LIVE MARKETS-Finding shelter in defensives as earnings upgrades roll in
* European shares edge lower
* Fiat Chrysler fall on Marchionne health crisis
* Ryanair, Julius Baer (LSE: 0QO6.L - news) , Philips (Amsterdam: PHIA.AS - news) down after results
July 23 (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
FINDING SHELTER IN DEFENSIVES AS EARNINGS UPGRADES ROLL IN (1029 GMT)
Trade concerns are keeping investors on edge but the broader market in Europe has been
moving sideways over the past few weeks and year-to-date it's down just around 1 percent,
supported by fresh interest in defensive plays.
And today's price action appears to be mirroring just that with utilities, telecoms and real
estate - whose domestic exposure shields them from trade jitters - helping the STOXX 600
briefly erase losses.
"We think the case to position defensively is building," Morgan Stanley (Xetra: 885836 - news) analysts led by
Matthew Garman write. "Given this backdrop, we think it has been important to question both when
to turn Defensive, but also crucially how to turn Defensive."
In the note they recall their recent upgrade of European utilities and pharma
to overweight and equal-weight respectively.
As you can see in this chart, defensives have started to outperform cyclicals in April but
the gap widened more recently in May when earnings upgrades on the STOXX index started to
outnumber downgrades.
(Danilo Masoni)
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STORMY SKIES AHOY FOR UK EQUITIES (1017 GMT)
Europe may be basking in the summer heat wave but don't expect any blue skies ahead for UK
equities, says JP Morgan's equity strategy team.
In a pretty bearish note this morning, they cite three main reasons behind their view. One
is that they expect sterling to strengthen modestly, which is a headwind for stocks, but if it
weakens then that would likely be due to a tail risk political outcome materialising, so also
not great.
Another is the oil price, a helpful factor for UK stocks in Q2 which they worry could see
some downside. Finally the UK's sector composition might not be the most useful for times ahead.
"UK performs relatively better when global equities are falling and when bond yields are
moving lower, as it is a defensive high dividend yielding market. We believe global equities
will move higher in 2H, and expect bond yields to move higher too, which doesn’t bode well for
the relative performance of the UK stocks," write JP Morgan's equity strategists.
Unsurprising then that they are sticking with their 'underweight' on UK equities.
(Kit Rees)
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STOXX SET FOR THREE-DAY LOSING STREAK (0753 GMT)
European shares are off to a weaker start today as caution over trade is sending the STOXX
600 benchmark down 0.4 percent, on track for its third straight day of losses, and
keeping most sectors in negative territory.
Investors are bracing for Wednesday's meeting in Washington between Trump and EU Commission
President Jean-Claude Juncker to discuss strained trade relations. Besides that the main focus
are earnings and this week is pretty heavy in releases.
Here's your snapshot:
(Danilo Masoni)
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WHAT WE'RE WATCHING BEFORE THE OPEN: FIAT CHRYSLER & EARNINGS (0650 GMT)
European shares are expected to open lower on Monday following losses in Asia overnight as
worries over a possible trade war linger following Trump's threat last week to slap tariffs on
$500 billion of Chinese imports. Futures are down 0.4-0.5 percent.
The expected losses however are unlikely to push the pan-European STOXX 600 index outside
the narrow range it has been trading in over the last couple of weeks as growing optimism around
company earnings provide support.
Fiat Chrysler will be in focus after the carmaker named its Jeep division boss
Mike Manley to take over immediately from longtime CEO Sergio Marchionne, who is seriously ill
after suffering major complications following surgery. The replacement, which comes around 7
months sooner than expected, could weigh on Fiat (Hanover: FIA1.HA - news) shares at the open, although analysts expect
Manley to carry on with the strategy set by his predecessor.
Fiat shares are down 2-3 percent in pre-market trade. Marchionne has also been replaced at
luxury carmaker Ferrari (Xetra: 30092157.DE - news) , down 3-4 percent in premarket, and CNH Industrial.
Elsewhere, earnings will keep investors busy with Ryanair shares seen down as much
as 4 percent after it warned that average fares would be lower than expected during its key
summer, while Philips was seen down 2 percent after sales growth was light, offsetting
strong order growth.
(Danilo Masoni)
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EARLY MORNING HEADLINES ROUNDUP (0552 GMT)
Fiat Chrysler names Jeep boss to replace stricken CEO Marchionne
Ryanair says summer fares weaker than expected, warns of more strikes
Philips Q2 core profit rises 10 pct on higher hospital orders
Julius Baer reports 19 percent rise in first half profit
Atos (Paris: FR0000051732 - news) to buy Syntel (Frankfurt: 908698 - news) for about $3.57 billion
GlaxoSmithKline (Other OTC: GLAXF - news) considers splitting up the group - FT
Britain's IWG (LSE: IWG.L - news) gives three suitors more time to make takeover offers
China's JD.com plans move into Europe - CEO tells German newspaper
U.S., European allies map out larger role for F-35 fighter
Rolls-Royce threatens to end 'mini-nuke' project for lack of support - FT
Italy's Carige says must lift capital quickly or seek merger
VW to temporarily park cars due to new emissions testing bottlenecks
German industry groups warn U.S. on tariffs before Trump-Juncker meeting
Illness ends career of Sergio Marchionne, the CEO who liked to fix things
Airbus CEO says eyes merger of its, BAE's jet fighter units -Sunday Times
Leonteq (IOB: 0QNE.IL - news) does not expect another capital increase - Finanz und Wirtschaft
U.S. censures UBS (LSE: 0QNR.L - news) over its anti-money laundering systems - WSJ
U.S. open to lifting sanctions off aluminum giant Rusal (HKSE: 0486-OL.HK - news) -Mnuchin
Swiss, German drugmakers join U.S. price freeze
UniCredit (EUREX: DE000A163206.EX - news) says EBA rejects Caius' request for 'CASHES' inquiry
(Danilo Masoni)
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MORNING CALL: EUROPEAN SEEN OPENING LOWER (0536 GMT)
European shares are set to open lower, adding to losses on Friday as worries over a possible
trade war linger following last week's remarks by U.S. President Donald Trump who said he was
ready to put tariffs on $500 billion of imported goods from China.
Financial spreadbetter CMC Markets (LSE: CMCX.L - news) expects London's FTSE to open 33 points lower at 7,645,
while Frankfurt's DAX is set to open 46 points lower and Paris' CAC down 19 points.
"Despite Fridays sell off, markets in Europe are still well above their lowest levels this
year, which means that investors still don’t appear too concerned for now, however that could
change in the coming days, especially if there is no sign of the U.S. ratcheting down its
rhetoric, or the EU and China institute retaliatory measures to any new U.S. measures," said
Michael Hewson, Chief Market Analyst at CMC (BSE: CMC.BO - news) .
Over in Asia, shares dipped on fears of more protectionist measures from the United States
while the dollar declined against major currencies after U.S. President Donald Trump criticised
the Federal Reserve's tightening policy.
(Danilo Masoni)
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