LIVE MARKETS-Lufthansa's lift-off a recipe for Q1 results
(Refiles to fix spelling in headline)
* Italian stocks fall into red after ECB growth doubts, Bank of Italy comments
* STOXX 600 climbs 0.4 pct
* Zalando rallies after better-than-expected profit forecast
* Lufthansa recovers slightly after profit warning
April 16 - Welcome to the home for real-time coverage of European equity markets brought to
you by Reuters stocks reporters and anchored today by Josephine Mason. Reach her on Messenger to
share your thoughts on market moves: josephine.mason.thomsonreuters.com@reuters.net
LUFTHANSA'S LIFT-OFF A RECIPE FOR Q1 RESULTS (1312 GMT)
If you need an example of how the Q1 earnings season in Europe may roll, Lufthansa may well
be it.
Shares in Germany's biggest airline went into tailspin in early trading, falling as much as
5 percent after it blamed rising fuel costs and stiffening competition in the overcrowded
European market on a larger-than-expected Q1 loss.
By midmorning they were back in positive territory and are currently up 1.2 percent.
Dealers say the bad news ailing the airline and the broader industry was priced in (coming
after eaasyJet's warning last week and WOW's bankruptcy in late March) and investors were
drawing comfort from the more encouraging outlook - Q2 revenues will pick up as bookings recover
and the airline stood by its 2019 operating margin forecast.
"Almost all brokers were pushing the stock this morning and advising to buy the weakness
this morning," says one dealer.
Getting the bad news out the way was enough to prompt some short covering. Data from FIS
Astec Analytics shows investors have piled on bearish bets in the airline since September, with
the number of shares out on loan - a measure of short interest - hitting its highest in late
March on records going back to January 2018.
So might this be an early example of how European markets will deal with what is expected to
be an avalanche of weak Q1 earnings?
Barclays European equity strategist Emmanuel Cau recommended last week investors look beyond
poor Q1 headlines (analysts are bracing for the worst quarterly results in years) towards H2
when results are expected to stabilise.
BAML's monthly fund survey this morning shows the market still considers short European
equities to be the most crowded trade. That would often be considered a signal for investors to
bail out of that trade.
Might those Q1 headlines be just the much-needed news to inject some life into the
stagnating market?
(Josephine Mason and Helen Reid)
*****
EUROPE'S HISTORIC STOCK TORPOR (1112 GMT)
The volatility gauge for euro-zone stocks has hit its lowest since January last year
this morning, the latest sign that things are .... well .... stuck without direction and lacking
consensus about what happens over the rest of 2019.
That's also reflected in the remarkably narrow 6.4-point range the STOXX 600 has traded in
over the past 11 sessions.
To put that into historical context, we cast a glance back over the past decade and found
that such prolonged periods of small-scale intraday moves like the ones we're enduring now are
pretty rare.
You have to go back to September and January last year to find the most recent examples of
market lethargy.
But before that, they only occurred five times in 2017, twice in 2014 and 2016 (not at all
in 2015), four times in 2012 and 2013, according to a Reuters analysis.
Between 2007 and 2012, these bouts of torpor slowed to a trickle. That's not such a surprise
given the chaos across markets as the euro-zone sovereign debt crisis deepened and the global
economy imploded. Pre-2006, they were more frequent.
So that's a long way of saying, it's anyone's guess where markets will go from here.
As BAML strategists said earlier this morning, investors are positioned for a low growth,
low inflation environment and stock markets are reflecting that.
Below is a chart of the euro-zone implied vols:
(Josephine Mason)
*****
SMALL IS THE NEW BIG (1018 GMT)
A life of a Gen "Z" (aged under 20):
A personalised shaver, organic shower gel/cosmetics, a protein-heavy milkshake, a Nude
Coffee Roasters espresso, organic vegan food delivered via Just Eat or Deliveroo.
Some 44 percent of Gen Zs think a plant-based food or beverage is cooler than smoking, as
per a survey by UK plant-based company Bol, highlighting the backlash against processed food.
