LIVE MARKETS-Equity volatility to track slowing economic growth
* European shares rise, shrug off new Iran sanctions
* Iran-exposed stocks in focus: Airbus, Peugeot (Other OTC: PUGOF - news) , Renault (LSE: 0NQF.L - news) and Total (LSE: 524773.L - news)
* Earnings flow in: eyes on Siemens (BSE: SIEMENS.BO - news) , Deutsche Telekom (IOB: 0MPH.IL - news) , AB InBev (Brussels: ABIT.BR - news) , ING
* Italian stocks bounce back after sell-off
May 9 (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
EQUITY VOLATILITY TO TRACK SLOWING ECONOMIC GROWTH (1333 GMT)
Volatility has been relatively muted recently, with swings in the VIX much smaller than they
were in February, and the absolute level down to 14.5. But average volatility will remain high,
tracking the slowdown in economic indicators, according to Goldman Sachs (NYSE: GS-PB - news) .
Analysts at GS expect baseline monthly S&P 500 realised volatility to average 13 percent in
the second half, up 6 points from 2017 but below the 19 percent year-to-date - amplified by
February's spike. That would translate to 15 percent volatility for the full year 2018.
GS says the recent increase in S&P 500 realised volatility is only half explained by changes
in economics, however, suggesting the market is actually already pricing in significant
moderation in the economy.
Interestingly, GS analysts also reckon short VIX ETPs are no longer a significant risk.
"The VIX ETP dynamics that contributed to unusual February volatility are unlikely to repeat
in the near-term," they write. "There is no longer an imbalance of investors 'short volatility'
through VIX ETPs, and some products that remain have modified their strategies to limit the
automatic flows in the event of another VIX spike."
(Helen Reid)
*****
MADE YOUR PEACE WITH PEAK GROWTH? NOW GET OVER PEAK EQUITY VOLUMES! (1256 GMT)
Slowing Euro zone PMIs have been a key theme for about two months now, and according to a
UBS (LSE: 0QNR.L - news) research note this morning, GDP growth isn't the only thing that peaked.
"We have identified a number of fundamental drivers of cash equity volumes in Europe –
forecasted earnings growth, earnings momentum and passive flows into European equity products –
all of which have deteriorated in recent months, indicating that upside to cash equity
volumes is limited from these levels," the bank's analysts write.
While the February sell-off and its surge in volatility boosted trading volumes across Wall
Street and European trading floors alike, this upward trend is unlikely to continue.
"That growth appears unsustainable as volatility has returned to more normalized levels,"
UBS analysts say, pointing to a likely "cyclical peak".
Why should you care? Well, if you're an investor in stocks highly exposed to volume or
volatility, such as Euronext (Euronext: ENX.LS - news) or BME, volume matters - as you can see in this
chart from the UBS note.
Another relevant stock, seen as a bellwether for market turbulence and volatility, is Dutch
market-maker Flow Traders (Munich: 28762087.MU - news) .
February's market swings gave it a shot in the arm, but it's fallen back since it reported
first-quarter results boosted by a spike in volume.
The reason for the retreat is the belief that peak volume is behind us.
"The beat in (Q1) net profit should be treated as a one-time only bonus," Degroof Petercam
analysts said at the time, noting that the surge in volatility (which translates into profits),
was over.
Below you can see how Flow Traders' share price was dragged down by extremely low volatility
in 2017, then jumped during the sell off, and retreated in April.
(Julien Ponthus)
*****
A LITTLE LESS CONVERSATION, A LITTLE MORE ACTION FOR VIVENDI? (1235 GMT)
After Spotify's blockbuster listing, investors have had a sharpened focus on the
music market, and there's been a lot of talk especially about Vivendi (LSE: 0IIF.L - news) 's music arm, Universal
Music Group, seen by some as a potentially attractive asset apart from the French conglomerate.
Morgan Stanley (Xetra: 885836 - news) analysts expect Vivendi to clarify its position on a potential IPO
of Universal Music Group on May 17 when the French group releases its earnings update. The
market is undervaluing UMG by 30 to 50 percent at the current share price, they estimate -
saying a fair valuation would be around $25 billion.
