UK Markets close in 3 hrs 1 min

LIVE MARKETS-Industrials out of fashion

* STOXX 600 +0.2%, FTSE +0.4% * FTSE outperforms on airlines, Burberry * Yara rises 5% after better-than-expected results * Some relief for Bayer in U.S. trial award; shares up 2.3% * Burberry set for best day in years after earnings beat Welcome to the home for real-time coverage of European equity markets brought to you by Reuters stocks reporters and anchored today by Thyagaraju Adinarayan. Reach him on Messenger to share your thoughts on market moves: thyagaraju.adinarayan.thomsonreuters.com@reuters.net INDUSTRIALS OUT OF FASHION (1458 GMT) Industrial stocks are among the most unloved going into the earnings season with analysts sharply cutting profit estimates and fund managers shunning the sector. The recent euro-zone PMI numbers pointed to weak factory orders, prompting equity analysts to sharply cut earnings growth estimates for the industrials sector. Earnings in industrial companies listed on the STOXX 600 index are expected to grow 4.8%, down from 14.4% seen in April, according to data from I/B/E/S Refinitiv on Tuesday. The dislike for industrial stocks is also evident among money managers: Bank of America Merrill Lynch's fund manager survey released earlier showed investors' take on the sector reversing to a 36% net underweight in July from net 15% overweight in June. BAML says it's the lowest positioning since November 2008. Recent warnings by BASF and Hexagon underscored a nervous mood among investors. BAML says "concerns around industrial demand prevail irrespective of the 'relief' of the G20 summit" when Washington and Beijing agreed a temporary truce to their trade dispute. With the EU capital goods sector trading at a premium to the wider indices (see below), any small disappointment in earnings is likely to lead to a sharp fall in stock prices. (Thyagaraju Adinarayan) ***** INSURERS MOTORING ALONG DESPITE GOVERNMENT JOLT (1254 GMT) UK motorists are bracing for higher bills for car insurance after the government announced yesterday a change to how payments for accident victims are calculated. The Ministry of Justice on Monday cut the so-called Ogden rate, which effectively means insurers will still have to set aside money for lump sum payments for people seriously injured in car crashes and other personal injuries. The insurance sector had been lobbying for the rate to be zero, with some companies such as Hastings budgeting for that. Shares in Hastings, Direct Line and Admiral were sharply lower yesterday as investors calculated the potential damage to bottom lines in the highly competitive sector. Hastings came out with a number this morning - it will take a $10 million hit and cautioned that its first-half loss ratio will be higher than previously expected. Its shares are down almost 4% today on the news. Its rivals though have recovered today because they are expected to be able to pass the extra costs onto motorists. Morgan Stanley equity analysts Jonathan Denham and Jon Hocking say the move will decrease their 2019 EPS estimates by 6-15% but: "In reality, we think the changes means fairly little." "Higher-than-expected claims and reinsurance costs could be supportive of motor insurance pricing as insurers pass increased costs onto motorists," they say in a note today. Data released yesterday showed insurance premiums in Q2 rose 3.5%. The bank expects premium per policy growth of 2% in H1 before any change in risk mix for all three names and 3.5% in H2. Its preference out of the three is Direct Line with an 'overweight' rating, while Admiral and Hastings are both 'equal-weight'. Trading at 11.7x 2020 earnings, Direct Line is trading at about 30% discount to Admiral, which is at 17.1x, which the analysts say isn't justified based on long-term earnings forecasts. Below is a chart of the price-earnings ratio for the three main non-life insurers and the FTSE 350 index. (Josephine Mason) ***** AMS-OSRAM: FANTASY M&A? (1046 GMT) Osram Licht shares are hardly moving this morning despite revealing a fresh takeover approach by AMS, trumping Bain Capital and Carlyle's bid. Expectations of a bidding war, which could have driven shares higher, died soon as AMS walked away saying "following an evaluation of recent developments AMS does not see a sufficient basis" to take it any further. But AMS shares are down 3%, one of the worst performers on the pan-European STOXX 600 index, amid worries about the fact that the management even considered a deal, which makes little strategic sense. The AMS statement "will do little to appease investor concerns that the company has the appetite to look for a sizeably leveraged acquisition that doesn't have a clear operational and strategic fit," says Mirabaud Securities analyst Neil Campling. AMS is a technology company specialising in sensors and lighting, and Osram builds microchips, digital lighting systems and sensors for the auto industry. Campling: "The fact AMS even considered such a deal brings the management strategy back into question. Availability of cheap money and a desperation to diversify brought a near miss the AMS holders were lucky to dodge." Osram shares were flat trading at 33 euros per share, below PE players Bain and Carlyle's offer of 35 euros and nowhere near AMS's 38.50 euros per share. (Thyagaraju Adinarayan) ***** RISK BACK ON, BUT NOT IN VALUE (1010 GMT) BAML's monthly survey has just come out and there was a bit of good news for equities - allocation to stocks retraced almost all of the June exit, coming in at 10% net overweight as the Fed turned increasingly dovish and after Washington and Beijing called a temporary truce to their trade spat at the end of June. Current allocation is below the long-term average and it's off a very low base - last month's allocation had been the lowest since March 2009. The latest poll was taken last week among 207 managers with $598 billion