"(Millennials) want committed brands with authentic products. Natural, simpler, more local
and if possible small, as small as you can," Danone CEO Emmanuel Faber said last year.
These trends and comments highlight how Gen Z is upending the century-old business models of
consumer staples companies that are centred around dominant brands, mass production and
targeting mass groups. The generation after Millennials is on track to become the largest
generation of consumers by as early as next year, according to Forbes.
As a result big brands are losing out to smaller, nimbler rivals, and investors are taking
note.
Marcus Morris-Eyton, European equities portfolio manager at Allianz Global Investors, says
he has recently cut his stake in Reckitt Benckiser, which makes everything from Finish
dishwasher tablets to Veet hair removal products, dropping it to the top 15 investments in his
fund from top five previously.
"You're seeing quite a big structural shift in the sector. Ten years ago, it was all about
scale and economies of scale," he says.
Nivea maker Beiersdorf, Henkel and Colgate-Palmolive have all warned in recent months on
profits citing rising dominance of small brands and changing consumer behaviour.
Morris-Eyton, who also owns shares in Unilever, sees M&A as inevitable in the
sector with the big staples chasing the smaller, successful ones like Unilever's 2017
acquisition of Dollar Shave Club.
Dollar Shave Club allows its customers - or rather members - to customise their shaving kit
with packages delivered to their home.
Now it's all about that kind of mass personalisation, Morris-Eyton says.
The costs of catching up for the big brands will erode their margins further though.
In a recent note, Barclays says it believes the fightback has begun with companies such as
Nestle, Danone and ABF building a healthy portfolio of products for
the Gen "Z".
A quote by Intel Founder Gordon Moore in 1956 summarises it rather nicely: "Change has never
happened this fast before and will never be this slow again"
Check out what's at stake in these nifty graphics from Barclays:
(Thyagaraju Adinarayan)
*****
OPENING SNAPSHOT: ARE EUROPEAN STOCKS STUCK? (0743 GMT)
The STOXX 600 is up just 0.2 percent and we may have another range-bound day on our hands -
it's pretty staggering but the pan-European index has traded in an extremely narrow 4-point
range for the past two weeks.
The stronger March house price data for China is stirring hopes this morning that the
world's No. 2 economy is recovering from slower growth earlier this year as Beijing's stimulus
measures kick in ahead of Chinese GDP data due tomorrow.
But really there's still little sign of any conviction at index level in either direction.
Investors say a pause was overdue after the stellar Q1 across global equities fuelled by the
central banks' about-turn on interest rates and optimism about U.S.-China trade.
With that all priced in, investors are now hoping Q1 earnings season or macro data might
provide the impetus for the next leg higher or lower.
Let's see how German ZEW sentiment data looks in just over an hour, and we have a slew of
PMI data later in the week as well as China growth data tomorrow.
There's some action among individual stocks though - German online clothes marketplace
Zalando is top of the pan-European STOXX 600, rallying almost 10 percent, after forecasting
better-than-expected Q1 profits and lifting rivals Boohoo and ASOS slightly.
VAT Group is up 7 percent after its results.
Arlines and travel companies are losing altitude after Lufthansa's profit warning. Travel
and leisure stocks are among the biggest fallers across Europe after the German airline
blamed higher fuel costs and overcapacity in Europe for its weaker-than-expected Q1 profit
outlook, reinforcing worries about stiff competition across the sector.
Lufthansa is down 2 percent languishing at the bottom of the DAX and dragging rivals with
it. British Airways owner IAG and TUI are down 0.7 percent on the FTSE 100 and easyJet is down
0.6 percent. Air France is 1.5 percent lower.
(Josephine Mason)
*****
CHINA DATA BOOSTS EUROPE (0652 GMT)
European shares are indicating a slightly higher open today as stronger China March house
price data reinforces hopes that Beijing's stimulus measures have helped shore up the world's
No. 2 economy.
That's offsetting weaker sentiment on Wall Street overnight after uninspiring results from
Goldman Sachs and Citigroup although the banks' lacklustre trading performance in the quarter
highlights a recurring theme across the global banking sector.
