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LIVE MARKETS-May'hem' explained in 3 charts
* European shares sell off sharply
* STOXX set for worst month since Jan 2016
* Autos, miners lead sectoral fallers; banks down
* Trump vows rapid increase in tariffs on Mexico
* China factory activity drops more than expected
* Wall Street set to fall at open
May 31 - Welcome to the home for real-time coverage of European equity markets brought to
you by Reuters stocks reporters and anchored today by Danilo Masoni. Reach him on Messenger to
share your thoughts on market moves: rm://danilo.masoni.thomsonreuters.com@reuters.net
MAY'HEM' EXPLAINED IN 3 CHARTS (1328 GMT)
The famous adage "sell in May and go away" - Yes that's been true this year.
European stocks are set for their worst May since 2012, when they were plagued by the
euro-zone debt crisis.
Trillions of dollars wiped off stocks due to the ongoing U.S.-China trade dispute.
No surprise, emerging markets, mainly China were worst hit due to the ongoing trade saga.
Trump's threat to tax Mexican imports is the latest setback in global trade.
What's next?
UniCredit analysts believe global equity markets will remain in consolidation mode in the
next few weeks with no positive news on the trade disputes.
(Thyagaraju Adinarayan)
*****
WHERE DO YOU GO WHEN BOND YIELDS HIT RECORD LOWS? (1159 GMT)
Bond yields have collapsed to new record lows / into negative for the first time, and now
nearly half of euro zone government bonds are yielding less than zero, a sign of the deepening
gloom hanging over the region and the world as investors fear slowing growth.
With negative yields on more assets, the chase for yield is well and truly on - but what
alternatives are there for investors? One, Morgan Stanley points out, is stocks delivering
chunky dividends.
Relative flows to European dividend funds have historically been closely related to the
level of German 10-year Bund yields, they say, citing EPFR data.
But more recently, there's been a gap between the relative performance of high dividend
stocks and the sharp falls in the yield, which have generally tracked one another quite closely
(see below).
Could it be that investors are opting for a different way of buying yield?
"The equity market's trade of choice of late to play the trend of falling bond yields has
been to buy Quality stocks," MS strategists note. They see Quality, with high valuations and
stretched performance, as unattractive, though, recommending investors buy stocks with strong,
stable dividend yields instead.
(Helen Reid)
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ITALY BANKS AT 2016 LOWS, SPREAD VS GREECE AT TIGHTEST EVER (1056 GMT)
Worries about the sustainability of Italy's public finances and the standoff between Rome
and Brussels, which could start sanctions against Italy as soon as next week, are starting to
bite seriously with risks of a rating downgrade looming large.
Italian banks have breached their previous low to hit their lowest level in two
years and eight months, down more than 2%, while Italian governments bonds are also being
dumped.
Here's your bank chart:
And here's a nice illustration of the pain Italian bonds are in: the yield spread with
Greece has hit its tightest level on record.
On top of that, a parliamentary motion pushing for the so-called "mini-BOTs" (securities to
pay off individuals and companies who are owed money by the state) is also gathering some
attention on the market, as such instruments are seen as a form of parallel currency to the
euro. The motion was approved on Tuesday but got little media coverage so far.
"There's chatter on the market about Italy's miniBOTs and even though the parliament motion
is non-binding for the government and the measure is not particularly threatening in itself,
that adds to already existing worries about Italy's finances and the standoff between Salvini
and Brussels," says Giuseppe Sersale, fund manager at Anthilia Capital in Milan.
For more on "mini-BOTs", named after Italy's short-term Treasury bills, check out this
Of course, Italy's debt is a cause of big concerns but its sluggish economy and worries that
tariff wars and a slowdown in China could hurt global business are just adding to the pain.
"The impact of the global cycle on Italy is also very important. With a GDP growth of just
0.1% in the first quarter, Italy has no margin," adds Sersale.
(Danilo Masoni)
*****
SELL IN MAY - TICK! (1007 GMT)
You did follow that 'sell in May and go away' advice didn't you? Well if you didn't then
this is going to make for painful reading. World stocks have had close to $3 trillion wiped off
their value this month and there have been few places to hide apart from bonds.