If Vivendi does decide to float, investors should focus on the following, according to MS:
- will investors price UMG at more than the valuation currently implied by Vivendi's share
price?
- what impact might this have on Vivendi's conglomerate discount?
- what might Vivendi do with the cash it receives?
- will a significant number of shareholders simply switch their shareholding in Vivendi to
UMG?
- what impact might there be on Vivendi's ability to grow its dividend payments over time?
"Our impression is many Vivendi shareholders own the stock primarily for the exposure it
gives them to UMG," MS analysts say. If so, they might look to transfer to Universal instead of
Vivendi. "It's hard to call how big a drag on the Vivendi stock price this might be, but it is
also hard to argue there wouldn't be one."
Analysts have grown more positive on Vivendi over the past years, as you can see below:
(Helen Reid)
*****
GONE MISSING: 314 BILLION EUROS (1101 GMT)
They won't be missed though.
The 314 billion euros is the decline in non-performing exposures for the banks of the
European Union between Q1 2015 and Q4 2017, BNP Paribas (LSE: 0HB5.L - news) highlights in its "chart of the week".
"This decline of about a third is notably attributable to the resumption of stronger growth
and to the banks’ active management of non-performing exposures outstanding," the French bank's
economic research said, adding that a rise in new loans "helped bring down the ratio of
non-performing exposures from 5.3% to 3.6% over the period."
The fall in non-performing loans of Italian banks has been flagged as a key indicator for
the return of optimism on the Milan stock market but the situation, more worryingly, has not
improved in Greece as you can see below. Italian banks are up nearly 14 percent this
year.
That said, more broadly European banks are still major underperformers this year,
down about 3.3 percent while the STOXX has made it back from the red with a 0.4 percent rise
during the same period.
(Julien Ponthus)
*****
ITALY? "THEY'LL WORK OUT A GOVERNMENT DEAL" (1036 GMT)
Markets gave Italy a powerful warning yesterday about the possible consequences of a snap
election but after a fall of as much as 2.4 percent, the top FTSE MIB index is back on
the rise, up more than 1 percent and leading gainers in Europe, while bond yields ease.
It looks like investors are hopeful again that a government deal could eventually be reached
following inconclusive elections in March, averting the risk of a snap vote in July or in the
autumn. Among them is Enrico Vaccari, fund manager at Italy's Consultinvest.
Here's a quick Q&A with him.
* Vote in the autumn? "I don't think we're heading into elections. For populist forces it
would be
a suicide"
* What kind of government? "Newspaper reports have suggested there could be a government
between
the League and the Five Star movement with support from Berlusconi. The hypothesis looks quite
credible"
* But Berlusconi has denied? "Despite his denial there are reports saying talks are ongoing
and
there is hope in markets they will eventually reach a deal. They're just negotiating what kind
of support Forza Italia's going to provide"
* Confident? "I believe they'll work out a government deal. The 2 percent drop yesterday in
Italian stocks sounded alarm bells... although with Italy you never know."
Here's the story about Berlusconi's denial.
And here's your weekly FTSE MIB chart.
Ten-year government bond yields are also down, pulling back from a fresh
six-week high hit in early trading.
(Danilo Masoni)
*****
IRAN: IT MAINLY HURTS IF YOU'RE A FRENCH CARMAKER (1013 GMT)
Why let an international crisis over a nuclear deal in the Middle East interfere with the
serious business of a heavy earnings day?
While the Trump administration pulling out of the Iran nuclear deal had long been flagged as
a major political risk, equity markets are shrugging it off in what looks like a textbook "sell
the rumour, buy the fact" move.
There's only a handful of blue-chip European stocks which are suffering this morning ahead
of the sanctions about to hit the OPEC country.
French car makers Renault and Peugeot, which had moved swiftly to sign new production deals
in Iran, are the main losers - down 1 percent and 1.6 percent respectively.
Airbus is down 0.85 percent this morning, to roughly the same extent as Boeing (NYSE: BA - news) yesterday
(-0.6 pct).
Other companies identified as likely losers from a new Iranian crisis, like Siemens, Alstom (EUREX: 2229080.EX - news)
or Total, are trading comfortably in positive territory.
