LIVE MARKETS-Investors seek shelter in Spain
* European shares dip
* Tech pulls back after SAP (Amsterdam: AP6.AS - news) results
* Focus on earnings
* FTSE buoyed by softer pound
LONDON, July 19 (Reuters) - Welcome to the home for real-time coverage of European equity
markets brought to you by Reuters stocks reporters and anchored today by Helen Reid. Reach her
on Messenger to share your thoughts on market moves: helen.reid.thomsonreuters.com@reuters.net
INVESTORS SEEK SHELTER IN SPAIN (1146 GMT)
It's not just for its beaches that investors are going to Spain this summer, but also for a
haven of growth in an increasingly uncertain environment.
UBS (LSE: 0QNR.L - news) adds a long recommendation on the IBEX, saying "economic, fundamental and macro
variables are all positive into H2."
"EPS revisions have been modest but IBEX valuation remains near a 5-year low and high
sensitivity to a weaker USD should be supportive based on our FX outlook," UBS analysts write in
their second-half playbook.
Their positive stance on European banks also ties in to the IBEX call, as a third of the
Spanish index is bank stocks. Next (Frankfurt: 779551 - news) week Santander, Bankia (Amsterdam: QU8.AS - news) , Bankinter (Amsterdam: BI6.AS - news)
report on Thursday and Sabadell, BBVA (LSE: 931474.L - news) , Caixabank (Amsterdam: CB6.AS - news) on Friday.
"Risk remains due to high correlation to Italy stocks over the past 6 months, but we see
risk/reward skewed positively," UBS adds.
As you can see below, Spanish stocks are starting to gain back ground relative to Italy
after nearly 15 months of underperformance.
(Helen Reid)
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CAR TARIFFS: WHAT'S THE DAMAGE? (1058 GMT)
Cars are front and centre of the trade war, and U.S. car tariff plans are what Berenberg
economist Holger Schmieding calls a key litmus test for the market's overall theory that Trump
will not follow up on his biggest trade threats.
As the U.S. Department of Commerce prepares to host a public hearing on car and parts
imports today, Schmieding writes: "We assume for our base case that Trump would use the threat
as a bargaining chip but will not actually implement the levies."
If tariffs on the $62 billion annual car imports from the EU do go ahead, it would trigger a
transatlantic trade war with retaliation likely. Teasing out the potential impact isn't easy.
"We think U.S. auto tariffs are now increasingly likely, yet understanding this risk is
challenging given uncertainties around the size of tariffs & impacted/exempt countries," write
UBS analysts.
UBS' base case scenario assumes a 3.7 percent cost increase while their worst case is for a
12.4 percent increase. As you can see below, the cost will diverge for auto manufacturers more
or less dependent on U.S. imports.
While German carmakers are likely to be the worst hit by tariffs, UBS reckons they may
actually be able to pass more of the costs on to consumers as they primarily import premium
vehicles to the United States.
(Helen Reid)
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"WALL OF FREE CASH FLOW AROUND THE CORNER" (1015 GMT)
The earnings season is underway and investors looking for fat pay-outs may well consider the
energy sector, which has struggled a bit as of late due to a pullback in oil prices but is in
healthy shape after recent years' restructuring efforts.
Thomas Adolff, analyst at Credit Suisse (IOB: 0QP5.IL - news) , sees a "wall of cash flow around the corner" and
says now that the big European oil majors have successfully repaired their businesses, the key
issue is what to do with the extra money.
Most oil companies break even at around $50 dollars per barrel, he notes, and even after the
recent decline, Brent crude prices remain well above $70.
"Today, it is less about cash flow break-evens but instead more about what to do with the
surplus in a world where the market is demanding discipline," he says. "We believe that the Euro
Majors will mostly stick to their capital frameworks in the next few years, likely with enhanced
distribution policies."
Shares (Berlin: DI6.BE - news) in Royal Dutch Shell (LSE: 0LN9.L - news) , BP, Total (LSE: 524773.L - news) and Eni (LSE: 0N9S.L - news) have risen
between 9 and 16 percent so far this year as analysts have kept revising their earnings
estimates for the sector upwards.
(Danilo Masoni)
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ARE MARKETS WORRIED ENOUGH? (0943 GMT)
There's a lot going on at the moment with trade and geopolitics, and Hermes Investment
Management's CEO Saker Nusseibeh says that the one thing worrying him is that markets don't seem
to be as worried as he is.
"Investors are not preparing for the possibility that things could go really wrong. They are
confident the signs of the last crisis aren’t appearing so are underestimating the risks,
thinking it will all turn out fine," writes Hermes' Nusseibeh, adding that long-term investors
should actually be getting ready to buy if and when the crunch does happen.
He cites three reasons behind his misgivings. Firstly, he sees a risk that trade spat
between the U.S. and China could escalate (even if unintentionally), which wouldn't exactly be
great if we also get a recession give the yield curve is flattening.
