LIVE MARKETS-Is this the end of cyclicals' 2-year bull market?
* European stocks inch up, set for weekly gain
* JPMorgan (LSE: JPIU.L - news) , Citi report double digit profit rise
* Wall Street futures steady
LONDON, July 13 (Reuters) - Welcome to the home for real-time coverage of European equity
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IS THIS THE END OF CYCLICALS' 2-YEAR BULL MARKET? (1224 GMT)
Oh no, it looks like it could be coming to an end, according to Morgan Stanley (Xetra: 885836 - news) 's European
equity strategy team.
They point to the relative performance of European cyclicals falling back to its 12-month
average for the first time since 2016 - see their chart below.
"With (Other OTC: WWTH - news) the global economic surprise index now rebounding, we think it possible that cyclicals
will bounce in the very short-term," Morgan Stanley's strategists say.
"However, a wider peaking in year-on-year growth momentum, coupled with high relative
valuations, likely points towards the end of this multi-year period of cyclicals'
Reflation trade, where have you gone?
MIDDAY SNAPSHOT: OFF HIGHS (1125 GMT)
European shares are quietly inching higher with the STOXX 600 a bit off earlier highs, up
0.2 percent, but still on track to score its second weekly gain in a row.
Meanwhile in the U.S., where JP Morgan has just reported an 18 percent rise in quarterly
profit, Wall Street futures were pointing to a steady open following yesterday's
rally when expectations for a bumper second-quarter earnings season keep investors upbeat.
Later on today investors will also be eyeing numbers from Citi and Wells Fargo (Swiss: WFC-USD.SW - news) .
Here's where we stand at the moment on the European stock market.
AIRPLANE! WHAT IF OTTO COULD DO THE JOB? (1045 GMT)
Remember 'Airplane!', the 1980 parody movie staring Leslie Nielsen and Otto, the inflatable
Well artificial intelligence has made quite some progress since then to the point that
single-pilot technologies could become a reality in 5 years, argues UBS (LSE: 0QNR.L - news) in a in-depth research
note where it has studied how this might benefit the industry.
"We estimate moving from two pilots to one in cargo and passenger airplanes implies a $15bn
profit opportunity, with fully pilotless planes a further $20bn," the bank's analyst reckon,
adding that "in our view, the market is not currently pricing in any benefit for airlines or
Here's UBS' list of the stocks which are the most likely to benefit most, including from
American Airlines (Frankfurt: A1W97M - news) , Delta Air Lines (NYSE: DAL - news) , IAG, Lufthansa (Xetra: LHAB.DE - news) and United (Shenzhen: 000925.SZ - news) .
Here's a link to a story with anecdotes about Leslie Nielsen and the shooting of
NOT ALL CAPITAL GOODS STOCKS ARE BAD BETS (102 GMT)
Europe's industrial goods index is the best performing today but over the last month it has
lagged the broader market, caught in the crossfire of worries over an economic slowdown and an
escalation of the trade dispute between Washington and Beijing.
Analysts at Goldman Sachs (NYSE: GS-PB - news) have found that the sector's premium to the market has fallen to
16 percent, hitting the lowest is 24 months, and although it's still not time for a broad-based
sectoral bet they see some opportunities emerging.
"We have seen in prior slowdowns (see snapshot below) that within 12-18 months, the sector
premium disappears, which could also be a risk now if the data further decelerates," they say.
The pullback however has made some late-cycle companies interesting again.
"We see attractive entry points for late-cycle names that can still deliver earnings
acceleration (ABB (LSE: 0NX2.L - news) , Andritz (IOB: 0MJZ.IL - news) , FLSmidth, Konecranes (LSE: 0MET.L - news) ) or have self-help opportunities (Melrose (LSE: 136541.L - news) ,
Schindler)," they add.
GOLDILOCKS AND THE FOURTH BEAR (0922 GMT)
Remember 2017 and that cosy place nicknamed "Goldilocks"? What happened to that sweet spot
of global synchronised growth and low inflation which provided investors with the ultimate "not
too hot, not too cold" environment?