"It dents sentiment but we have yet to see to what extent sanctions will play out," a trader
cautiously said this morning.
Here's a useful "Factbox" about big deals and contracts signed by international corporations
in Iran after the international sanctions were lifted:
Here's a snapshot of how these shares are doing at 0945 GMT:
(Julien Ponthus and Helen Reid)
*****
OIL STOCKS SURGE ON IRAN NEWS: WHERE TO FROM HERE? (0950 GMT)
Trump pulling out of the Iran nuclear deal has sent crude prices rocketing higher, taking
oil stocks up with them.
Europe's oil stocks index has just hit its highest level since September 2014, up 2 percent,
and looks like it's catching up with crude prices after a long period of lagging the underlying
commodity.
Exane analysts say big oil offers free cash flow yields increasingly attractive versus their
own recent history and the broader market, and note the sector remains "largely unloved" by
equity generalists.
They do note that "geopolitical and regulatory risks won't ease, with a higher risk premium
for Big Oil," however. With (Other OTC: WWTH - news) much of the recent boost to oil coming from geopolitical
developments, analysts are questioning whether the price could come back down again.
Exane is positive on Shell (LSE: RDSB.L - news) , Total, BP, neutral on Chevron (Euronext: CHTEX.NX - news) , Eni (LSE: 0N9S.L - news) , Repsol (Amsterdam: RP6.AS - news) and Statoil (LSE: 0M2Z.L - news) , and
negative on Exxon Mobil (Swiss: XOM-USD.SW - news) and Galp.
If oil prices stay at these levels, Eni metrics will improve markedly, they say, and they
recommend some E&P exposure through Tullow and Aker BP (LSE: 0M5J.L - news) .
What's going to define the path of big oils this year?
Exane estimates around $30 billion of excess cash flow from their coverage pre-M&A between
2018 and 2019, and expect the priority order of usage to be: buybacks, selective acquisitions,
and deleveraging.
(Helen Reid)
*****
OPENING SNAPSHOT: KEEP CALM AND CARRY ON WITH THE EARNINGS SEASON (0816 GMT)
European bourses have opened flat or in positive territory and early trading looks just like
what would be expected during a busy earnings season rather than after a geopolitical game
changer in the Middle East. Here's what it looks like:
Which brings us to the following question: have stock markets grown immune to political
risk? Investors sure do give the impression they can shrug off any political risk thrown at them
and keep their cool, far from the "extreme greed and extreme fear" clichés that are sometimes
used to define their behaviour.
In that regard, 2017, when the French elections were spooking investors, seems a long time
ago in contrast with the cool-headed market reaction to the Trump administration pulling out of
the Iran deal.
Research notes this morning are clearly telling investors to keep calm this morning and
carry on while keeping an eye on the big picture.
"While we will monitor risks, we believe stocks can continue to grind higher over the
intermediate term, supported by strong global economic and earnings growth," wrote the CIO of
UBS WM, noting that "geopolitical tensions will likely remain elevated and oil price risk
continues to be skewed to the upside."
For Berenberg, "the new US sanctions against Iran add a further dimension to a list of risks
ranging from an overblown inflation scare to geopolitical concerns and the serious trade
tensions stoked by US president Donald Trump."
There is, however, no reason to panic, their analysts say.
"Could this turn into a toxic mix that threatens the global economic upswing? While we
cannot rule it out completely, that still looks rather unlikely, in our view."
(Julien Ponthus)
*****
WHAT YOU NEED TO KNOW BEFORE THE OPEN (0645 GMT)
European shares are set to open slightly higher as investors digest a flurry of earning
updates and Trump's decision to pull the US out a nuclear deal with Iran and reinstate
sanctions. Futures on main country benchmarks are up 0.1-0.2 percent, further building on the
slight advance seen on Tuesday that pushed the STOXX 600 to new 3-month highs, as the region
equities find support in a weakening euro and an earnings season which Morgan Stanley says is
shaping up as a "marginal beat".
According to Thomson Reuters (Dusseldorf: TOC.DU - news) data, earnings beats on the MSCI EMU index outnumbered missed
by nearly 6 to 3 so far with first quarter growth seen at 3.2 percent in local currency.
