LIVE MARKETS-Libor-OIS spread not a sign of crisis
March 26 - 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
LIBOR-OIS SPREAD NOT A SIGN OF CRISIS (1126 BST)
The blow-up in Libor has been on everyone's lips the past few weeks, as concerns grow over
the potential impact on financing and banks, but analysts are quite sanguine about it.
The premium of three-month London interbank offered rate (Libor) over the overnight indexed
swap rate (OIS), seen as a gauge of money market stress, has surged in recent months.
Some 53% of U.S. corporate loans, 12% of consumer loans as well as nearly $1.8 trillion of
bonds are referenced to Libor, according to the Fed, meaning the rise in Libor translates to
increased funding costs for consumers and banks.
"We believe the widening is purely technical and is no indication of any systemic risks
facing the financial sector," write Credit Suisse (IOB: 0QP5.IL - news) strategists.
Libor widened mainly due to an unusual amount of U.S. Treasury bill issuance, and U.S. tax
reform driving a repatriation of cash. "A likely slowdown in the issuance of bills from the
second half of April onwards should reduce upward pressure on the spread," they note.
And there's not been much impact from Libor to other parts of the market. "While European
banks have underperformed since the widening in Libor-OIS spreads, we believe this is largely
due to the fall in bond yields and rollover in PMIs."
For more check out our explainer:
(Helen Reid)
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RECORD WEEK FOR BLOCK TRADING (1033 BST)
The impact of MiFID II is certainly being felt: just two weeks after the implementation of
dark pool caps on a wide swathe of European stocks, the volume of "large-in-scale" (LIS) block
trades (exempt from the caps) has shot up, Fidessa data shows.
Last week was the busiest ever for LIS trading on block venues, with a record number of
trades on Turquoise, Cboe LIS, Cboe Dark and Euronext Block platforms.
A record value was traded on Liquidnet, Turquoise, Cboe LIS and Euronext Block.
Overall the proportion of block trades to the whole dark trading volume rose to 44 percent
last week, from 42 percent the week before.
The stock with the most block trades was Land Securities (LSE: LAND.L - news) , with a total of 156.
British American Tobacco (Kuala Lumpur: 4162.KL - news) meanwhile traded 367 million euros in blocks - an all-time
record block value traded in a single stock in a week.
(Helen Reid)
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FINANCIALS: EARNINGS BACK IN THE SPOTLIGHT (0955 BST)
While some analysts are warning to turn down exposure to cyclical parts of the market, Citi
are taking a closer look at the financial sector. They say 70% or more of financials' returns
are driven by macro factors, but the importance of non-macro factors such as earnings and
dividend delivery is rising, just as the macro outlook starts to look a little more uncertain.
The stellar gains in financials over 2017 have left relatively few bargains, though.
"While valuations are unstretched, few stocks are outright cheap and future performance
seems more geared to earnings delivery than re-rating," Citi strategists write.
While highlighting near-term earnings risks, especially for European banks, as investors
wait for rate rises to boost revenues, they say patches of weak economic momentum can be
balanced by robust EPS growth and attractive dividend yields.
They reckon Swiss and UK domestic banks are good bets, as well as U.S. banks and life
insurers.
Among Citi's top stock picks are Europe's Credit Suisse, Intesa Sanpaolo (Amsterdam: IO6.AS - news) ,
Societe Generale (Swiss: 519928.SW - news) and Standard Chartered (BSE: 580001.BO - news) while the Europeans on the least
preferred list are all Swedish: Swedbank (LSE: 0H6T.L - news) , SEB (LSE: 0MGS.L - news) , and SHB.
(Helen Reid)
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EUROPEAN STOCKS STAGE A RECOVERY (0814 BST)
Defensives are in the lead today as European markets stage a rebound, with all sectors
making gains. Healthcare (Shanghai: 603313.SS - news) and utilities are the best-performing, as Roche's
lung cancer trial success helps boost it up 1 percent.
It's not only defensives enjoying gains though, with financials also rising as sentiment on
trade improves.
