* European shares in choppy waters
* Banks outperform, hit May 2019 high
* Earnings drive top movers 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: rm://email@example.com
ITALY, THE CONTRARIAN 2020 BET? (1511 GMT)
We're nearing the season when brokers, asset managers and investment banks all publish their next year outlook at the same time and make it quite difficult for us to make a selection of the most interesting bets.
But there's still a few weeks before that and in the meantime, here's an interesting view for 2020.
"Italian equities could be the contrarian bet in 2020", writes Peter Garnry, head of equity strategy at Saxo.
He argues that Italian stocks could benefit the most from growth rebounding in the euro zone and if Rome is allowed a little more wiggle room for some fiscal loosening, as government spending is making its way back in favour among the EU's thinking.
"Italian equities are valued at a 35% discount to global equities and have an attractive 4% dividend yield on top of positive earnings expectations and the potential for valuation expansion", Garnry also argues.
You can see below how Milan compares in terms of PE, dividend yield and YTD performance with the Euro STOXX below:
BANKING UNION: DON'T HOLD YOUR BREATH - FOR NOW (1445 GMT)
There's news out there about Europe's efforts to forge a proper banking union: Germany is now willing to compromise to avoid Europe loses standing internationally.
Germany has long been dragging its feet on such a project that included a common deposit insurance scheme and clearly its new stance is a welcome development but, as always, there is a but and, of course, the devil is in the details.
And the details are just that conditions set by German finance minister Olaf Scholz to do so look tough and potentially unpalatable to other euro zone countries.
Rabobank strategists are downbeat. They say the proposals do not really "move the dial" on the topic and will unlikely be much of a market mover. Why?
"The first reason for this is that the structure of the deposit insurance mechanism that he suggests at first glance very much appears to be 'deposit insurance lite'" they write.
"Secondly the other steps are likely to prove extremely unpopular/ difficult to implement with other EZ countries – for example the suggestion that sovereign debt should not be treated as risk free," they add.
Mediobanca Securities' Andrea Filtri is a bit more hopeful.
"We read the news with a glass half-full approach, in line with the positive signs we are seeing of effort by European authorities to move forward," he writes in an email to clients.
"At the same time, we expect today's proposal - which is already a downward compromise to us - to find substantial opposition particularly on the sovereign risk weight proposal (almost a deal breaker), so that we are not holding our breath at this stage", he concludes.
But Goldman analysts led by Jernej Omahen sounded somewhat upbeat.
"We view completion of the European bank union as central to the long-term outlook for the sector. Steps towards achieving this goal are positive, and we look for the process to gain momentum", they write, but then they caution: "This said, it is still early days".
Here's a complete reading list on the topic:
Germany ready to move on euro zone bank reform, but sets tough conditions
German govt has not yet discussed Scholz's deposit insurance proposal - spokesman
ECB, Commission give lukewarm welcome to Germany's deposit insurance idea
Deutsche Bank welcomes German government proposal on European banking union
Commerzbank Welcomes German Finance Minister’s Comments On Banking Union
BREAKINGVIEWS-EU banking union needs more than German concession
MONEY FOR NOTHING IN THE AGE OF RAGE (1301 GMT)
"As money is essentially free for those who have money and creditworthiness, it is essentially unavailable to those who don’t have money and creditworthiness, which contributes to the rising wealth, opportunity, and political gaps".
A post by Ray Dalio's Linkedin (find it here: https://bit.ly/2qo3IdR ) is doing the rounds this morning, with the hedge fund billionaire putting his finger on the big debate raging around quantative easing and MMT amid growing global discontent.
Dalio argues that capitalism just doesn't work anymore for the many and "the world is approaching a big paradigm shift".
And he is by no means alone in raising the question of the sustainability of what is popularly described as late-stage capitalism.
The theme, as it turns out, has emerged as a central topic in the Reuters Global Investment Outlook Summit.
"The status quo for the long term is not sustainable", Georg Schuh DWS EMEA CIO, told us, adding that either new ways of redistributing wealth will be implemented, or politics will move towards socialism.
In his November letter to his clients, Kevin Gardiner, a strategist at Rothschild Wealth Management, warned that the UK could soon experience "a big reversal of the political pendulum" towards the left, which might prove more important than Brexit.
"We hope we are mistaken, but domestic politics might have the potential to make a bigger economic impact than EU secession", he wrote, alluding to a scenario where Labour leader Jeremy Corbyn would become prime minister.
Rabobank economists also regularly urge their readers not to overlook how unrest and discontent are spreading globally and hitting countries as diverse as Chile, France, Iraq, Lebanon, Hong Kong and Venezuela.
"We still face Ages and Ages of Rage in a market that is still largely pricing for the calm of the status quo ante", Rabobank's Michael Every wrote at the end of October.
The possibility of a big shift to the left taking place during the U.S. 2020 presidential election is also been taking seriously by asset allocators.