On the M&A front, big news from Vodafone which agreed an 18.4 billion euro deal to buy
Liberty Global (Frankfurt: A1W0FL - news) 's operations in Germany, Czech Republic, Hungary and Romania, sending its shares
down 1 percent in premarket.
Here are some top earning headlines: Siemens lifts FY profit guidance after one-off gain
(+2-3% pre-mkt); AB InBev boosts profits in Latam, but stumbles in U.S. (+2-4% pre-mkt);
Deutsche Telekom raises EBITDA guidance as T-Mobile US performs (+1% pre-mkt) ; ING posts $2 bln
Q1 pretax profit, beating estimates (+1% pre-mt); Cold winter hits HeidelbergCement (IOB: 0MG2.IL - news) core profit
(-3% pre-mkt).
Back to the Iran developments eyes will be on Airbus, after US Treasury Secretary Steven
Mnuchin said its license to sell passenger jets to Iran will be revoked. Its shares were down 1
pct in premarket. Traders will also be watching shares companies like Siemens, Peugeot, Renault
and Total with operations in Iran.
(Danilo Masoni)
****
EUROPEAN STOCK FUTURES EDGE UP (0611 GMT)
European stock futures have opened marginally in positive territory, up 0.1-0.2 percent as
investors digest a flurry of earnings updates and Trump's decision to pull the United States out
of an international nuclear deal with Iran.
Here's your snapshot:
(Danilo Masoni)
*****
HEADLINES ROUNDUP: MOSTLY EARNINGS (0549 GMT)
There's a flurry of earnings updates to look at this morning and more are to come during the
day. Besides results we'll also be looking for any fallout of Trump's decision to abandon the
nuclear deal. Licenses for Boeing Co and Airbus to sell passenger jets to Iran
will be revoked, U.S. Treasury Secretary Steven Mnuchin said.
Here are your main headlines.
Deutsche Telekom raises EBITDA guidance as T-Mobile US performs
ING posts $2 bln Q1 pretax profit, beating estimates
Zurich Insurance Q1 premiums beat expectations
AB InBev profit gains as Latin America offsets weak United States
Nokian Tyres (EUREX: 373439.EX - news) misses market expectations in Q1, cites currency effects
Siemens lifts full year profit guidance
Delivery Hero Q1 revenue surges 61 pct
Strong adhesive sales make up for Henkel (LSE: 0IZ8.L - news) delivery woes
TUI (LSE: 0NLA.L - news) confirms FY profit target, approves new ship for Hapag-Lloyd Cruises
Belgian billionaire Frere to sell Burberry stake
Fraport (IOB: 0O1R.IL - news) says Frankfurt traffic up 5.8 pct in Apr, Q1 results beat
Cold winter hits HeidelbergCement core profit
SMA Solar posts profit rise on stronger demand in Europe, Asia
Ahold Delhaize Q1 sales increase as U.S. operations improve:
Norwegian Air says takeover interest validates business model
Norwegian Air's CEO says "at the right price, anything is for sale"
Deutsche Bank (IOB: 0H7D.IL - news) denies planning to cut U.S. workforce by 20 pct
Italy's BPER selects 6.4 bln soured loan portfolio for possible sale
Spain's Banco Sabadell fined by ECB over capital buyback
Millennium bcp likely to resume dividend payouts after 2018
Springer Nature cancels Frankfurt stock market listing
Total's Iran gas deal hangs by a thread after Trump dumps nuclear deal
(Danilo Masoni)
*****
MORNING CALL: EUROPEAN SHARES SEEN LITTLE CHANGED (0526 GMT)
European shares are set for a flat start today with financial spreadbetters expecting
London's FTSE to open 7 point higher at 7,573, Frankfurt's DAX to open 22 points higher at
12,934 and Paris' CAC to open up 4 points at 5,526.
Over in Asia, crude oil prices jumped back to near 3 1/2-year highs after President Donald
Trump pulled the United States out of an international nuclear deal with Iran, sparking worries
about global oil supplies.
(Danilo Masoni)
*****