LIVE MARKETS-Midday snapshot: stocks lose steam
* European shares edge down
* STOXX set for eight-week winning streak
* Milan stocks suffer as League, 5-Star publish govt agenda
May 18 (Reuters) - 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: danilo.masoni.thomsonreuters.com@reuters.net
MIDDAY SNAPSHOT: STOCKS LOSE STEAM (1142 GMT)
Halfway through what is playing out to be an exciting end to the week, European stocks are
back in negative territory after a brief foray higher.
Italy is still the worst performer, limping towards a weekly loss of 2.7 percent. Not its
worst week though - that was back at the beginning of March this year.
It follows that financials are the biggest weight on the STOXX, with Italian lenders
bringing up the rear.
Here's your midday snapshot:
(Kit Rees)
*****
HOW MUCH ITALIAN SPENDING COULD MARKETS HANDLE? (1102 GMT)
While spending sprees can be fun, they're not always a good idea.
Especially not when you have the highest debt in the euro zone after Greece.
UBS (LSE: 0QNR.L - news) strategists have taken a look at this and found that markets could stomach fiscal
spending of 1 percent of Italian GDP, but this would be the limit - anything more and Italy's
debt ratio would march higher.
So if Italy were to spend more than 1 percent of GDP, nominal growth rates would have to
rise to around 4 percent for debt metrics to improve, say UBS.
This could be a tricky feat, given that the Bank of Italy is forecasting 1.4 percent growth
this year for Italy and 1.2 percent for the following two years.
"The larger the fiscal package, the larger its likely impact on BTPs. This is because Italy
will have to tackle a higher debt ratio at the time of the next cyclical downturn (absent more
fiscal consolidation down the road)," say UBS strategists, referring to Italian benchmark BTP
bonds.
But hey, you never know what might happen... Here's our latest from Italy:
(Kit Rees)
*****
GREEDY OR FEARFUL? QUITE THE CONTRARY (1007 GMT)
What a difference a quarter makes... the extreme fear seen during the February sell-off has
vanished and so has the greed of last January's highs.
Despite all kinds of political risks, inflation fears, rising rates and oil price, markets
seen to be quite even-tempered, according to CNN's greed and fear index and BofAML's Bull and
Bear indicator.
That might, however, come to a disappointment for those who believe, like Gordon Gekko, that
"greed, for lack of a better word, is good".
(Julien Ponthus)
*****
ITALIAN GOVERNMENT PACT HITS STOCKS (0940 GMT)
5-Star and League have finally come to an accord and released details of their pact - and
it's sending Italian stocks, especially utilities and banks, tumbling down.
Italy's FTSE MIB is down 1.4 percent, with top fallers including UBI Banca (Amsterdam: UF8.AS - news) , Banco BPM, Poste
Italiane and Unicredit (EUREX: DE000A163206.EX - news) .
The Italian banks index is down 2.7 percent at its lowest since the start of
April. Below you can see the damage it's suffered since investors awoke to the political risk on
Wednesday.
Utilities are also taking a beating - with electrical utilities Enel (LSE: 0NRE.L - news) and A2A (EUREX: 928195.EX - news) down 2.2
percent and 1.7 percent.
While Goldman Sachs analysts have repeated their argument that "the market under-prices risk
in Italy", others are more sanguine.
Here's Mark Dowding, head of investment grade at BlueBay Asset Management, echoing several
investors' views that as long as Italy's membership of the EU is not jeopardised, everything
should be fine.
"Without a credible plan to call a referendum, there seems no clear path to an Italexit and
with underlying macro fundamentals improving we think that it would be a mistake to become too
bearish on developments coming from Rome," he writes in a note.
Despite watering down some of their most radical proposals, the accord promises to ramp up
spending, calls for billions of euros in tax cuts and a roll-back of pension reforms.
(Helen Reid)
*****
THE FALL OF CASH (0907 GMT)
Cash ain't what it used to be! The rise in U.S. government bond yields has made it less and
less appealing, BAML says today, announcing that allocation to the asset class has reached a
record low among its private clients.
Needless to say, 3 percent yields for 10-year treasury notes are taking the blame even if
the trend, as you can see below, began soon after the financial crisis reached its climax.
(Julien Ponthus)
*****
EUROPEAN STOCKS SHY BACK FROM THEIR HIGHS (0719 GMT)
European stocks are pulling back from yesterday's 3 1/2 month highs in early trading, but
it's nothing dramatic and still leaves the STOXX 600 on track for its eighth week of gains. The
FTSE 100 is also dipping slightly, having risen to a record closing level yesterday.
While Italy's FTSE MIB is holding flat, utilities are dragging on the index with Enel down
0.6 percent after Goldman took it off its "conviction list" on energy policy risks.
Some badly-received results are also driving the market down. Richemont is bottom of
the STOXX, down 7.7 percent after reporting a weaker than expected profit, while AstraZeneca (Swiss: AZN.SW - news)
is dragging the healthcare sector down, falling 2.6 percent after generic competition to
its cholesterol drug Crestor and higher costs hit its revenue.
Ubisoft meanwhile is leading the index, up 6.2 percent to a fresh record high after the
French game maker reported record profit margins driven by new releases including Far Cry and
Assassin's Creed Origins.
