* European stocks slip on first trading day of 2019
* Weak manufacturing PMI figures across Spain, France, Germany
* Global investor confidence declined in December
Jan 2 - Welcome to the home for real-time coverage of European equity markets brought to you
by Reuters stocks reporters and anchored today by Julien Ponthus. Reach him on Messenger to
share your thoughts on market moves: firstname.lastname@example.org
GIRD YOUR LOINS FOR A BLEAK 2019... (1601 GMT)
That's the message, loud and clear, from most investors and strategists, cemented by weak
PMI data this week from China and the bulk of the euro zone.
But Goldman Sachs strategists reckon the way to play this messy year is, perhaps
counterintuitively, through equities, as well as commodities.
"We are overweight equities because they are already pricing decent growth deceleration, and
healthy earnings and falling prices have resulted in a significant valuation derating," writes
That doesn't stop them from being pretty pessimistic about the overall outlook for markets.
"We expect only at or below average risk-adjusted returns across most regions as the macro
backdrop fades further and vol stays elevated," they argue.
GS remains underweight bonds and overweight cash, which they say has become "increasingly
attractive" in USD terms.
They downgraded credit to underweight, however, saying they see tail risks as high due to
the weakening macroeconomic outlook.
Below, you can see GS' expectations for GDP growth, policy rate, and inflation for the end
of this year and how they compare to previous forecasts:
UK FOOD RETAILERS A SAFE HAVEN IN UNCERTAIN TIMES? (1518 GMT)
John Lewis has broken through the gloom today with a very encouraging trading update saying
Its upmarket Waitrose supermarket chain's sales saw a 19.2 percent boost to sales in the same
week, though that figure was heavily distorted by the way Christmas and New Year fell this year.
Still, this update is an interesting counterpoint to the broader negative news from the UK
retailers reporting next week.
"Recent profit warnings from non-food retailers have hurt sentiment across the space. But it
is worth remembering grocery is non-discretionary," write UBS analysts Daniel Ekstein and Sophie
Wu. "We believe the sector's defensive characteristics are being largely overlooked here."
Since 2000, the correlation between grocery market growth and GDP is only 0.23x, they note.
Over the 2008-09 recession years growth still averaged 5.5 percent, with volumes exactly flat.
tomorrow before the open). UBS analysts trim their expectations for Morrisons, which reports on
Below, a reminder that for general retailers - which focus on discretionary items - the
recent performance and earnings outlook are pretty bleak. Supermarkets may be a place to hide.
GLOBAL INVESTOR CONFIDENCE SLIDES (1332 GMT)
In pretty unsurprising data out today, global investors' risk appetite, as measured by State
Street's investor confidence index, slid further in December. The global index fell to 79.8,
down 2.8 points.
But an interesting trend lies under the surface. The data - which was originally released a
week ago, on Boxing Day - shows a growing divergence between the U.S. and the rest of the world,
with European and Asian investors more confident while North American investors' confidence
European investor confidence was up 2.1 points to 94.0, and Asia's increased by 8.7 points
to 110.6. Meanwhile confidence among North American investors slipped from 79.2 to 74.1.
Of course, the U.S. had a long way to go to catch up to the gloom hanging over Europe and
Asia. But perhaps it's also those tantalisingly low valuations relative to the U.S. that is
helping investors here feel slightly more positive.
LET THE BATTLE OVER VALUATIONS BEGIN: EURO-ZONE VS U.S. (1205 GMT)
There's been much discussion among asset managers whether the sell-off in U.S. stocks has
been so overdone that now might be the time to pounce on some new year bargains.
But Patrick Moonen, multi-asset strategist at NN Investment Partners, takes a slightly
contrarian view - he reckons euro zone equities might be a better destination for investors'
cash in 2019 than the other side of the pond, based on historically low valuations.
Forward price-to-earnings discounts of euro zone equities to their U.S. peers are currently
at 32 percent and have only been as deep as this on two other occasions over the past 20 years,
according to an analysis by the Dutch asset manager.
