LIVE MARKETS-Here's another "peak growth" trade: utilities
* European shares stay afloat
* STOXX set for weekly loss
* Eurex experiences delays
* Takeover bid boosts NEX Group
LONDON, March 16 (Reuters) - Welcome to the home for real-time coverage of European equity
markets brought to you by Reuters stocks reporters and anchored today by Kit Rees. Reach her on
Messenger to share your thoughts on market moves: rm://kit.rees.thomsonreuters.com@reuters.net
HERE'S ANOTHER "PEAK GROWTH" TRADE: UTILITIES (1340 GMT)
There's a growing feeling among economists that we've left the golden age of the #Euroboom
and, as PMI momentum fades, reached "peak growth". This has already proved to be a valuable
source of inspiration for equity strategists as you can see here and here
.
UniCredit (EUREX: DE000A163206.EX - news) just made its own contribution on this theme and published a research note making
the case that the phase of accelerating economic growth may be behind us and that now could be
the time to look into defensive sectors and, among them, utilities.
"In the past, such an environment has opened a time slot during which the preceding
outperformance of industrials comes to an end and defensives gradually become more attractive
again," equity strategist Christian Stocker believes.
"Against this background, we have taken the positive news of further and forward-looking
restructuring in the German electricity market (see) to upgrade the European
utilities sector to overweight," he said, adding that the likes of E.ON or RWE (Amsterdam: RW6.AS - news)
could prove useful hedges in the event of a trade war.
At the opposite end, Unicredit has downgraded tech, the best performing sector year to date,
from overweight to neutral as the bank believes "the main driver of this outperformance,
earnings estimates, are showing the first signs of a slowdown."
Looking back over the past three months (see the chart below), going long utilities and
reducing exposure to tech can seem counter-intuitive:
(Julien Ponthus)
*****
"WE HAD TO GATHER OUR COURAGE" - BUYING BACK INTO INVERSE VIX (1330 GMT)
After the high-profile implosion of Credit Suisse (IOB: 0QP5.IL - news) 's inverse VIX exchange-traded note
in February, buying similar products shorting the VIX might seem to be the last thing investors
would consider.
But Agilis Investment Management, a relatively new asset management outfit based in London,
took a small position in the ProShares inverse VIX ETF the day after the volatility
blow-out.
"We had to gather our courage before doing it," Clark Fenton, CIO of Agilis, told us. "We
bought it on the day after, and then added to it a couple of days later."
The ProShares ETF crashed from $100 to $11 on Feb 6 as it inversely tracked the
ratcheting-up in volatility. But it's gained 10 percent since, as VIX levels returned to normal.
"More of our portfolio profits from volatility - so it's a complement to the rest of our
portfolio," says Fenton, emphasising the position is only small.
ProShares specialises in exotic inverse and leveraged ETFs (Shenzhen: 395013.SZ - news) , so it also may be less likely to
liquidate one of its products as Credit Suisse was forced to do in the turmoil.
(Helen Reid)
*****
EARLY AFTERNOON SNAPSHOT: MINERS KEEP STOXX AFLOAT (1313 GMT)
Turmoil in Washington is keeping markets watchful with U.S. futures pointing to a flat open
and the pan-European STOXX 600 trading just above parity.
While fresh dealmaking is providing support, gains in basic resources stocks are the main
driver at the sectoral level, as a retreat in the dollar, linked to political uncertainty
in the U.S., is driving metal prices up.
Here is how European indexes stand before Wall Street opens:
(Danilo Masoni)
*****
ETFs: FEBRUARY SELL-OFF MADE U.S. INVESTORS RUN, EUROPEANS ASK FOR MORE (1211 GMT)
Europeans and American investors could not have had a more opposite reaction to the February
sell-off when it comes to equity ETFs, Amundi (Berlin: 350155.BE - news) data shows.
"Despite a correction early in the month, the European equity ETF market held up well in
February, gaining 5.2 billion euros", the French asset manager reported, noting that "during the
same period, however, this asset class suffered 12.4 billion euros of withdrawals stateside".
One other interesting fact is that the sell-off didn't discourage Europeans from putting
their money in U.S. stocks.
"While US investors substantially divested from their domestic market (-17.9 billion euros),
their European peers continued to increase their exposure to U.S. equities (+2 billion), as well
as the Eurozone (+1.9 billion)".
