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LIVE MARKETS-Marred mergers leave European investors unimpressed

* European stocks falter as cyclicals drag

* Deutsche Bank, Commerzbank end merger talks

* Nokia drops 9 pct after surprise quarterly loss

* Q1 beat sends ASM International to all-time high

* Huhtamaki tops STOXX 600 after results

April 25 - Welcome to the home for real-time coverage of European equity markets brought to

you by Reuters stocks reporters and anchored today by Thyagaraju Adinarayan. Reach him on

Messenger to share your thoughts on market moves:


European stocks have slid for a second day today, with the main news - a blocked Sainsbury's

Asda merger, and the collapse of Commerzbank-Deutsche Bank tie-up talks - hardly music to the

ears of those holding out for a European corporate profitability recovery.

Commerzbank has ended the day down 2.3 percent while Deutsche lost 1.5 percent, and

Sainsbury's dropped 4.7 percent as investors fled the stock with merger hopes dashed.

Some good results buoyed other stocks, though.

ASM International continued the trend of strong chipmaker results after STMicro's strong

showing yesterday. It's up 9.9 percent after beating revenue and order intake targets.

Finnish paper packaging company Huhtamaki is up 12.4 percent, topping the STOXX after its

results, and Germany's Delivery Hero gained 10.1 percent after reporting Q1 sales doubled and

raising its revenue forecast.

The STOXX is down 0.2 percent with a clear defensive tilt to trading: utilities were the

leading sector along with healthcare, while autos, mining, and construction stocks are bringing

up the lead.

(Helen Reid)



It's a recurring theme in market think-pieces and bears' lists of worries: Chinese

companies' credit and how secure it is.

While Chinese markets have been running hell for leather so far this year, and investors

have been turning more positive on the region as trade talks with the U.S. progress and Beijing

doles out more stimulus measures, there may still be significant credit risk lurking.

Goldman Sachs strategists take the example of state-backed China Minsheng Investment Corp

(CMIC), which failed to meet the principal and coupon payment on an 850 million yuan ($126

million) onshore private placement note earlier this month, causing cross-defaults on its dollar


Investors GS met in a recent trip to Beijing thought defaults would be concentrated in

smaller privately owned enterprises, they say, but "the CMIC default reminds us that may not

necessarily be the case".

While contagion from this default to the wider credit market should be limited, GS

strategists Kenneth Ho and Claire Cui warn investors against being complacent.

There have been onshore bond defaults from 12 issuers so far this year, after a record

number last year (see chart below).

But this might understate the risk. "We believe credit stresses are higher than what the

defaults are showing, as there have been a number of situations where near misses and delayed

repayments occurred," Ho and Cui write.

For more on China's opaque bond market and unreliable credit ratings:

(Helen Reid)



The confirmation from Deutsche Bank and Commerzbank that they've ended their tie-up talks

has defeated investors' hopes for a German banking giant to rival U.S. banking hegemons.

The news has sent Commerzbank shares down 2.1 percent while Deutsche Bank is hovering just

in negative territory, down 0.2 percent, having risen strongly earlier when it said it would

post first-quarter profit above expectations.

Of Deutsche Bank, KBW analyst Thomas Hallett writes: "Whilst the collapse of talks is

initially positive given the level of risk associated with such a deal, the bank generates

minimal free cash flow on a standalone basis, creating limited capacity to support growth

initiatives and restructure operations."

More broadly, the failure of talks raises questions about the future of banking in Europe.

"Who really believes that European banks can do well? If there's no consolidation it is not

possible," says Mourtaza Asad-Syed, chief investment officer at Swiss private bank Landolt &

Cie. "There is an overcapacity in Europe, and capital for the shareholder is going to remain


As you can see below, the combined market cap of the 12 biggest euro zone lenders is just

half that of the biggest U.S. banks. Market value of euro zone lenders has fallen in the past

five years while that of U.S. rivals has risen, accentuating the divide.

The end of talks on a bank merger puts the spotlight on potential deals in asset management:

sources told Reuters yesterday Allianz and Amundi are considering rival deals to merge their

asset management units with Deutsche Bank's DWS.

(Helen Reid)



(Headline loosely based on Lay's Potato Chips ad campaign: "Betcha can't eat just one!")

Okay let's discuss chip stocks, while you munch on your potato chips (or "crisps" for our

British readers).

Should we hope for a second-half 2019 turnaround? Go for smartphone-exposed or autos-exposed

stocks or a mix?

A tough choice to make as we've had a mixed bag of updates from global semiconductors and

semiconductor equipment makers.