in assets. But the results aren't not so great for value investors clinging to hope that the much-shunned factor will have a day in the sun some time soon: just 2% of respondents expect Value to outperform Growth over the next 12 months, the joint lowest level with last month since 2010 reflecting extremely bearish inflation and sluggish growth expectations. (Josephine Mason) ***** OPENING SNAPSHOT: AIRLINES TAKE OFF, BURBERRY SHINES, BAYER RELIEF (0745 GMT) European stocks are directionless, but investors seem to be rewarding handy earnings beats as we can see with luxury brand Burberry and fertiliser producer Yara. Burberry shares (+8%) are on track for their best day since October 2012 and also top the pan-European STOXX 600 and FTSE 100 indices; Yara is up 5%. Bayer shares are getting some relief, rising 2%, after a U.S. judge slashed a damages award Bayer owes a California man who blamed its Roundup weed killer for his cancer. Delays in bringing back the Boeing 737 MAXs until next summer seems to be helping airline stocks as it is expected to remove overcapacity from the saturated European airline market. Blaming the delays, Ryanair is the latest airline to be disrupted by the MAX grounding as it cut its forecast for growth in traveller numbers next summer to 3% from a previous 7%. Lufthansa, British Airways-owner IAG, Air France, easyJet and Ryanair are rising 2%-3%. No other major sectoral moves as focus seems to be on earnings-related news. (Thyagaraju Adinarayan) ***** ON OUR RADAR: LUXURY, AIRLINES, BAYER, AMS & OSRAM (0653 GMT) European stock futures point to weak open for all major indices as markets begin to digest the first set of earnings from U.S. and European corporates. Shares in Burberry are seen 2%-4% higher after Q1 sales at the British luxury brand topped expectations and one trader said it was a "big beat". Luxury names in Europe could get a boost after Burberry said it saw mid-teen percentage growth in mainland China. Chipmaker AMS approached Osram with a takeover offer only to later pull back from it, saying it saw no "sufficient basis" for continuing its discussions. Traders expect Osram shares to open slightly lower as AMS walked away and Osram shareholders prepare to vote on a bid from private equity firms Bain Capital and Carlyle. Ryanair shares are seen 1-2% lower after it cut its forecast for growth in traveller numbers next summer to 3% from a previous 7% as Europe's largest budget carrier continues to grappple with further delays in deliveries of Boeing's 737 MAX planes. In continuing auto sector woes, we have a profit warning from Schmolz & Bickenbach, which makes high strength steel used in construction and cars. Bayer shares are making decent gains (+2.5%) pre-market after a U.S. federal judge slashed a jury award in a Roundup weed killer trial. Traders see Yara shares rising 2%-5% after solid Q2 beat. More headlines: Ryanair cuts summer 2020 growth rate on Boeing MAX doubts Irn-Bru maker A.G. Barr says profits to fall 20% Experian's quarterly revenue rises 4% on N. America boost Recruiter Hays reports flat net fees for fourth quarter Italy's state railway picks Atlantia for Alitalia rescue (Thyagaraju Adinarayan) ***** STOCK FUTURES DIP; BAYER, OSRAM, AMS IN FOCUS (0634 GMT) European stock futures point to a subdued open for all major indices, but Bayer shares are making solid gains (+4.2%) pre-market after a U.S. federal judge slashed a jury award in a Roundup weed killer trial. News that Germany's auto sensors and lighting company Osram received a takeover bid from chipmaker AMS's may stir dealmaking hopes in the auto and tech sector. The Austrian company said overnight it did not see "sufficient basis" for continuing discussions. AMS' offer of 38.50 euros per share trumped the Bain/Carlyle previous bid of 35 euros and is a 15% premium to last night's close. One dealer sees Osram shares down 5%. Initial reactions from analysts seem to suggest, it isn't a good idea for AMS to buy Osram: "This could be the dumbest deal of the decade," says Mirabaud Securities tech analyst Neil Campling. In earnings, British luxury brand Burberry stuck to its fiscal 2020 outlook after its first-quarter sales topped expectations. After a 10% sell-off yesterday, Sports Direct shares could see some more action after an activist hedge fund revealed a stake in the company. Coltrane Asset Management has built a 3.3%stake in Mike Ashley's Sports Direct, according to The Times. Sports Direct delayed publication of its annual results. A profit warning from Schmolz & Bickenbach, which makes high strength steel used in construction major carmakers, will reinforce worries about the earnings season. Key headlines: AMS does not see 'sufficient basis' for continuing takeover talks with Osram U.S. judge slashes Roundup jury award to $25.3 million GAM completes sales of absolute bond funds linked to sacked director LVMH pairs with Stella McCartney, igniting fashion rivalries Rio Tinto hits cost blowout at Mongolia copper expansion (Thyagaraju Adinarayan) ***** FLAT AS PANCAKE (0545 GMT) European shares are seen flat to slightly higher as investors are sitting on the sidelines awaiting more corporate earnings. Financial spreadbetters IG expect London's FTSE to open 1 point higher at 7,533, Frankfurt's DAX to open 17 points higher at 12,404, and Paris' CAC to open 1 point lower at 5,578. Bayer AG shares in focus after a U.S. federal judge slashed a damages award the company owed a California man who blamed Roundup weed killer for his cancer, to $25.27 million from $80.27 million, while rejecting the company's bid for a new trial. Some M&A action could boost German tech stocks after Osram made public AMS's M&A approach, but AMS later said it did not see "sufficient basis" for continuing its discussions with Osram. (Thyagaraju Adinarayan) ***** (Reporting by Danilo Masoni, Josephine Mason and Thyagaraju Adinarayan)