, notes Citi. The latest Thomson Reuters (Dusseldorf: TOC.DU - news) data shows worldwide M&A totals $1.7 trillion
so far this year, up 64 percent compared to the same period last year.
And the deals are not close to stopping: "Robust global economy, attractive financing
conditions and high CEO confidence should drive further activity," says Citi's global equity
strategy team.
But they're comforted by their measure of six-month trailing M&A which currently sits at 3.2
percent of global market cap, below the 5-6 percent reached in previous bull market peaks.
Citi's Robert Buckland and team say they would be wary if this measure rises above 3.5 percent.
The UK has been the strongest driver of M&A globally so far, with cheap valuations and a
weakened currency offering an opportunity for what they call "overseas predators".
So, with nothing big to worry about yet, investors positioning for dealmaking should be
overweight the UK and U.S., while they should avoid Japan. Sector-wise, healthcare and consumer
discretionary have seen the most activity, Buckland notes.
On the same subject yesterday: M&A in the UK: which stocks are targets?
(Helen Reid)
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HAVE WE REACHED PEAK EARNINGS? (0924 GMT)
While global earnings upgrades still outnumber downgrades, the trend suggests EPS revisions
may have just peaked, and investors are getting less confident about the global profit cycle,
says JP Morgan European equity strategist Khuram Chaudhry and team.
U.S. and Japanese stocks dominate the upgrades while most of the downgrades are coming from
Europe and EM, they note.
"We are increasingly nervous that the global profit backdrop will deteriorate further over
the coming months, based on investors' focus on EPS growth (which lags EPS revisions), a
potential pickup in inventories versus a slowing order book as inflation expectations moderate,
and continued deterioration in money supply growth across the regions," the strategists argue.
On a sector level, they find cyclicals' earnings expectations are peaking while defensives
are hitting a bottom - indicating a turndown in cyclicals could be around the corner.
"The trend in U.S. technology and global material stocks makes us most nervous, but
interestingly utilities appear to be bottoming," they note.
As you can see below, a turn down in European earnings revisions has often accompanied a
fall in cyclicals' performance relative to defensives.
(Helen Reid)
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OPENING SNAPSHOT: BAD DAY FOR FRENCH BANKS, AIR FRANCE TUMBLES (0717 GMT)
Overall it's a strong start for European stocks with Italy's FTSE MIB outperforming, up 0.7
percent.
But results are sending some sharply down. Societe Generale (Swiss: 519928.SW - news) and BNP Paribas are both
suffering at the open, down 6.3 percent and 3.2 percent respectively. Weaker than expected
revenues from SocGen are the culprit, traders say, saying the bank's fixed income, currencies
and commodities (FICC) and equity segments both underperformed peers. The stock has hit a
6-month low.
BNP Paribas meanwhile had a drop in profits and traders also pointed to a "light" capital
ratio.
Air France (Paris: FR0000031122 - news) is also suffering at the hands of investors, falling 5.5 percent after saying it
expects strikes in France to hit 2018 profits.
Meanwhile German materials and chemicals firm Lanxess (IOB: 0H7I.IL - news) is leading the STOXX, up 7.2 percent
after hiking earnings guidance.
Ferrari (Xetra: 30092157.DE - news) is rising 4.2 percent, with traders still citing CEO Marchionne's comment in results
yesterday midday that most of its models were sold out for 2018.
(Helen Reid)
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WHAT YOU NEED TO KNOW BEFORE THE BELL (0650 GMT)
European shares are set to bounce back today following losses in the previous session as
earnings continue to roll in, while the recent strength in the dollar has put the euro zone
STOXX index on track for its sixth straight week of gains - its longest winning streak since
September 2017. Stock index futures on main country indexes were up 0.3-0.6 percent.
It's a heavy day of results for financials with HSBC reporting an unexpected 4 percent drop
in first-quarter pre-tax profit due to a surge in investments, sending the stock down 2 percent
in premarket although the pill may be sweetened by a new share buyback plan of up to $2 billion.
French bank BNP Paribas (down 1-2 percent premarket) posted a 17 percent fall in quarterly
net profit on revenues falling short of expectations, weighed down by a weaker dollar and
sluggish fixed income trading. Shares (Berlin: DI6.BE - news) in Societe Generale could also fall with one trader saying
its quarterly profit was below consensus and its capital ratio slightly light.
