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LIVE MARKETS-"Leaving Europe for the Brazilian Carnival"

* European shares inch higher

* UK parliament to vote on no-deal Brexit option

* UK finance minister delivers Spring budget, cuts growth forecast

* Adidas, Inditex fall after updates

March 13 - 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: julien.ponthus.thomsonreuters.com@reuters.net

"LEAVING EUROPE FOR THE BRAZILIAN CARNIVAL" (1306 GMT)

Last week the Brazilian Carnival grabbed headlines after a shocking tweet from President

Bolsonaro, but beyond transgression it seems that the country also offers some opportunities for

investors, even those looking at battered European banks.

In a note today titled "Leaving Europe for the Brazilian Carnival", RBC Capital Market

analysts led by Benjamin Tom make their case for being exposed to Santander and BBVA, two

Spanish lenders with big business in Latin America.

"We prefer to own the Spanish banks with significant exposure to LATAM, as we believe the

region offers higher top line growth relative to pure EU retail banks and is less exposed to

global trade wars relative to Asian banks," they say.

Hence, they've upgraded Santander to outperform and affirmed the same rating for BBVA. 32

percent of Santander's profits come from Brazil while Mexico makes up around 37 percent of

BBVA’s.

Here's a breakdown of profits at BBVA, Santander, as well as HSBC

and Sabadell, which are also exposed (but less) to Latin America.


To conclude, a picture from Rio de Janeiro's Carnival and for those who missed Bolsonaro's

tweet, read this to catch up: President Bolsonaro shocks with Brazil 'golden shower' tweet

(Danilo Masoni)

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STAYING ON BRAND: WHAT DOES KRAFT HEINZ TEACH US ABOUT CONSUMER STAPLES? (1253 GMT)

The fallout from Kraft Heinz's dramatic share price drop is still being weighed by

the investment community, and has put a new focus on the question of consumer staples and how

much protection they actually offer investors.

Alistair Wittet, European equities portfolio manager at Comgest, puts the huge fall in Kraft

Heinz down to a slide in brand innovation, and draws parallels to Europe.

"You’re seeing growing divergence in performance between the likes of the cost-cutters, like

Kraft Heinz and AB InBev, and those who invest in top line like L'Oreal and Heineken," says

Wittet, who holds both L'Oreal and Heineken, adding that the fall in Kraft Heinz is more a

reflection of this than a larger question of fast-moving consumer goods as a category.

The trend in the industry has been towards shrinking marketing spending - which in turn has

hurt ad agencies like WPP and Publicis.

"I think the likes of Heineken and L'Oreal frankly see an opportunity to accelerate market

share gains when they’re up against competition who are cutting advertising spending," adds

Wittet.

A UBS investor offers his view on staples post the Kraft Heinz blowup:

"We have been underweight staples for fifteen years and we don't think they are as defensive

and as value as people think," says Peter Bye, portfolio manager for U.S. large and mid-cap

growth equities at UBS.

"Traditional staples are being disintermediated in terms of how they're being delivered," he

says, adding "some brands still have staying power".

He refers to Warren Buffett who in his latest investment letter said Berkshire had overpaid

for the food company, and says Nike is a better consumer staples bet than Kraft Heinz.

What of the Zion Williamson shoe explosion scandal that hit Nike shares last month? Bye

answers "Brands make mistakes, the question is will they be able to absorb that... I can't

really believe they let it happen, but I don't think there will be any long-term damage to the

brand on it."

(Helen Reid)

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A VERY BRITISH SENSE OF HUMOUR: THE UK'S SPRING BUDGET (1107 GMT)

The UK's protracted, painful exit from the European Union has sown confusion across the

world (and within the UK itself) and has been the butt of many jokes over the past few years.

You could argue the timing of the UK finance minister's half-yearly budget update - coming

in 1-1/2 hours as lawmakers prepare for one of their most important decisions in the deepening

Brexit ordeal - is an example of the British sense of humour in the face of adversity.

UBS Global Wealth Management's chief economist Paul Donovan put it nicely: "This is an

example of the British sense of humour, which foreigners often find difficult to understand."

But really while it might provide some distraction from all the Brexit shenanigans, it's

likely to be overshadowed by The Vote This Evening.

Finance minister Philip Hammond is expected to use the occasion to stress that public

finances are in better shape than in his last budget statement in October and boast about how

well the economy is doing.

But with his hands (and coffers) tied by Brexit uncertainty, analysts and economists don't

expect any major surprises.

"The Chancellor is unlikely to pull any rabbits out of the hat this time round," says UBS

Wealth Management UK economist Dean Turner.