Fresnillo (Frankfurt: A0MVZE - news) is enjoying the top position on the STOXX, up 3.6 percent after an
upgrade to "buy" from Goldman Sachs (NYSE: GS-PB - news) , who also added the miner to their "conviction list".
Smurfit Kappa (Frankfurt: SK3.F - news) meanwhile is slipping 4 percent after refusing a sweetened takeover
offer from International Paper.
WHAT'S ON THE RADAR FOR THE OPEN? (0745 BST)
Trade war fears have weighed yet again on Asian shares this morning but there are scarce
signs of a general sell-off in Europe this morning. Futures indicate the main indexes are to
open slightly down (-0.2 percent for the IBEX) or flat (for the CAC 40).
U.S. futures are also trading in positive territory, suggesting that the latest news on the
trade front (U.S. exempts South Korea from steel tariffs, hopes of a negotiated US/China deal)
is not a cause for alarm.
Catalonia is back on the front page and could dampen sentiment in Spain with Puigdemont’s
detention in Germany. In France, Macron’s reform agenda received a boost with a lower than
expected deficit for 2017 (first time it is below 3 pct in 10 years).
Rather limited news in the corporate arena this morning but the saga for the control of
Telecom Italia (Amsterdam: TI6.AS - news) is still at the centre of attention, as is the GKN (Frankfurt: 694194 - news) situation with auto components
maker Dana agreeing to increase its offer for GKN's Driveline business. Smurfit Kappa has
spurned a revised proposal from International Paper, while Roche could benefit from results of
one its drugs showing a boost in lung cancer patients' survival.
A round-up of company news headlines since Friday:
BRIEF-Smurfit Kappa Rejects Revised Proposal From International Paper
Dana ups cash offer in hotly contested fight for Britain's GKN
BRIEF-Colas And Bouygues Construction Announce Acquisition Of Alpiq Engineering
Roche's Tecentriq cocktail notches another lung cancer success
JD Sports to buy The Finish Line (NasdaqGS: FINL - news) of the U.S. for $558 million
Givaudan (LSE: 0QPS.L - news) buys 522 mln euro Naturex (Other OTC: NTUXY - news) stake and launches takeover offer
Rolls-Royce says Trent (BSE: 500251.BO - news) 7000 engines not affected by turbine blade issues
Vivendi (LSE: 0IIF.L - news) ups stakes in Telecom Italia fight with Elliott
Atlantia (LSE: 0I2R.L - news) to buy Cellnex stake, granted option to sell it on to Edizione
(Julien Ponthus, Tom Pfeiffer)
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BECOMING MORE SUSPICIOUS OF CYCLICALS (0728 BST)
UniCredit (EUREX: DE000A163206.EX - news) analysts have downgraded the STOXX 600 Basic Resources (Frankfurt: W8Z.F - news) and Chemicals to
neutral, still rotating away from cyclical stocks and towards more defensive areas of the
market.
"The current slowdown in economic growth momentum suggested by leading indicators such as
the PMI indices is leading to materials becoming less attractive compared to defensives," they
write.
Tariffs are, of course, part of the reason as well, with materials stocks likely to be hit
by trade tensions.
"These developments are negatively influencing the risk premia that investors are taking
into account," adds UniCredit.
(Helen Reid)
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EUROPEAN FUTURES SLIGHTLY DOWN, U.S. E-MINI RISE (0717 GMT)
European futures have opened only slightly in negative territory despite persistent concerns
over trade tensions between the Trump administration and China. Futures for the continent's main
indexes are trading between -0.2 percent and +0.1 percent.
As a sign that investors are not in a full-blown "risk-off" mood, E-Mini futures for the S&P
500 are up 0.7 percent.
(Julien Ponthus)
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MORNING CALL: EUROPE SHARES EXPECTED LOWER AS TRADE FEARS HIT ASIA (0631 GMT)
European shares are expected to open lower this morning as fears of a full-blown trade war
between the United States and China battered Asian shares.
Financial spreadbetters expect London's FTSE to open 22 points lower at 6900, Frankfurt's
DAX to open 21 points lower at 11865 and Paris' CAC to open 12 points lower at 5083.
(Julien Ponthus)
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