UK Markets closed

LIVE MARKETS-Looking for surprises in 2019? Search for "corporate action"!

* European stocks extend losses

* Banks, oil the biggest sector fallers

* IG (Frankfurt: A0EARV - news) slides after regulatory clampdown hits profit

* easyJet flies high thanks to upbeat trading update

Jan 22 - 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://julien.ponthus.thomsonreuters.com@reuters.net

LOOKING FOR SURPRISES IN 2019? SEARCH FOR "CORPORATE ACTION"! (1532 GMT)

New (KOSDAQ: 160550.KQ - news) year, old problems, it seems and one way to get an edge over a market that offers

limited upside may be scouting for firms with a potential for corporate action.

That's what Credit Suisse (IOB: 0QP5.IL - news) highlights in a note where it singles out 17 names that could

deliver surprises in 2019.

"With (Other OTC: WWTH - news) our strategists adopting a cautious approach to 2019 with limited upside projected for

global markets... what companies can do to drive profitability and shareholder value through

their own means becomes a more distinguishing feature," they say in a note.


The outperforms in the surprise basket are AB InBev (Brussels: ABIT.BR - news) , AP Moeller Maersk, AXA (Paris: FR0000120628 - news) , Danone (LSE: 0KFX.L - news) ,

Electrolux, JD Sports, Nokia (Milan: 23568.MI - news) , Rentokil, SSE (LSE: SSE.L - news) , Porsche/VW and Weir Group (Other OTC: WEIGY - news) while the neutral-rated

are Deutsche Bank (IOB: 0H7D.IL - news) , EDP, Ericsson (Hanover: ERCB.HA - news) , Recordati (LSE: 0KBS.L - news) and Telecom Italia (Amsterdam: TI6.AS - news) .


(Danilo Masoni)

*****

CHINA'S NEARLY TRILLION-DOLLAR CORPORATE DEBT PROBLEM (1315 GMT)

There's a lot of discussion about U.S. corporate debt that has ballooned in the decade of

cheap money and concerns about how companies will handle refinancing in the new era of

quantitative tightening.

It's already high on asset managers' watch-list of potentially explosive issues for this

year.

"It's going to be the real challenging question this year. The liquidity tide has gone out,"

said Royal London Asset Management Chief Investment Officer Piers Hillier.

A look at corporate leverage in China may also give some investors pause.

According to S&P Global Ratings, a staggering 6.06 trillion yuan in bonds, including those

with options for early repayment known as puttable bonds, will mature this year. That's up 15

percent from last year.

Converted into dollars, that's $890 billion, exceeding the estimated 673.4 billion euro

($765 billion) coming due for European companies and $721 billion in the United States this

year.

An S&P report published today highlights how slowing economic growth in the world's No. 2

economy will dent companies' profits, straining their ability to cover interest rate and debt

payments.

That will lead to an increase in corporate defaults this year, S&P China country specialist

Chang Li wrote in the report called The Big Chill in China. Monetary easing will not fully

offset the risks faced by marginal, over-leveraged companies.

"This will be driven by rising debt maturities in 2019 and our expectation that financial

institutions and investors will remain risk averse against a more fragile economic backdrop,"

said Li.


Local (Stuttgart: 19549987.SG - news) government finance vehicles (LGFVs) face the highest maturity wall, followed by mining

and metals, and real estate, the report says.

The findings will add further gloom to the sell-off across global equity markets today as

data pointing to a cooling economy piles up: exports and imports unexpectedly shrank last month,

falling factory orders point to a further drop in activity in coming months and more job

shedding. Yesterday's Q4 GDP was the icing on the cake.

Not surprisingly, credit risks are greater for small, over-leveraged companies.

"Credit divergence will likely be a key trend in 2019 with credit spreads for strong

corporates narrowing but weak companies continuing to face higher downgrade and default risk,"

said the report.

S&P charts show default rates hit record highs last year and LGFVs are the most vulnerable:

(Josephine Mason)

*****

WHO PAYS CEOS BETTER? CAC, DAX, FTSE? (1218 GMT)

An interesting study published by the Vlerick Business School shows median CEO total

compensation for a few European benchmarks.

As you can notice, it's not immediately easy to compare pay as the median market cap and the

number of constituents differ greatly from index to index.

But when doing a very unscientific and rough ratio of pay/market cap, it appears quite

quickly that FTSE 100 CEOs aren't treated badly compared with their European peers.

Here's a link to the study: https://bit.ly/2RENIkm

(Julien Ponthus)

*****

HOLD TIGHT, VALUE INVESTORS! A VALUE BOUNCE IS WITHIN REACH (1156 GMT)

With oil and bank stocks leading the slide today in Europe, you'd be forgiven for thinking a

bounce in cheaply-priced sectors feels far off. Certainly many have been burned in Europe in the

past years hoping for a value rally when value traps have been far more frequent.

But Citi strategists reckon a value bounce is around the corner, pointing to a wide

valuation gap and deeply negative economic sentiment as signs.

The valuation gap between the cheapest and most expensive stocks is almost as wide as it was

during the Global Financial Crisis of 2008-09, note Citi's European equity strategists led by

Jonathan Stubbs.

"This suggests that a lot of bad news is priced in with investors concerned about recession,

liquidity and political risks," they write.

"A combination of sharply de-rated Value and strong support from the relationship between

equity sentiment, CESI levels and style returns both suggest that Value is due a bounce."

As you can see below, when the euro zone Citi Economic Surprise Index (CESI) is under -70

and U.S. sentiment is in Panic territory, value usually outperforms over the next year.

(Helen Reid)

*****

"THE DE-RATING OF 2018 PROVIDES SOME CUSHION" (1111 GMT)

The earnings season is getting into gear and unlike the last quarter it seems that

disappointments aren't provoking dramatic share price falls.