The renewed eruption of the trade war has meant Chinese stocks have borne the brunt, losing
both 8% and their position as the year's best-performing heavyweight market. The S&P 500 is down
5%, but with all the focus on the battle for tech supremacy the FANGS have slumped 13%.
Japan's Nikkei has had the least bad month but it's still nearly 5% worse off. The 6% drop
in London's FTSE 100, which is Europe's largest bourse, has been compounded by miners baulking
at a near 10% slump in copper prices, while emerging markets when clumped together are down
almost 8%.
Roll on June!
(Marc Jones)
*****
STUCK IN REVERSE GEAR (0908 GMT)
Car stocks in Europe are tumbling 2.9% to their lowest since Jan 8 after Trump's threat to
slap tariffs on Mexico. With autos the main import to the U.S. from Mexico, it's no surprise
they're taking a beating.
If a 25% tariff is imposed on Mexican goods, Volkswagen will be the worst hit among European
carmakers, according to Credit Suisse which sees a potential 10% negative impact on the German
carmaker's operating profit.
Export flows from Mexico to the U.S. for the main carmakers are of 7.2 billion euros ($8
billion) for Volkswagen, 2 billion euros for BMW, and 800 million euros for Daimler
, analysts at the Swiss bank say.
The slump in the Mexican peso after Trump's tweet could be a small relief, partially
offsetting the negative impacts from trade tariffs, they add.
Europe's autos and suppliers index has fallen 17% from mid-April highs, hit by
tariffs and trade war escalation.
(Thyagaraju Adinarayan)
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MEXICO TARIFFS WOULD JEOPARDISE USMCA DEAL (0820 GMT)
Trump's vow to slap a 5% tariff on all goods entering the U.S. from Mexico, effective June
10, is shaking markets this morning with the Mexican peso falling 2.7% against the dollar and
Mexico-exposed stocks tumbling.
Besides the immediate market impact, Goldman Sachs analysts reckon tariffs could have a
knock-on effect in slowing the ratification of a U.S.-Mexico-Canada trade deal (the USMCA),
making it less likely to happen before the 2020 election.
"We expect that Mexico will slow its ratification process if tariffs are in place," they
write, adding that Democratic leaders would be likely to slow the process too.
The Mexico tariff threat in numbers:
* The U.S. imported $352 billion in goods from Mexico in 2018, and exported $265 billion
* Largest import categories are cars and parts ($93 billion), computers ($27 billion),
routers
($10 billion), and other electronics ($17 billion)
* With tariffs on Mexico and tariffs on List 4 imports from China, a significant majority of
U.S.
imports on some products would be subject to additional tariffs, such as computers (79%), TVs
(84%), personal electronics (79%), likely hurting U.S. consumers
(Helen Reid)
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EUROPE AT FEBRUARY LOWS, MEXICO STANDOFF HITS AUTOS, BANKS (0737 GMT)
European shares are off to a sharply lower start as the worst month of the year for stocks
draws to an end with investors fretting again over slowing global growth following Trump's
tariff move against Mexico and disappointing data from China.
"Trump is going all out here. The move to start a trade war on another front has shaken
sentiment in an already fragile market," says Jasper Lawler, Head of Research at LCG.
No surprise that autos and miners are leading sectoral fallers, while banks
are also heavily under pressure, as the economic outlook darkens. No sector is trading
in the black.
Among stocks with direct exposure to Mexico are carmakers Volkswagen and Fiat
Chrysler, banks BBVA, Santander and steel firms ArcelorMittal
and Italy's Tenaris. Their shares are falling 1.7-5.2% in early trading.
Here's your opening snapshot:
(Danilo Masoni)
*****
ON OUR RADAR: AUTOS, BANKS, MEXICO-EXPOSED STOCKS (0659 GMT)
Worries over global growth following Trump's tariff move against Mexico and disappointing
factory data from China are set to push European shares down sharply at the open today with
futures in the export oriented German DAX index down more than 1%.