Anyhow, here's a random fact courtesy of Reuters crypto correspondent Tom Wilson: if a lucky immortal man or woman received $1,000 everyday for the last 2000 years, that person would still be short of being a billionaire. Just sayin'...
RAY OF HOPE FOR EUROPE: $1 TRLN FLOW INTO ESG FUNDS BY 2030 (1230 GMT)
Yes, that massive amount of cash is likely to flow into ESG funds as the theme has become mainstream, especially in Europe.
BAML says there is $1 trillion flowing into ESG - Environmental, Social and Governance- funds by 2030 and three drivers are feeding the growing interest for these vehicles:
A. The rising number of ecopolitical parties in power
B. Millennials and green behaviour are changing investor base
C. 10 years of persistent outperformance from higher rated ESG stocks
And Europe seems to be killing it when it comes to ESG investing.
BAML says European stocks score persistently higher than other regions on ESG factors, accounting for 64% of MSCI ESG top-rated stocks in the MSCI AC World index.
Across Europe, there's strong preference for Dutch and French stocks: L'Oreal, Suez, Inditex, Geberit and Henkel are the five most overweighed EU stocks within these funds.
Interest in ESG among asset managers especially in Europe has been spreading like wildfire with increasing awareness on sustainable investing and here's stat from BAML proving that -- 67% of global ESG funds launched in Europe.
UK HIGH STREET: AVAILABLE AT YOUR LOCAL LARGE, MID AND SMALL CAP INDEX (1111 GMT)
It's a rare thing to witness: at one stage this morning, the UK high street theme was top of the FTSE 100, FTSE 250 and the British small cap index.
The downfall of 20th century British consumerism is unforgiving: the British shopping centre operator Intu Properties is in free fall on Britain's small cap index and losing over a third of its market value.
The company said it was considering raising equity as it struggles to make ends meet. Its clients, retailers, are closing stores to cut costs and focus on online sales.
No better illustration of the retail gloom than Mothercare shutting all its British stores with the chairman of the baby products retailer evoking "a near existential problem" for the UK high street.
Shares in Mothercare are however surging over 37% as it embarks on a drastic financial and operational restructuring after losing over 97% of its value during the last four years.
On the FTSE 100, British Land Company, another operator of commercial properties focused on retail locations, is the worst performer among blue chips with a 2.5% fall.
Marks and Spencer was the best performing stock on the FTSE 250 for a while with investors sighing in relief at the Q3 release after a dreadful 2019 so far.
But no celebrations there either.
"There was certainly some good news for investors but today's rally in the share price may be more out of relief than anything else", said Ian Forrest, an analyst at The Share Centre.
For Neil Wilson at Markets.com, there's little to celebrate.
"Clothing and Home is grim", he wrote, adding "by its own admission, the effort to shake up clothing and home has fallen behind".
Below you can see how all four stocks have badly underperformed the FTSE all share index these last five years:
IT'S OFFICIAL: BANKS NO LONGER EUROPE'S WORST (1007 GMT)
It seems that all those brokers calling for investors to come back to the battered banking sector is having an effect!
European banks have hit an early May peak this morning and are now up more than 6% year to date, leaving to Telecoms the trophy of worst sectoral performer.
The trade-off between the industry's fundamental headwinds (ultra-low interest rates) and its positives (low valuation and div yields) is a hard one to resolve but a stabilisation in PMI readings and risings bond yields are helping investors feel less unconformable versus banks.
Just today, the final reading for euro zone's composite PMI came in above the flash estimate, while German bond futures have hit a fresh June 2019 low.
Now the question is: how long will this last?
PS: UBS has just published a 129-page note on European banks, whose length at least highlights the growing interest of investors in the complex industry.
"Understanding banks is as important as ever as growth slows and change in the operating environment accelerates," analysts at the Swiss bank led by Jason Napier said.
READING THROUGH LAGARDE'S POKER-FACE BERLIN SPEECH (0925 GMT)
Reading through Lagarde's Monday speech in Berlin for policy clues was no easy task, not least because it officially wasn't about monetary policy.
But while analysts such as UBS's Paul Donovan complained that "investors may need to change where they look for guidance", others believe that Lagarde, actually, did say something.
For her first official speech, the ex-IMF French chief chose to honour none other than Wolfgang Schaeuble, a monetary hawk who embodies, at least for a good chunk of the European left, Germany's hardcore orthodoxy on all things monetary and fiscal.
The obvious signal was that the new French ECB chief is willing to work with hawks and doves from all geographies.
But add to the choice of praising Schaeuble - Super Mario's nemesis - to expectations of an impending review of the bank's policy framework, and the temptation is strong to draw some sort of conclusion.
Speculation is growing that as a way to build consensus on monetary policy across the euro zone, Lagarde could seek to gradually bring back interest rates to zero in exchange for Germany to engage (at last!) in fiscal stimulus.
Georg Schuh, DWS' EMEA CIO, told the Reuters Global Investment Outlook 2020 Summit that a rate hike was a distinct probability.
"In the first year the probability is 25%", he believes, adding the chance of tightening goes up to 50% in 4 years.