Here are their stats:
(Julien Ponthus)
*****
PLAYING THE "PMI FADE" (1137 GMT)
Deutsche Bank (IOB: 0H7D.IL - news) 's equity strategists have a few ideas on how.
One of these is them going underweight European small caps versus large caps, saying that
small caps have been "a key beneficiary of the strong rebound in Euro area growth momentum."
But now that DB expects Euro area PMIs to fade to 55 by the end of the year, they see small
caps underperforming by around 5 percent by the middle of Q2. See DB's chart below which shows
their prediction that Euro area PMI momentum will eventually turn negative.
They are still underweight European value versus growth, as they expect value to continue to
underperform growth.
DB recently downgraded banks to underweight and remain overweight food and beverages. They
acknowledge that a rise in bond yields would be a risk to their call.
(Kit Rees)
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A NEW REGIME? CORRELATIONS AND THE VIX (1053 GMT)
Man Group (LSE: EMG.L - news) analysts reckon both stock correlations and the volatility index indicate we may
be heading into a new market regime.
"Both implied volatility and implied correlations have reached a 'new normal' since the
mini-panic of early February this year," they write in their weekly "views from the floor".
"Although both have retreated from the highs, the trading pattern so far seems to suggest we
are in a new regime."
As you can see below, S&P 500 correlations and the VIX do seem a lot more
jittery since the early February sell-off.
"Correlations have been very very unstable," says Clark Fenton, CIO at Agilis Investment
Management.
But correlations remain very low - a characteristic which many say is good for stock-pickers
seeking alpha and, crucially, seeking to differentiate themselves from passive index-tracking
funds.
"Last year was as good a year as it has been for a long time, for stock pickers. Not much
volatility but a lot of divergence in stocks," says Fenton, adding, however: "Lower correlations
should allow active to separate more from passive, but it doesn't guarantee success."
(Helen Reid)
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SIX EUROPEAN BANKS NEED TO RAISE THEIR GAME WHILE THEY CAN (1033 GMT)
"Not all major banks are firing on all cylinders," S&P analysts assess in a research note
where they argue that a "cadre of major banks continues to lag the improvement of their closest
peers".
Barclays (LSE: BARC.L - news) , Commerzbank (Xetra: CBK100 - news) , Credit Suisse, Deutsche Bank DBKGn.DE>,
RBS (LSE: RBS.L - news) and Standard Chartered (BSE: 580001.BO - news) are identified as having "yet to optimize their
business and operating models to ensure sufficient and sustainable profitability".
Now (Frankfurt: 11N.F - news) is the ideal time to do so, S&P also says, noting that the European economic recovery
will not last forever.
While 2017 was a cornerstone for the recovery of the European banking sector, a decade after
the start of the financial crisis, 2018 will be the moment of truth for banking laggards.
"By the end of 2018, we expect that for many of these banks it will be clearer whether their
management teams are able to close the gap on their nearest competitors, or else have to return
to the drawing board."
Here is a chart showing how these banks trail their peers in terms of profitability:
(Julien Ponthus)
*****
OPENING SNAPSHOT: NEX GROUP SHOOTS UP IN LACKLUSTRE MARKET (0813 GMT)
In otherwise calm markets with the STOXX trading flat, Nex Group shares are shooting up 35
percent after it said CME had made a preliminary takeover offer.
Results are also causing some big moves under the surface, with Altice (Other OTC: ATSVF - news) up 5.3 percent after
its earnings report while Berkeley Group loses 5 percent.
If this morning's lacklustre open spells a weaker trading day, it's likely the STOXX will
end the week in the red.
(Helen Reid)
*****
WHAT'S ON THE RADAR FOR THE EUROPEAN OPEN (0752 GMT)
In a week which has been dominated by the goings-on in the Trump administration, trade war
worries and geopolitical tensions, European shares are set to end the week with a slight loss.
UK and French stocks futures are pointing to a negative open today, but DAX and Euro stoxx
futures have failed to open as Eurex is currently experiencing delays.
Delays aside, a number of stocks are expected to see some big moves today. It’s going to be
the first day of trading for Siemens’ Healthineers, which one trading desk sees rising 16
percent.
While it’s fairly quiet on the results front traders see Altice’s shares falling, pointing
to disappointing guidance.