Why's that? Well, we must thank the big sell-off that turned 2018 into the worst year for

European shares in a decade, crashing valuations to levels that some investors deem attractive.

"Soft Q4 results may not be a shock to the market as the de-rating of 2018 provides some

cushion to equities," says Barclays (LSE: BARC.L - news) strategist Emmanuel Cau and team.

"FY2019 estimates still look too high, but global economic surprises may be close to bottom

and trade newsflow is turning more constructive," they add.

Royal London Asset Management Chief Investment Officer, Piers Hillier, agrees the Q4

sell-off has taken a bit of hot air out of the market and provided some opportunities for a

targeted bargain hunt.

"I was cautious in September last year, but I feel a bit better coming into this year

because of that correction," he said. "When you get 20-percent correction in a market, it gives

you a chance as a stock picker to buy better business models at lower prices."

That being said, Barclays strategists expect cyclicals to see more downgrades ahead, but

valuations and positioning have improved, possibly reviving investors' interest.

In sectors, they believe it's time for some tweaks, moving tech to marketweight from

underweight at the expense of staples, which are now at underweight. Materials remain their

preferred beta play, while industrials still warrant caution.


(Danilo Masoni and Josephine Mason)

*****

OPENING SNAPSHOT: BANKS DRIVE EUROPEAN SHARES LOWER (0822 GMT)

European shares have opened lower this morning with banks being the biggest drag following a

disappointing update from Swiss investment bank and wealth manager UBS (LSE: 0QNR.L - news) . The news is weighing

across the sector, as investors digested a flurry of other corporate updates.

UBS was down more than 4 percent after it reported fourth-quarter pretax profit below

expectations and said tepid investor mood would continue dampening first-quarter results. Other

bank heavyweights such as HSBC, BNP Paribas (LSE: 0HB5.L - news) and Santander were down between 0.9 and 1.5 percent.

Top faller on the STOXX was IG Group, down 8.8 percent as stricter regulation contributed to

a 17-percent slump in first-half profits, while some well-received updates from the likes of

Hugo Boss (IOB: 0Q8F.IL - news) and Logitech, helped limit the losses.

The STOXX was down around 0.3 percent, while other regional benchmarks were also posting

slight declines.

(Danilo Masoni)

*****

ON THE RADAR: UBS, HUGO BOSS, LOGITECH AND SO MUCH MORE! (0750 GMT)

Same gloom, day 2.

Global growth pessimism is the dominant narrative at the moment but that doesn't mean

there's any kind of shortage of corporate news to animate the session:

Today’s big earnings, UBS, is seen as a disappointment and is expected to open down at least

2 percent, dragging Credit Suisse with it.

Still in Switzerland, SGS (LSE: 0QMI.L - news) is seen losing some ground as it reports Q4. In the financial

sector, IG Group profits are hit by regulatory clampdown which would also weigh on competitors.

Among positive earnings: Hugo Boss, Logitech and Dixons Carphone (Frankfurt: CWB.F - news) .

The drone saga at Gatwick has a price tag on it for easyJet but pre-market indication don’t

point to a fall.

In M&A, France's Bonduelle (LSE: 0N75.L - news) is in talks to buy U.S. plant from Seneca Foods and private

equity firm Apollo is wooing RPC (NYSE: RES - news) with advanced talks for a potential takeover worth more than

$3.8 billion, according to WSJ. The packaging firm's shares are seen jumping as much as 10

percent at the open.

In executive moves: Kier and Jupiter CEO Will Stand Down Immediately

Also a big question mark raised for Orange (LSE: 0OQV.L - news) which could retreat after a report on a possible

big fine.

Here's some key headlines:

Hugo Boss sales accelerate in key Christmas quarter

Logitech raises FY outlook after gaming-powered third quarter

Ricardo Plc Says HY Rev Slightly Ahead Of Prior Period

Drone disruption at Gatwick hits easyJet operations and costs

Swiss testing firm SGS reports 2018 profit rises 3.5 pct

Kier Says CEO Will Stand Down Immediately

Jupiter CEO Slendebroek to step down, Andrew Formica appointed

Dixons Carphone's Christmas sales rise 1 pct

IG Group profit hit by regulatory clampdown

French company Bonduelle in talks to buy U.S. plant from Seneca Foods

Pets at Home (Frankfurt: A1XFE7 - news) quarterly like-for-like revenue rises 5.1 pct

UBS posts $862 mln Q4 pre-tax earnings, missing expectations

China's thirst for cognac helps Remy Q3 sales beat forecasts

(Julien Ponthus and Josephine Mason)

*****

FUTURES POINT TO ANOTHER RISK-OFF SESSION IN EUROPE (0721 GMT)

Seems Davos 2019 probably won't be a vintage remembered for its irrational exuberance with

the IMF cutting its forecast a day before the official start of the event.

Anyhow, as the rich and the powerful gather in the Swiss Alps, European futures are falling

between 0.3 percent and 0.5 percent.

As a bonus, Davos delegates in a graphic: https://tmsnrt.rs/2HgY4lx

(Julien Ponthus)

*****

NO REBOUND FOR EUROPEAN STOCKS AS GROWTH WORRIES WEIGH (0628 GMT)

New day, same gloom: European stocks are set to start the session in negative territory as

the same growth worries which broke a streak of four positive session session yesterday hit

global market again.

Financial spreadbetters expect London's FTSE to open 22 points lower, Frankfurt's DAX to

lose 40 points lower and Paris' CAC to go down 16 points lower.

Pessimism for risky assets has been felt earlier on Asian shares and is still hitting U.S.

futures and oil prices.

(Julien Ponthus)

*****