Well, three bears came along, argues Dominick DeAlto, chief investment officer for fixed
income at BNP Paribas Asset Management.
The bears' names are "signs of diverging growth across major economies, a stronger US dollar
and material risks of a broadening trade war", DeAlto wrote in an outlook note.
"These 'three bears' are likely to make for a much more challenging environment for risk
assets going forward", he argues noting that "absent in the fable, but very real in today's
story, would be a 'fourth bear', which is inflation".
"This fourth bear may be dormant for the time being, but the state of the business cycle and
accommodative monetary policy suggests this may not last indefinitely", DeAlto adds.
Here's how BNP (Paris: FR0000131104 - news) sums up what changed in the last six months:
OPENING SNAPSHOT: EUROPEAN SHARES BOUNCE (0713 GMT)
European shares have opened higher as the market focus shifts from the U.S.-China trade
dispute to the second quarter earnings season, as big banks over in the U.S. are set to give
updates later in the day.
The early bounce is pretty broad in Europe, with sectors such as tech, autos and industrials
leading the way.
Company updates are spurring moderate moves in insurer Storebrand (LSE: 0NO0.L - news) , recruiter Hays
and DCC (Frankfurt: DCC.F - news) , which are all up between 2.3 to 3.6 percent, while insurer Gjensidige
and GAM are the biggest fallers.
Here's your opening snapshot:
MORNING HEADLINES: ANTITRUST, FROM M&A TO DIPLOMACY (0559 GMT)
There is no shortage of M&A related news this morning, surely enough to keep merger
arbitrage funds quite busy particularly with the U.S. Justice Department trying to undo AT&T (Swiss: T-USD.SW - news)
Inc's $85.4 billion acquisition of Time Warner (Frankfurt: A0RGAY - news) a month after the deal closed.
The media sector is buoyant as ever, also on our side of the Atlantic (Shanghai: 600558.SS - news) with the ongoing
takeover battle for Sky (Frankfurt: 893517 - news) .
On the antitrust front, EU regulators have approved Ryanair's planned acquisition of
LaudaMotion without conditions and sources told Reuters Linde and Praxair
will win approval regulatory clearance for their planned $83 billion merger after
pledging to sell Praxair (NYSE: PX - news) 's assets to boost a Japanese rival in Europe.
Still on the regulatory front, Goldman Sachs and the world's biggest cablemaker Prysmian (EUREX: 3056144.EX - news)
, Nexans (EUREX: NXSG.EX - news) and eight other cable companies lost their challenge against a 302 million
euros EU cartel fine.
Speaking of antitrust, it's tempting to make a link with U.S. President Donald Trump's visit
to the UK and blasting Theresa May's Brexit plans by saying a free trade deal with Britain might
The fact Trump told The Sun that former Foreign Secretary Boris Johnson "would be a great
Prime Minister" after he resigned in protest at May's Brexit plans makes the U.S./UK
relationship as "special" as ever.
"Trump’s declaration that this softer version of Brexit would mean that a trade deal with
the US was “probably” off the table, was a blow to both host Theresa May and the pound, sending
sterling tumbling overnight", commented Jasper Lawler, head of research at LCG.
On the stocks front, European futures are up as expected, between up 0.2 percent for the
IBEX and 0.53 percent for the DAX and the FTSE.
MORNING CALL: EUROPEAN SHARES SEEN RISING AT THE OPEN (0519 GMT)
European shares are expected to follow the optimistic trend set in Asia and on Wall Street
and open this session in positive territory.
Expectations of a strong earnings season in the United States are supporting shares and
trade war fears are currently kept in check even with China reporting a trade surplus with the
United States of $28.97 billion in June, the highest on record.
Financial spreadbetters expect London's FTSE to open 41 points higher, Frankfurt's DAX up
57 points higher and Paris' CAC to rise 25 points.
(Reporting by Helen Reid, Danilo Masoni, Julien Ponthus and Kit Rees)