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LIVE MARKETS-Let the battle over valuations begin: euro zone vs U.S.

Jan 2 - 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:


There's been much discussion among asset managers whether the sell-off in U.S. stocks has

been so overdone that now might be the time to pounce on some new year bargains.

But Patrick Moonen, multi-asset strategist at NN Investment Partners, takes a slightly

contrarian view - he reckons euro zone equities might be a better destination for investors'

cash in 2019 than the other side of the pond, based on historically low valuations.

Forward price-to-earnings discounts of euro zone equities to their U.S. peers are currently

at 32 percent and have only been as deep as this on two other occasions over the past 20 years,

according to an analysis by the Dutch asset manager.

During those previous episodes, the world economy was in recession: in 2001/02, during and

after the bursting of the internet bubble, discounts were at 49 percent, and they were at 45

percent in 2008/09 in the midst of the global financial crisis.

He expects U.S. earnings will decelerate as Trump's tax cuts expire and their benefits ebb,

and reckons non-financial companies' net profit margins are at unsustainably record high levels.

At the same time, euro zone earnings will accelerate driven by domestic demand providing

support to margins, he expects.

"In absolute terms, both regions will witness mid-single-digit earnings growth. For us, this

valuation/growth equation is the main reason why we prefer euro-zone equities to U.S. equities

for 2019," he says in a note.

Then again, disappointing manufacturing data from the euro zone's major economies this

morning hasn't provided much reason for optimism and the sea of red across European bourses

today suggests investors aren't racing back to the region just yet.

Another chart which might be of use for bargain hunters is UBS (LSE: 0QNR.L - news) ' Index Valuation sheet where

one can compare PE ratios and and 2018 performances of main indexes:

(Josephine Mason, Helen Reid and Julien Ponthus)



Manufacturing data from Spain, France, Italy, and Germany has amplified the gloom hanging

over markets today after Chinese data set the tone with the first factory activity contraction

in more than two years.

Italian factory activity contracted in December for the third straight month, though less

sharply than the month before. Its manufacturing PMI rose to 49.2 from 48.6.

Spain's manufacturing sector grew at its slowest pace since Aug 2016, likely helping drive

the IBEX down 1.8 percent, one of the biggest casualties.

France's CAC 40 is suffering the most, down 2.2 percent, and that reflects a drop in its

factory activity due partly to anti-government protests. France's PMI fell to 49.7 points in Dec (Shanghai: 600875.SS - news)

from 50.8 in Nov, marking its lowest level since Sep (Shanghai: 600021.SS - news) 2016.

In Germany, growth in the manufacturing sector slowed again as new orders fell at the

fastest rate in four years. The PMI (Other OTC: PMIR - news) for manufacturing - which accounts for about a fifth of the

economy - fell to a 33-month low of 51.5 from 51.8 in November.

The euro zone overall saw only a tiny pickup in manufacturing activity.

As you can see below, global cyclical stocks have fallen in step with world PMIs and,

judging by today's price action and data, that trend could continue.

(Helen Reid)



Investors hoping for a brighter start to the year will be dismayed by today's further falls

with European indices down 1.4 to 2.5 percent. The drop is being led by France's CAC 40, set for

its biggest fall since Dec 6.

Miners, autos, banks, and oil sectors are all sliding 2.2 to 3.1 percent as crude prices

slide and investors dump the cyclical parts of the market most exposed to a slowing global


Medical equipment maker Gerresheimer (IOB: 0NTI.IL - news) is top faller, down 5.3 percent after JP

Morgan (Other OTC: MGHL - news) cut its rating on the stock to "underweight", according to traders.

Oil services firms TechnipFMC and SBM Offshore (Swiss: SBM.SW - news) , and oil producer Tullow Oil (LSE: TLW.L - news) are also down

4.4 to 5.5 percent, while Standard Chartered Bank is down 3.8 percent.

You have to go all the way down to the FTSE small-cap index to find a gainer: Ophir Energy (Other OTC: OPGYF - news)

which is soaring up as much as 40 percent after saying it received takeover interest from

Indonesia's Medco Energi.

(Helen Reid)



We can't put our finger yet on why exactly futures for the CAC 40 are falling this much but

with a 1.8 percent drop at the moment, things don't exactly look good.

Same thing but a tad less dramatic for Madrid with futures down 1.4 percent.

France's embattled president, Emmanuel Macron, vowed on Monday to press on with his reform

agenda in 2019 despite "yellow vest" protests that have challenged his government.

Before the Christmas holidays, Goldman Sachs (NYSE: GS-PB - news) analysts wrote: "in our view, the 'yellow vest'

protests have reduced the French government's room for manoeuvre as regards both fiscal

consolidation and structural reform."

They said 2019-2022 would see "rising downside risks".

(Julien Ponthus)



It's not all about Chinese data this morning as we wait for PMI releases to shed a bit more

light on the state of the European economy.

As noted by Raymond James, this comes with Brexit due in just three months now and European

Parliament elections in less than 5 months.

(Julien Ponthus )



Asian shares set the tone for 2019' first day of trading with an orderly retreat in the face

of disappointing data from China.

So while U.S. stock futures are in the red, indications from financial spreadbetters in

Europe also point to a start in the red in the continent.

CMC Markets (LSE: CMCX.L - news) gives FTSE 100 expected to open 48 points lower, the DAX 70 points lower and

the CAC 40 62 points down.

For LCG, it's down 34 points, 42 points and 71 points respectively.

Below, starting 2019 with style:

(Julien Ponthus )