Any strong economic projections could give sterling another boost ahead of tonight's vote

with bulls hoping for a positive outlook after yesterday's decent GDP data for January, says

Joshua Mahony, senior market analyst at IG.

But looming ever-large in the background will be The Vote This Evening. UBS' Turner says the

speech will be a not-too-subtle warning to MPs - a no-deal Brexit will put all of that at risk.

(Josephine Mason)

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WHY HAVE HEDGE FUNDS OUTPERFORMED FUNDAMENTAL MANAGERS? (1045 GMT)

Bernstein strategists have taken a look at fund performance year-to-date and one interesting

finding is that global hedge funds are doing rather well and are outperforming both U.S. and

European fundamental managers.

Why is that? Bernstein believes it's mostly due to significant differences in factor

positioning.

"U.S. fundamental funds are underweight Value and Quality, with a large overweight Low

Volatility. European funds are also underweight Value and Quality and overweight Low Volatility.

Global equity hedge funds are long Value, short Low Volatility, Momentum," they note.

"The difference in exposure to Low Volatility is likely a large part of what has driven the

outperformance of Hedge Funds and underperformance of fundamental funds year to date, as this

factor has underperformed," they add.

It's interesting that Low Vol, a factor meant to outperform in volatile times, has failed to

perform so far this year. Fundamental funds' weighting to Low Vol is a reflection of the extent

to which the rally year-to-date, largely driven by cyclicals, has taken the market by surprise.

(Danilo Masoni)

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OPENING SNAPSHOT: BREXIT KEEPS EUROPE FLAT (0906 GMT)

European shares are broadly steady in opening deals today with Brexit uncertainty keeping a

cap on gains ahead of another session in the British parliament, which will vote on whether to

leave the European Union in 16 days without an agreement.


Meanwhile, JPMorgan has reduced the probability of the UK leaving the EU on the terms of

Theresa May's defeated deal to 35 percent from 45 percent but said it was still the most likely

option.

After opening down slightly the STOXX 600 has managed to recover a bit to gain 0.2

percent, as you see in the snapshot.

And here's your new Brexit roadmap:

Turning to the corporate front, earnings are driving the biggest moves with Verbund

, Adidas and Inditex all down more than 4 percent to the bottom of

the STOXX 600 following poorly received updates.

Top gainer is asset manager Standard Life, up 4 percent, after its results and

naming Keith Skeoc as sole CEO.

(Danilo Masoni)

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ON THE RADAR: NO NEWS GAME CHANGER (0756 GMT)

European bourses are set to open in the red and there doesn’t appear to be any game changer

in corporate or macro news either.

Wirecard is expected to fall 5 percent at the open fall after it suspended an accounting

employee in Singapore amid allegations of fraud and creative accounting.

Some fresh data from the retail/consumer front which might weigh on shares. Adidas (seen

down up to 4 percent) said it expects supply chain issues to hit its sales growth in the first

half of the year, particularly in North America, while it hopes to return to growth in Europe.

Cash-rich Zara owner Inditex published annual earnings slightly below analyst expectations

and is also expected to retreat at the open.

In utilities, German energy firm E.ON forecast largely stable operating earnings for 2019,

while Innogy forecast a 13-percent drop in operating profit this year, as competition in the

British retail market remains tough following a failed attempt to merge its local unit with that

of SSE.

One story that isn’t going away is the Boeing 737 MAX 8 jets with currently two-thirds of

the fleet grounded according to Reuters calculations. Norwegian Air said it would seek

compensation from Boeing.

(Julien Ponthus)

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FUTURES POINT TO A STUMBLE AT THE OPEN (0718 GMT)

Europe is set to go lower at the open with futures currently retreating between 0.3 percent

and 0.5 percent.

There's a bit of corporate news with notably Inditex and Innogy but nothing that strikes as

being big enough to change the mood and help markets snap out of their current risk-off spirits.

(Julien Ponthus)

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NO REASON FOR EUROPE TO RISE AT THE OPEN (0630 GMT)

European shares are expected to open in the red this morning as the risk-off mood which

weighed on Asian shares spreads out to our time zone.

There's little reason for bourses to rise at the moment and morale is still low after

Theresa May suffered another humiliating defeat on Brexit in Parliament last night.

Financial spreadbetters expect London's FTSE to open 18 points lower, Frankfurt's DAX 41

points down and Paris' CAC to retreat 21 points.

Below the Daily Express asks a question which we believe also applies to the rest of Europe

and perhaps the world:

(Julien Ponthus)

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