Needless to say, markets have not priced such a move which would completely upset fixed-income earnings expectations and have equity analysts scramble to reassess risk premiums.
Neil Mellor, a strategist at BNY Mellon notes that there is undoubtedly some pressure for the (ECB) Bank to be given a lower inflation target more suited to the 'new normal' low inflationary world".
A new normal of say 1% or 1.5% would limit the need for massive monetary stimulus and thus to antagonise further Dutch and German bankers and pensioners.
But be careful what you wish for!
"The ECB critics who are currently calling and hoping that the ECB under Christine Lagarde will lower its 2% inflation target, in order to allow for faster interest rate hikes, should think twice", ING economists write, arguing you can't have your toast buttered on both sides.
If inflation expectations are lowered to say 1%, it means that the euro zone's limits on deficits and debt, set at 3% and 60% of GDP respectively, would need to be reviewed to allow sufficient fiscal stimulus.
"Either lower the inflation target and allow for looser fiscal rules or increase the inflation target to accommodate for lower structural real GDP growth", ING concludes.
The other option of course is not to open that can of worms.
Germany's Schaeuble calls on Lagarde to respect ECB's "limited mandate"
In first speech as ECB president, Lagarde lauds key critic
LIVE MARKETS-Knot's anti QE rant fuels uncomfortable bubble questions
(Julien Ponthus and Karin Strohecker)
OPENING SNAPSHOT: BANKS AND RETAILERS STEAL THE SHOW (0841 GMT)
Well it took investors just a bit of time to determine what to make of SocGen's Q3 results but it's now crystal clear: they're good!
Shares in the French bank are up 3.4% and lifting the whole sector to a 1% rise.
This could be a straight fourth day up for European lenders, so maybe the value trade we were talking about yesterday is at play? -- see our blog -- Value in banks?
Anyhow lenders are posting the best sectoral performance by far after retail, up 0.5%, boosted by the UK's Marks and Spencer and Dutch supermarket operator Ahold Delhaize which reported better than expected results.
Main losers are car makers with a 0.6% fall. It's a typical gauge of investors' sentiment on the trade war, so that's telling us something perhaps, but BMW's Q3 results doing little to cheer up the sector with a 0.5% retreat.
Overall, European stocks have titled to positive territory at the exception of the FTSE, which is still struggling but now close to lifting itself up out of the red.
Here's your opening snapshot:
ON THE RADAR: UK HIGH STREET BLUES, Q3 UPS AND DOWNS (0750 GMT)
Futures are currently trading just slightly in the red but beware: today's big batch of Q3 is bound to trigger sharp moves at the open.
One of the most spectacular hit could come from the UK high street. Mall operator Intu Properties is seen falling between 10% and 30% after it said raising equity was an option as it expects lower rental income with more stores closing down.
That comes with Mothercare set to close all its British stores, and M&S posting profit down 17% on weak clothing sales.
Shares in struggling Norwegian Air will also be closely watched after it managed to raise $272 million.
Looking at today's Q3 action just a reminder that the latest data from Refinitiv shows that earnings expectations for the STOXX 600 have improved for the first time since late August, a sign that will rejoice investors betting on Europe bottoming up.
Anyhow: In the banking sector, SocGen was a miss with restructuring costs denting Q3 results and is indicated down 2%.
Germany GmbH is providing a lot of the Q3 headlines with Adidas and its sales picking up, BMW’s operating profit jumping 33% and Wirecard reporting a 43% gain in third-quarter core profits. Note however that shares in the German payment company are down in pre-open trading in Frankfurt.
Here are a few big headlines:
UK mall operator Intu forecasts lower annual rental income
Shares in Germany's Wirecard fall in pre-open trading in Frankfurt
Adidas sales pick up pace as Europe back to growth
SocGen's restructuring dents Q3 results but lifts capital buffer
Britain's AstraZeneca to distribute Sun Pharma cancer drugs in China
Ahold reports higher Q3 earnings on strong U.S. business
Struggling Norwegian Air raises $272 million from share sale, bond issue
Andritz Q3 core profit down due to Schuler restructuring
BMW Q3 operating profit up 33% as higher margin SUV sales take off
IT'S RISK-OFF AHEAD OF ANOTHER BIG Q3 DAY (0632 GMT)
European bourses are expected to open slightly in the red this morning after Wall Street and Asia pulled back in the absence of more news from the trade war front.
According to IG, financial spreadbetters expect London's FTSE to open 17 points lower, Frankfurt's DAX down 22 points and Paris' CAC to lose 7 points.
Sentiment could of course change quickly at the open given the amount of Q3 releases due before the bells rings across the continent's trading floors.
Adidas, Alstom, Axel Springer, BMW, Delhaize and Wirecard are among the corporates about to take the stage.
There's also a big batch of euro zone services PMI which will be closely watched given the hopes that the macro gloom is clearing up.
(Reporting by Danilo Masoni, Joice Alves, Julien Ponthus and Thyagaraju Adinarayan)