The near-$500 billion/year industry supplies chips to smartphones, tablet devices,

computers, cars, and industrials, among others. Semiconductor firms have been hit by trade

friction between the U.S. and China, which contributed to a slowdown in the car business, and

the smartphone market cooling after years of rapid growth.

Texas Instruments, often seen as a bellwether for the industry, warned that a slowdown in

demand for microchips may last a few more quarters, while Europe's STMicro struck an upbeat tone

for the second half of the year.

The STMicro story is very company-specific and less dependent on market growth, Deutsche

Bank's Johannes Schaller says, pointing to STM's expectations of incremental revenue coming from

new design wins and contracted volumes with existing customers.

TSMC also expects first-quarter to mark the bottom of the cycle, which is "largely"

consistent with commentary across the Semis market, Credit Suisse analysts say.

But is there a trend? Are we near an inflection point?

Not quite.

On a macro level, a weak GDP print from South Korea - biggest quarterly decline in a decade

- is a worrying sign, especially with Bank of Korea Governor blaming weakening exports, mainly

of semiconductors.

Earlier this month, Samsung Electronics said it was heading for its lowest quarterly profit

in more than two years as a glut in memory chips hit margins. Germany's Infineon cut its sales

forecast in March on weak China car market, while silicon wafer maker Siltronic said the timing

of a market rebound is "not visible".

But not all chipmakers are impacted by trade tensions.

Dutch semiconductor supplier ASM International's Q1 order intake blew past estimates

yesterday and it expects to significantly outperform the market in 2019.

Dialog Semi yesterday increased its Q1 margin outlook on one-offs but expects revenue to

edge towards the higher end of its outlook. Dialog warned of a slow Q1 in March.

Has this mixed bag of news been reflected in the share price?

Not quite. The Philedelphia semis index has been scaling new peaks and has jumped a

whopping 49 percent from December 2018 lows.

(Thyagaraju Adinarayan)



With the global stock market rally continuing to defy the odds, can investors risk following

the old market adage that they should 'sell in May and go away'?

"As we approach the typically soft spring-summer period for equities, the question is

whether one should use the latest rebound as an opportunity to de-risk," says Emmanuel Cau,

European equities strategist at Barclays.

It is tempting to close out given technical charts are indicating markets are overbought and

the statistical case for inflows to pick up in the months ahead does not look particularly

compelling, he adds.

The chart below shows the 14-day Relative Strength Index (RSI) for the STOXX 600 and S&P 500

has hovered around the 70 threshold in recent weeks, piercing the key level earlier this week,

signalling markets are technically overbought.

At the same time, volatility is weak and strategists have warned rising bearish bets on the

U.S. volatility index are a sign of complacency among investors, leaving the market vulnerable

to another blowout if there was any surprise or shock news.

The chart below illustrates the weakening volatility index for Europe and the U.S.:

Cau says he's not brave enough to say this summer will be different, but with trading

volumes already sharply down year-to-date and equities having seen significant outflows, the

lack of flows may mitigate the effect of the typical summer slump.

In fact, investors may not even have that much to sell in the first place, says Cau. He

recommends using the lower volatility to hedge potential downside risks, rather than selling

equities outright.

He doesn't rule out a melt-up scenario, with the bears capitulating, but it will depend on

fundamental newsflow - such as earnings - turning positive and bond yields stabilising.

Still, the Q1 earnings season is off to a good start, with surprises so far to the upside even

if downward revisions are still coming in, he says.

(Josephine Mason)



European stocks are under pressure in early deals, with all the major bourses in the red

after weakness in Asia and on Wall Street overnight and as investors digest a slew of poor

earnings from Nokia to Peugeot and UK housebuilder Taylor Wimpey.

Finnish telecom equipment maker Nokia is down 10 percent at 6-month lows and set for its

worst day since late 2017 after it reported a surprise Q1 loss. The news is denting shares of

rival Ericsson, which is down 1.5 percent.

Peugeot is the top loser on the Paris bourse after warning of continued sales decline in

China in its Q1 results.

Taylor Wimpey's downbeat outlook for the struggling UK housebuilders has cast a pall over

the whole sector and reinforced worries about the damage of a prolonged and chaos Brexit process

on the construction and housing industry.

Taylor Wimpey shares are down 6.6 percent, dragging Persimmon, Bellway and Barratt with it.

The European construction index is down 0.9 percent.

Among the bright spots, Wirecard, which has been hit by allegations of fraud and false

accounting, is extending yesterday's stellar gains after confirming its profit targets. Shares

are up almost 4 percent and top of the DAX 30.