Secondly, the bull run is getting "pretty long in the tooth" with the market reluctant to
let go and admit that it must end sometime. And thirdly, Nusseibeh is concerned that the
industry has simply lost the ability to navigate divergent economic environments and political
risks, instead of simply betting on whether an economy is growing or not.
"I worry the asset management business no longer has the skill-set in house to truly
understand the political machinations of various governments and states or how they might
interact within the context of a multi speed global economy and work it all out," says
Nusseibeh.
(Kit Rees)
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OPENING SNAPSHOT: EUROPEAN SHARES STRUGGLE FOR DIRECTION (0733 GMT)
European shares are off to a rather directionless start today with country indexes moving
between a fall of 0.3 percent for Germany's DAX and a rise of 0.3 percent for Italy's FTSE MIB.
At the sector level, it's worth noting the pull-back in tech stocks on the back of a fall in
German software maker SAP following its earnings update.
Here's your snapshot:
(Danilo Masoni)
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WHAT'S ON THE RADAR FOR THE EUROPEAN OPEN (0647 GMT)
European stocks are set to falter at the open as investors lock in profits after a rally
took benchmarks to one-month highs yesterday.
Earnings season is in full swing with several heavyweights in consumer goods and industrials
reporting.
Disappointment from consumer giant Unilever (NYSE: UL - news) could weigh on the sector. The Anglo-Dutch maker
of ice cream to soap blamed a Brazilian transport strike and weak pricing for its lower than
expected second-quarter sales growth. Weak pricing was one of investors’ main concerns for the
consumer staples stocks last quarter, too, causing some sharp stock falls.
Industrials reported strong results overall, with Swiss engineering company ABB (LSE: 0NX2.L - news) beating
profit forecasts though its sales were weaker and it warned about rising geopolitical
uncertainties. Truckmaker Volvo’s profit also topped forecasts, perhaps providing a sentiment
boost to the autos sector hit by tariff fears. France’s Alstom (LSE: 0J2R.L - news) and Sweden’s SKF (LSE: 0NWW.L - news) also reported
strong results.
And tech stocks, which led gains on Thursday, could extend their rally after Europe’s
biggest tech company, SAP, raised its outlook on forecast-beating results thanks to growth in
its cloud business.
Nordea, the Nordic region’s biggest bank is indicated up 1 percent after its second quarter
profit topped forecasts, though it said revenues were unlikely to reach last year’s level in
2018.
And UK engineer Babcock lowered its full-year revenue outlook; its shares are
seen down 5 to 10 percent at the open.
(Helen Reid)
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FUTURES POINT TO LACKLUSTRE OPEN (0613 GMT)
European benchmark futures are trading down 0.1 to 0.2 percent across the board, indicating
the recent rally will peter out today as investors take profits.
It's a heavy day for earnings meaning results will likely drive more movement underneath
index levels.
Adding to the list of earnings out so far, consumer goods giant Unilever has just reported
lower than expected second-quarter sales, hurt by a Brazilian transport strike and weak pricing.
The latest headlines:
Unilever second-quarter sales disappoint
Sweden's SKF Q2 profit beats forecast, sees higher demand in Q3
French group Alstom posts higher Q1 sales
Roche Tecentriq cocktail cut lung cancer risk, survival data still to come
(Helen Reid)
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EARLY MORNING EARNINGS ROUND-UP (0539 GMT)
Trade war risks and currency risks are the main issues flagged by companies reporting today
thus far. Swiss industrials giant ABB warns geopolitical risks are rising, while unlisted Volvo
Cars said it was on track for another sales record despite trade tensions - perhaps a positive
sign for the autos sector.
Here's your results round-up:
Publicis (Paris: FR0000130577 - news) stumbles on health unit underperformance in 2nd quarter
ABB warns on rising geopolitical risks after Q2 profits beat forecasts
SAP raises outlook as cloud growth "unleashed"
Volvo Cars targets sales record, facing down trade worries
Innogy agrees with E.ON and RWE (IOB: 0FUZ.IL - news) on planned transaction
Nordea Q2 profit narrowly tops forecast
Givaudan (LSE: 0QPS.L - news) profit falls as currency losses in Argentina bite
Essity Q2 core profit slides as higher pulp prices weigh
(Helen Reid)
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MORNING CALL: EUROPEAN RALLY TO STALL (0531 GMT)
European shares are set to take a breather this morning after earnings optimism took
regional benchmarks to a one-month high on Wednesday.
Asian shares extended early gains overnight as upbeat Wall Street earnings buoyed global
investor sentiment, although trade war jitters pushed China's yuan to fresh one-year lows in
both the onshore and offshore markets.
On the radar today are updates from ABB, Alstom, Anglo American (LSE: AAL.L - news) , Kone (LSE: 0II2.L - news) , Kuehne & Nagel,
Publicis, Unilever, Volvo, among other big European companies.
Spreadbetters CMC Markets expect the FTSE 100 to open unchanged at 7,676 points, the DAX to
open 17 points lower at 12,748 and the CAC 40 10 points lower at 5,437.
(Helen Reid)
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(Reporting by Helen Reid, Danilo Masoni, Julien Ponthus and Kit Rees)