Numbers from insurance heavyweights Swiss Re (LSE: 0QL6.L - news) and Generali (EUREX: 566030.EX - news) showed better than expected
profits, while a stronger euro impacted the value of sales at France's biggest insurer AXA (Paris: FR0000120628 - news) .
Elsewhere, forex headwinds were also blamed by German luxury carmaker BMW (EUREX: BMWE.EX - news) for its 3 percent
drop in quarterly operating profit.
Eyes also on Telecom Italia (Amsterdam: TI6.AS - news) on the day when its top two investors - Vivendi (LSE: 0IIF.L - news) and activist
fund Elliott - will face off for the first time as they put their battle over board seats at the
Italian phone group to a shareholder vote.
News that Bayer (IOB: 0P6S.IL - news) sold a further Covestro (IOB: 0RBE.IL - news) stake for 2.2 bln euros may also be welcome as it
could reduce the cash call the company will need to fund its takeover of Monsanto (Hamburg: 1132157.HM - news) .
(Danilo Masoni)
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FUTURES POINT UP AS BUSY EARNINGS WEEK DRAWS TO A CLOSE (0630 GMT)
Futures have opened higher, indicating gains for the main European benchmarks on a busy
earnings day at the end of the second heaviest week of results. Futures are trading up 0.2 to
0.5 percent.
All eyes today are on non-farm payrolls, which Goldman Sachs expects to come in at a 180k
increase for April, a little below consensus estimates for a gain of 190k.
Some more headlines to watch as UK results start coming in. British Airways owner IAG is
keeping quiet on its potential takeover of Norwegian Air, and publisher Pearson (Xetra: 858266 - news) could see relief
after results suggested it's on track with its turnaround.
Pearson on track after first quarter revenue rises 1 pct
Hotelier IHG posts 3.5 pct rise in first-qtr global room revenue
National Grid CFO Bonfield steps down
British Airways-owner IAG profit jumps, silent on Norwegian
Smurfit Kappa Q1 earnings up 22 pct, FY seen materially better
(Helen Reid)
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EARLY MORNING HEADLINE ROUNDUP (0549 GMT)
HSBC Q1 profit misses estimate, unveils $2 bln new share buyback
BNP Paribas Q1 profit falls on back of trading weakness in Europe
Swiss Re Q1 net profit down 30 pct on year but beats expectations
Generali gets non-life lift in Q1 to top forecasts
Insurer AXA's Q1 revenues dip 2.7 pct
Air France-KLM (LSE: 0LN7.L - news) reins in profit and growth expectations amidst strikes
Bayer sells further Covestro stake for 2.2 bln euros
BASF Q1 operating profit gains slightly on basic chemicals, oil
Lanxess hikes guidance as specialty chemicals demand boosts Q1
Boardroom showdown could alter Telecom Italia's future
Norway oil firms, workers agree 2.8 pct wage rise
Ex-Volkswagen CEO Winterkorn charged in U.S. over diesel scandal
Vonovia (Milan: VNA.MI - news) launches capital increase to fund Victoria Park (LSE: 0QIC.L - news) buy
Sweden's Vattenfall boosts its EV charging market with Volvo Cars deal
(Danilo Masoni)
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MORNING CALL: EUROPEAN SHARES SEEN BOUNCING BACK (0527 GMT)
Following losses in the previous session, European shares are seen bouncing as earning
updates continue to flow, while the recent surge in the dollar has put the the euro zone STOXX
benchmark on course for its sixth straight week of gains, the longest winning streak
since September 2017.
"The rise in the US dollar is starting to exert some downward pressure on US stock markets,
while European markets, despite a negative session yesterday look set for their sixth
consecutive positive weekly finish," says Michael Hewson, analyst at CMC Markets (LSE: CMCX.L - news) .
Financial spreadbetters expect London's FTSE to open 29 points higher at 7,532, Frankfurt's
DAX to open 53 points higher at 12, 744 and Paris' CAC to open 19 points higher at 5,521.
Over in Asia, shares stepped back while the dollar ran into some profit-taking after a
strong week of gains as financial markets turned their attention to looming U.S. payrolls data
for fresh catalysts.
(Danilo Masoni)
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