During those previous episodes, the world economy was in recession: in 2001/02, during and
after the bursting of the internet bubble, discounts were at 49 percent, and they were at 45
percent in 2008/09 in the midst of the global financial crisis.
He expects U.S. earnings will decelerate as Trump's tax cuts expire and their benefits ebb,
and reckons non-financial companies' net profit margins are at unsustainably record high levels.
At the same time, euro zone earnings will accelerate driven by domestic demand providing
support to margins, he expects.
"In absolute terms, both regions will witness mid-single-digit earnings growth. For us, this
valuation/growth equation is the main reason why we prefer euro-zone equities to U.S. equities
for 2019," he says in a note.
Then again, disappointing manufacturing data from the euro zone's major economies this
morning hasn't provided much reason for optimism and the sea of red across European bourses
today suggests investors aren't racing back to the region just yet.
Another chart which might be of use for bargain hunters is UBS' Index Valuation sheet where
one can compare PE ratios and 2018 performances of main indexes:
(Josephine Mason, Helen Reid and Julien Ponthus)
DELUGE OF WEAK PMI DATA CEMENTS PESSIMISTIC MOOD (0926 GMT)
Manufacturing data from Spain, France, Italy, and Germany has amplified the gloom hanging
over markets today after Chinese data set the tone with the first factory activity contraction
in more than two years.
Italian factory activity contracted in December for the third straight month, though less
sharply than the month before. Its manufacturing PMI rose to 49.2 from 48.6.
Spain's manufacturing sector grew at its slowest pace since Aug 2016, likely helping drive
the IBEX down 1.8 percent, one of the biggest casualties.
France's CAC 40 is suffering the most, down 2.2 percent, and that reflects a drop in its
factory activity due partly to anti-government protests. France's PMI fell to 49.7 points in Dec
In Germany, growth in the manufacturing sector slowed again as new orders fell at the
economy - fell to a 33-month low of 51.5 from 51.8 in November.
The euro zone overall saw only a tiny pickup in manufacturing activity.
As you can see below, global cyclical stocks have fallen in step with world PMIs and,
judging by today's price action and data, that trend could continue.
OPENING SNAPSHOT: 2019 STARTS IN THE RED (0823 GMT)
Investors hoping for a brighter start to the year will be dismayed by today's further falls
with European indices down 1.4 to 2.5 percent. The drop is being led by France's CAC 40, set for
its biggest fall since Dec 6.
Miners, autos, banks, and oil sectors are all sliding 2.2 to 3.1 percent as crude prices
slide and investors dump the cyclical parts of the market most exposed to a slowing global
4.4 to 5.5 percent, while Standard Chartered Bank is down 3.8 percent.
which is soaring up as much as 40 percent after saying it received takeover interest from
Indonesia's Medco Energi.
PARIS AND MADRID SET TO FALL AT THE OPEN, FUTURES SHOW (0711 GMT)
We can't put our finger yet on why exactly futures for the CAC 40 are falling this much but
with a 1.8 percent drop at the moment, things don't exactly look good.
Same thing but a tad less dramatic for Madrid with futures down 1.4 percent.
France's embattled president, Emmanuel Macron, vowed on Monday to press on with his reform
agenda in 2019 despite "yellow vest" protests that have challenged his government.
protests have reduced the French government's room for manoeuvre as regards both fiscal
consolidation and structural reform."
They said 2019-2022 would see "rising downside risks".
PMIs GALORE (0656 GMT)
It's not all about Chinese data this morning as we wait for PMI releases to shed a bit more
light on the state of the European economy.
As noted by Raymond James, this comes with Brexit due in just three months now and European
Parliament elections in less than 5 months.
(Julien Ponthus )
MORNING CALL: 2019 DOESN'T START WELL (0628 GMT)
Asian shares set the tone for 2019' first day of trading with an orderly retreat in the face
of disappointing data from China.
So while U.S. stock futures are in the red, indications from financial spreadbetters in
Europe also point to a start in the red in the continent.
the CAC 40 62 points down.
For LCG, it's down 34 points, 42 points and 71 points respectively.
Below, starting 2019 with style:
(Julien Ponthus )