Sectors most exposed to the international economy such as autos and banks will likely suffer
the most with shares in companies with direct business in Mexico such as Germany's Volkswagen
and Spanish bank BBVA falling 2-3% in premarket trade. BBVA derived 37% of
its pretax profit from Mexico in 2018.
Fiat Chrysler, which is in merger talks with Renault, also produces cars in
Mexico. Banks HSBC, Santander and Sabadell also have a presence
there, as well as ArcelorMittal , which produces some steel in Mexico to import into the
US, and Italian pipes maker Tenaris.
Elsewhere, a Reuters report that Amazon is interested in buying a prepaid cellphone service
from T-Mobile and Sprint could lift shares in T-Mobile parent Deutsche Telekom. A
disappointing update from Wizz Air has sent its shares down 2% in pre-market trade,
while in broker moves, traders say a BAML upgrade could lift shares in chipmaker and Amazon
supplier STMicro. BAML downgraded Dialog Semi, traders add.
Monsanto woes continue for Bayer with Los Angeles County suing Monsanto to force it to help
pay for reducing PCB contamination in dozens of bodies of water. Bayer shares seen
down 1-2%. For more headlines check out the previous post.
(Danilo Masoni)
*****
EUROPE FUTURES OPEN DOWN SHARPLY: DAX -1% (0614 GMT)
Fresh worries over a slowdown in global economic growth following Trump's tariff move
against Mexico and the disappointing Chinese data is set to push European shares sharply lower
at the open today. Futures in the trade-sensitive German DAX index are falling more
than 1%, while futures in other country benchmarks are also down sharply.
On the corporate front, merger talks between Fiat Chrysler and Renault
continue to be in focus, while still in M&A, sources said Deutsche Telekom's U.S.
wireless carrier T-Mobile US spectrum to gain regulatory approval for their merger. Also interesting is news that Germany will extend for another year a bonus scheme to encourage people to buy electric cars. Meanwhile Monsanto woes continue for Bayer with Los Angeles County suing Monsanto to force it help pay for reducing PCB contamination in dozens of bodies of water. Here's your futures snapshot and below your early morning headlines roundup. Nissan's technology could pay in Renault-FCA deal -sources Fiat says valuation for Renault merger non-negotiable - Les Echos T-Mobile, Sprint considering divesting wireless spectrum -sources Germany extends 1.2 bln euro electric car bonus to 2020 Los Angeles County sues Bayer's Monsanto over PCB contamination Saipem units investigated in Brazil over alleged irregularities Italy to approve law to make it easier to revoke motorway concessions Greek banks Alpha, Eurobank report fall in quarterly profit Logitech moving some manufacturing out of China amid trade conflict Packaging firm Aluflexpack to Zurich launch IPO next week Legal & General to sell general insurance unit to Allianz (Danilo Masoni) ***** EUROPE SEEN LOWER AFTER AS TRUMP TARIFFS TARGET MEXICO (0532 GMT) European shares are expected to open lower this morning on renewed trade tension after U.S. President Donald Trump said the Washington would impose a new tariff on all imports from Mexico next month until illegal immigration is stopped. Data from China showing that factory activity in May slumped into a deeper contraction than markets had expected is also set to weigh today. Financial spreadbetters expect London's FTSE to open 26 points lower at 7,192, Germany's DAX to fall 81 points to 11,821, and France's CAC to fall 29 points to 5,220, a trader says. Over in Asia, U.S. stock futures slid and sovereign bonds surged on Friday as investors feared Trump's shock move to slap tariffs on Mexico risked tipping the United States into recession. Month-end bargain hunting helped MSCI's broadest index of Asia-Pacific shares outside Japan rise 0.3%. The pan-European STOXX 600 index edged up 0.4% in the previous session but is firmly on track to suffer its first negative month of 2019, having fallen nearly 5 percent so far this month with heightened trade tensions fuelling worries over slowing economic growth. (Danilo Masoni) *****