All the major futures are up 0.1 percent, while Germany's ZEW investor sentiment data from
Germany at 0900 GMT will be widely watched for signs on the health of Europe's largest economy.
The biggest corporate news this morning are from Germany: a profit warning from Lufthansa
and better-than-expected earnings outlook from online clothes marketplace Zalando
(see earlier blog - Tale of two German Markets).
Lufthansa shares are down 5 percent while Zalando shares are up 3.6 percent in early
Frankfurt trade.
In other corporate news, miner Rio Tinto is likely to get a lift even after cutting its 2019
iron ore shipments guidance amid hopes that any loss of output would be offset by higher prices
of the steelmaking raw material.
Elsewhere in the UK, a blow to housebuilders after FTSE 250-listed builder Galliford Try cut
its FY profit forecast and launched a strategic review of its construction business. Shares are
seen falling as much as 25 percent.
In Italy, traders say the market is taking in its stride news overnight that the country's
top bank UniCredit has agreed to pay $1.3 billion to U.S. authorities to settle probes of
violations of U.S. sanctions on Iran and other countries, ending a six-year probe that has hung
over the bank.
Here are some UK headlines catching attention (see earlier blog for others)
Recruiter Hays quarterly net fees rises
JD Sports' annual profit rises despite retail challenges in UK
BRIEF-G4s Q1 Rev Up 4.8 Pct, Says Separation Review Making Good Progress
Galliford to review construction business, lowers forecast
(Josephine Mason)
*****
TALE OF TWO GERMAN MARKETS (0557 GMT)
It's a tale of two markets in Germany AG this morning - a profit warning from Luthansa
and better-than-expected earnings outlook from online clothes marketplace Zalando
.
Lufthansa has blamed soaring fuel costs and stiff competition in Europe that has dampened
fare prices for its Q1 profit warning, sending its shares in pre-market down 5.5 percent.
The news underscores worries across the industry that are likely to weigh on rivals and
follows downbeat outlook from budget airlines easyJet earlier this month and the bankruptcy of
Iceland's WOW in late March.
In contrast, Zalando forecast its Q1 profits will be above market consensus, coming hot on
the heels of an upbeat update from British online fashion retailer ASOS last week and the latest
sign of the changing retail market landscape as e-commerce grows.
Its shares are up 3 percent in pre-market Frankfurt trade, and the news may give rivals,
ASOS, Boohoo and Next a boost.
It's relatively quiet elsewhere.
The news was well-flagged (and follows a similar move by Standard Chartered last week), but
Italy's top bank UniCredit has agreed to pay $1.3 billion to U.S. authorities to settle probes
of violations of U.S. sanctions on Iran and other countries.
The bank says the penalties in the sanctions probe were fully covered by provisions with
resources that would be released to boost the P&L and core capital, ending a six-year probe that
has hung over the bank.
Here are other headlines catching attention this morning:
Lufthansa's blames high fuel costs on drop in Q1 EBIT
Daimler: Mercedes sells more than 600 Maybach models a month in China
U.S. House panels issue subpoenas to Deutsche Bank, others in Trump probe
Italy's UniCredit to pay $1.3 bln to settle U.S. sanctions probe
Vivendi AGM backs plans for possible share buyback
EssilorLuxottica director rules out merger could unravel due to boardroom row
Zalando Expects Adjusted EBIT In First Quarter Above Consensus
EU says it is ready to launch U.S. trade talks, but without agriculture
Telia to implement 5 bln SEK share buyback programme
(Josephine Mason)
*****
EUROPE DRAWING STRENGTH FROM ASIA (0518 GMT)
Europe is expected to draw strength from Asian markets overnight after a fairly subdued
start to the week yesterday, offsetting for now weaker sentiment on Wall Street induced by
disappointing earnings from Goldman Sachs and Citigroup.
Financial spreadbetters expect London's FTSE to open 14 points higher at 7,451, Frankfurt's
DAX to open 27 points higher at 12,047, and Paris' CAC to open 5 points higher at 5,514.
(Josephine Mason)
(Reporting by Danilo Masoni, Helen Reid, Julien Ponthus and Josephine Mason)