Elsewhere the M&A machine grinds on with Britain’s NEX Group saying that it has received a
preliminary takeover approach from U.S.-based exchange operator CME Group (Kuala Lumpur: 7018.KL - news) , a move which aims to
create a cross-border trading powerhouse. NEX’s shares are seen jumping as much as 25 percent.
(Helen Reid)
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EUROPEAN CORPORATE NEWS HEADLINE ROUND-UP (0738 GMT)
Nex Group shares are seen jumping as much as 25 percent at the open after U.S.
exchange operator CME made a preliminary takeover offer. Here are some of today's corporate
headlines to keep an eye on:
Exchange operator CME in talks with Britain's NEX on possible takeover
UK builder Berkeley says it can't boost volumes beyond current plans
Old Mutual (Other OTC: ODMUF - news) sells Latam businesses to Singapore's CMIG Intl
Elliott asks to replace Telecom Italia (Amsterdam: TI6.AS - news) board members, including Vivendi CEO
British outsourcer Mitie sees higher costs from turnaround programme
Lufthansa (Xetra: LHAB.DE - news) , Ryanair to drive Frankfurt airport passenger growth this year
Drahi's debt-ridden telecoms group Altice seeing some recovery in France
UK's Wetherspoon sees higher cost, slower sales growth ahead
(Helen Reid)
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CORRECTED - EUROPEAN STOCKS FUTURES OPEN LOWER, EUREX FACES DELAYS (NOT EURONEXT)(0721 GMT)
While FTSE and CAC futures have opened lower, DAX and Eurostoxx futures have failed to open
with Eurex saying that the trading system is experiencing serious issues. The Eurex T7 system is
experiencing technical issues. German bund futures also failed to open.
We are monitoring the situation and will keep you updated.
Here is a shortened futures snapshot:
(Kit Rees)
*****
EUROPEAN EARNINGS: SLIM PICKINGS (0652 GMT)
In the UK Mitie Group's full year update will be of interest given the issues the
outsourcing industry has had this year, but apart from that, it's looking like a quiet one on
the results front today.
But it's the broader prospect of earnings growth in Europe which has analysts at Credit
Suisse's wealth management division remaining positive on the region's equities.
"Although the stronger EUR is a risk, we believe that, of all the regions, Eurozone
companies are best positioned to meet or even beat their earnings growth expectations in future.
We expect domestically focused companies to do particularly well," Credit Suisse wealth
management analysts said in a note this morning.
Here are the European companies set to give updates today:
TIV.CO Q4 2017 Tivoli A/S Earnings Release
SZGG.DE Full Year 2017 Salzgitter AG Earnings Release
BC8G.DE Full Year 2017 Bechtle AG Earnings Release
E7SG.DE Q4 2017 Accentro Real Estate AG Earnings Release
OCI (Euronext: OCI.NX - news) .AS Full Year 2017 Oci NV Earnings Release
BKGH.L Berkeley Group Holdings PLC Trading Statement Release
JDW.L Half Year 2018 J D Wetherspoon PLC Earnings Release
INVP.L Investec PLC Pre-Close Briefing
FRAG.DE Full Year 2017 Fraport AG Frankfurt Airport Services Worldwide Earnings Release
MQH.ST Q2 2018 MQ Holding AB Earnings Release
SMPV.VI Full Year 2017 Semperit Ag Holding Earnings Release
MTO.L Full Year 2018 Mitie Group PLC Pre-close Trading Statement Release
(Kit Rees)
*****
MORNING CALL: HESITANT START SEEN FOR EUROPEAN SHARES (0629 GMT)
Good morning. European shares are seen opening in a narrow range this morning, according to
financial spreadbetters, following on from yesterday's positive session.
Spreadbetters were calling Britain's FTSE 100 index 7 points lower, France's CAC 5 points
lower and Germany's DAX 7 points higher, so a range of 0.1 percent either way.
Overnight Asian shares lost ground, however, after reports of further chaos in the Trump
administration. Wall Street's S&P 500 closed lower for a fourth day in a row.
Elsewhere this morning the focus will also be on final inflation figures for the euro zone,
due at 1000 GMT.
(Kit Rees)
(Reporting by Danilo Masoni, Helen Reid, Kit Rees and Julien Ponthus)