Bayer shares are close behind, after reporting a Q1 beat mainly driven by its Monsanto


Carrefour is rising 2.3 percent and the biggest gainer on the French blue chip index as an

improving performance in the core French market helped Europe's largest retailer beat Q1 profit


Following Credit Suisse's stellar show yesterday, Switzerland's biggest bank UBS comfortably

beat estimates as pickup in market conditions dampened a hit to trading revenues and client

activity, sending its shares up 0.7 percent.

ASM International is up 5.5 percent after its results, which defy expectations of a slowdown

in chip demand.

Here's your early snapshot:

(Thyagaraju Adinarayan)



European stock futures indicate a slightly higher open with a mixed bag of earnings reports

from banks, autos, supermarkets and semiconductor sectors and some new developments expected on

the M&A front.

After Credit Suisse's stellar show, profits at larger rival UBS breezed past estimates as a

pickup in market conditions dampened a hit to trading revenues and client activity, while

Swedbank also reported better-than-expected Q1 profits, but admitted to past anti

money-laundering shortcomings and said it was cooperating with authorities, including those of

the United States.

Britain's Barclays posted a drop in Q1 pretax profit that was in line with analysts'


Plenty to digest in the autos sector - Geely-owned Volvo's quarterly profit fell by a fifth

as the company blamed pricing pressure and higher tariffs arising from the trade war between

U.S. and China, while French carmaker Peugeot also warned of a continued decline in sales in


Michelin reported higher Q1 sales, helped by its recent acquisitions of the Camso and Fenner

businesses, and stuck to its 2019 financial guidance, a positive sign that the tyre sector is

showing resilience to global trade tensions.

Carrefour has delivered in-line Q1 sales, rising 2.7 percent on a like-for-like basis, up

from 1.9 percent in the fourth quarter of 2018, driven by robust sales in Brazil and an

improving performance in the core French market. Deutsche Bank analysts said they expect shares

in Europe's largest retailer to rise, but cautioned it's too early to call an inflexion.

In a blow to Sainsbury's ambition to overtake market leader Tesco, Britain's competition

regulator has blocked its proposed 7.3 billion pound takeover of Walmart-owned Asda and the

companies say they have agreed to terminate the transaction.

Most analysts and competition lawyers saw little chance of the deal proceeding, but a

collapse may force Sainsbury's to undergo a major shake-up that could see new chairman Martin

Scicluna part company with Chief Executive Mike Coupe, the architect of the deal and the group's

boss since 2014. Sainsbury's share price is down 19 percent over the last three months.

Appearing to defy the slowdown in smartphone demand that has hurt Texas Instruments and

other chipmakers, Dialog Semi expects higher Q1 profits and semiconductor supplier ASM

comfortably trumped Q1 revenue estimates.

But Finnish telecom network equipment maker Nokia's surprise loss is expected to push shares

down as much as 10 percent and may cast a shadow on rival Ericsson.

The deal-or-no-deal over Deutsche Bank and Commerzbank continues. The WSJ has reported that

talks between the German banking giants have hit stumbling blocks over questions ranging from a

lack of investor support to opposition from powerful labour unions.

Some headlines from overnight & this morning:

Chipmaker ASM beats first-quarter targets, sees market outperformance in 2019

Pricing pressure, tariffs dent Volvo's quarterly profit

Bayer's profit gets boost from Monsanto but legal burden mounts

Carrefour's Q1 sales growth accelerates with France, Brazil

Michelin confirms its 2019 guidance as Q1 sales rise

UK regulator blocks Sainsbury's $9.4 bln Asda takeover

Dialog Semi says it expects higher than anticipated profitability in Q1

UBS posts consensus-beating $1.14 bln Q1 net profit

Nokia reports surprise Q1 loss, sees pressure in second half

(Thyagaraju Adinarayan and Josephine Mason)



European shares are expected to edge ever-so slightly higher, as investors brace for an

earnings-heavy day, brushing off for now weakness overnight on Wall Street and in Asia.

Financial spreadbetters IG expect London's FTSE to open 6 points higher at 7,477,

Frankfurt's DAX to open 4 points higher at 12,317 and Paris' CAC to open 1 point higher at


Wall Street pulled back from records last evening pressured by energy stocks, although U.S.

stock futures are in green this morning as strong tech earnings post-close helps boosts investor

sentiment. Microsoft briefly topped $1 trillion in market capitalisation as cloud computing

shone, while Facebook results blew past estimates.

Still, weak macro data looms large - the deterioration in German and South Korean economic

data will remain a key area of concern and could halt German blue-chips' best run since February

2015 today.

(Thyagaraju Adinarayan)


($1 = 6.7453 Chinese yuan renminbi)

(Reporting by Danilo Masoni, Helen Reid, Josephine Mason and Thyagaraju Adinarayan)