(Helen Reid)
*****
WHAT WE'RE WATCHING BEFORE THE OPEN (0653 GMT)
European shares are expected to open little changed at the end of a strong week that has put
the STOXX 600 on course for its eighth straight week of gains - its longest winning weekly
streak since at least March 2015.
Energy stocks have been a key driver for the gains as investors seek to take advantage from
the rising crude prices by lifting exposure to a sector which has positive cash flows. Stock
index futures are trading between a fall of 0.2 percent and a gain of 0.2 percent.
Earnings updates will continue to drive single stock moves, with Zurich-listed Richemont
seen falling around 3 percent after the luxury goods group posted a net profit that fell short
of expectations. In the UK focus on AstraZeneca (NYSE: AZN - news) as generic competition to cholesterol fighter
Crestor and higher costs hit the drug maker in the first quarter.
Eyes also on Italian state-controlled utility Enel after Goldman took the stock off its
Conviction List saying plans presented by M5S/Lega could be deflationary as they could lower
power bills by around 15 percent.
An exclusive Reuters report saying Dubai Aerospace Enterprise is in talks to buy a
near-record total of 400 jetliners from Airbus and Boeing (NYSE: BA - news) could add fuel to a rally in
aerodefence stocks which are among the biggest sectoral gainers in Europe so far this year.
(Danilo Masoni)
*****
MORE DEALMAKING TO DRIVE THE DAY WHILE ANALYSTS DIGEST ITALY DEVELOPMENTS (0645 GMT)
M&A just isn't stopping, with yet another payments deal with PayPal (TLO: PYPL-U.TI - news) buying Sweden's iZettle,
and some further dealmaking in the UK with Lloyds selling its Irish mortgage book to Barclays (LSE: BARC.L - news) .
Meanwhile the Italy developments are driving some brokers to express concern.
Goldman Sachs (NYSE: GS-PB - news) analysts say they're worried about the potential impact of Italy's new
government on utilities, removing Enel from their "conviction list".
While the parties' manifestos contain some positives, GS says the parties' plans, including
a push towards renewables, could have a deflationary impact on power prices, lowering power
bills by an estimated 15 percent.
More key headlines ahead of the open:
Lloyds sells Irish mortgage book to Barclays for 4 bln pounds
UK competition regulator seeks comment on Sainsbury (Amsterdam: SJ6.AS - news) 's/Asda deal
PayPal agrees to buy Sweden's iZettle in $2.2 bln deal
AstraZeneca hit by falling Crestor sales, higher costs
British retailer Dunelm appoints Laura Carr as CFO
Richemont says could do more M&A, net profit misses poll
Carpetright Says To Raise About 60 Mln Pounds Through Share-Issue
(Helen Reid)
*****
STOXX SET FOR EIGHTH STRAIGHT WEEK OF GAINS (0623 GMT)
European stock index futures have opened rather flat, reflecting a lack of conviction at the
end of a strong week which has put the pan-European STOXX 600 benchmark on course for
its eighth straight week of gains, as markets recover from a turbulent start of the year. That
would be the longest weekly winning streak in more than three years - at least.
(Danilo Masoni)
*****
EARLY MORNING HEADLINE ROUNDUP (0554 GMT)
Barclays activist urges trading shutdown at investment bank - sources
Ryanair COO says pilot staffing situation has stabilised
GSK bets on lift from new lung drugs ahead of Advair's last gasp
KKR to sell Finnish health group to CVC (Taiwan OTC: 4744.TWO - news) for 1.8 bln euros - FT
FDA names drugmakers potentially acting to delay cheap generics
UBS to double headcount in India - Economic Times
Mercedes (Xetra: 710000 - news) to restart Alabama SUV plant next week after parts shortage
Dubai Aerospace in talks to place huge order for 400 jets
Vivendi (LSE: 0IIF.L - news) threatens to call new AGM at Telecom Italia (Amsterdam: TI6.AS - news) to change board
Vivendi to review potential change in music unit's shareholding structure
Natixis (LSE: 0IHK.L - news) posts profit rise helped by asset management, insurance
Ubisoft posts record profit margins in 2017/2018, driven by new releases
Vallourec Q1 Net Loss Group Share Widens To 170 Million Euros
BP in talks to take Conoco's UK field in swap deal - Bloomberg
China's AT&M (Shenzhen: 000969.SZ - news) seals takeover of German aerospace supplier Cotesa - Handelsblatt
Santander poised to apply for RBS (LSE: RBS.L - news) small business lending funds - Bloomberg
Bollore Group says transport, logistics drive Q1 revenues higher
SAP (Amsterdam: AP6.AS - news) 's CEO hints to investors more margin gains on the way
Italy's League wants to keep Monte dei Paschi (Milan: BMPS.MI - news) in public hands
(Danilo Masoni)
*****
MORNING CALL: EUROPEAN SHARES SEEN MIXED (0528 GMT)
European shares are set for an uncertain open today following a strong week with financial
spreadbetters expecting London's FTSE to open 14 points lower at 7,774, while Frankfurt's DAX is
seen opening 21 points higher at 13,136 and Paris' CAC to 1 point lower at 5,621.
Over in Asia, stocks were steady amid caution over developments in U.S.-China trade
negotiations, while the dollar perched near a five-month peak after the benchmark U.S. Treasury
yield hit its highest in seven years.
(Danilo Masoni)
*****