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LIVE MARKETS- Closing snapshot: STOXX retreats as ECB minutes push euro higher

* European shares slip after ECB minutes

* Results disappointment hits Pandora (LSE: 0NQC.L - news) , Tesco (Frankfurt: 852647 - news) , M&S

* CS upgrades 'relatively very cheap' UK stocks

* Italian stocks set for 7 straight days of gains

* FTSE hits new record despite M&S, Tesco shares slump

Jan 11 (Reuters) - Welcome to the home for real time coverage of European equity markets

brought to you by Reuters stocks reporters and anchored today by Helen Reid. Reach her on

Messenger to share your thoughts on market moves: helen.reid.thomsonreuters.com@reuters.net

CLOSING SNAPSHOT: STOXX RETREATS AS ECB MINUTES PUSH EURO HIGHER (1635 GMT)

The STOXX closed down 0.3 percent and never recovered from the rise in the euro following

the publication of the ECB's minutes, which bolstered expectations of a shift in monetary

policy.

Note (Stockholm: NOTE.ST - news) also that despite the slump of Marks and Spencer and Tesco shares, the FTSE hit a new

high.

Good evening from us, here's your closing snapshot:

(Julien Ponthus)

*****

MACQUARIE FAVOURS U.S. BANKS OVER EUROPE (1547 GMT)

The sector has come into focus with the Q4 results season just round the corner and bond

yields on the rise.

"We believe U.S. banks will push their advantage and continue to gain share due to stronger

capital position and a lower tax rate improving internal returns," Macquarie analysts said in a

note.

"As a result, we prefer US to European banks," Macquarie adds, singling out Bank of America (Swiss: BAC-USD.SW - news)

, Goldman and Morgan Stanley (Xetra: 885836 - news) .

Their 'top shorts' are Deutsche Bank (IOB: 0H7D.IL - news) and UBS (LSE: 0QNR.L - news) , while they like BNP (Paris: FR0000131104 - news) 's

more diversified model.

(Kit Rees)

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O BREXIT CONSENSUS, WHERE ART THOU? (1515 GMT)

With Brexit hardliner Nigel Farage now warming to the idea of a second UK referendum on EU

membership, it seems no one -- be it the public, markets or politicians -- can make up their

mind on when, how or even whether Britain will exit the EU.

Nomura just updated its tick list of signs that could lead to "No Brexit", such as a second

referendum, after Farage's comments.

"Rarely has the UK’s economic and political outlook seemed so uncertain", said Kallum

Pickering, senior UK economist at Berenberg.

Consider this: Didier Saint-Georges, managing director at Carmignac says that given the

economic pain expected in 2018 in the UK, he is "starting the year with a short position on

sterling which should pay off if a downward spiral gets going".

Taking the opposite view, Guy Stephens, technical investment director at Rowan Dartington,

said Prime Minister Theresa May's recent cabinet reshuffle is "further evidence of her

strengthening position which must be good for sterling".

Also, while being underweight UK equities is a common call for most international investment

banks, Credit Suisse (IOB: 0QP5.IL - news) just went back to "neutral" and Raymond James made the case that "ever more

conciliatory" commentary around Brexit could support equities.

Here below is Nomura's chart showing the shift in public opinion in favour of the view that

Britain was, with hindsight, wrong to vote 'Leave'.

(Julien Ponthus and Helen Reid)

*****

NEW YEAR PARTY CONTINUES IN ITALY (1426 GMT)

Italy's top FTSE MIB index is bucking today's weakness, has hit a fresh 29-month

high and is rising for the seventh session in a row, its longest winning streak since October

2016. The index is also the biggest gainer among the European bourses year-to-date.

Why such buoyancy? After all, Italy is set to hold a general election on March 4 and its

outcome is all but certain.

We've asked Alessandro Balsotti, head of asset management at JCI Capital.

"It's been a strong start of the year for global stocks and Italy has a high beta that can

explain why it's outperforming. Italy is a proxy of European markets and it's gearing towards

financial stocks which are doing particularly well because of the yield curve steepening. I

don't think there is an immediate political reason," he says.

(Danilo Masoni)

*****

UK EQUITY ALLOCATIONS TO RISE? (1338 GMT)

While allocations to UK equities have been at rock bottom "for many months", Raymond James

European strategist Chris Bailey reckons a recent recovery in the pound and UK domestic stocks

(see chart below) could continue, driving money back into the market some investors have shunned

as Brexit looms.

"Our call is that the UK doesn't end 2018 so out of favour," he says, adding "ever more

conciliatory" commentary around Brexit will support equities. "The longer the transition, the

better for the UK."

Meanwhile Credit Suisse is also sounding more optimistic on British stocks. It just upgraded

MSCI UK to 'neutral' from 'underperform', saying "UK equities are very cheap on a relative

basis, but the fundamentals and technicals are challenging".

CS had moved UK equities to underweight back in September last year.

(Dhara Ranasinghe and Helen Reid)

*****

"JUST ONE WORD: PLASTICS" (1312 GMT)

In "The Graduate", a young Dustin Hoffman (a.k.a. Benjamin Braddock), fresh out of

university, is famously given a piece of advice for his future career: "just one word,

plastics".

Fifty years later, the future isn't what it used to be: Theresa May just pledged to

eliminate avoidable plastic waste within 25 years. Here's the story :

According to Paul Moran, head of research for Northern Trust Capital Markets, this could be

a game changer (a 'diesel' moment) for the industry which investors, particularly shareholders

in UK packaging group RPC (NYSE: RES - news) , should not overlook.

"If we look at plastic packaging stocks in Europe, RPC stands out given it's basically all

plastic. As plastic is viewed as the structural grower in the packaging industry, this ought to

be a big concern for long term investors."

RPC shares are currently down 1.2 percent.

Bonus: the "plastics" scene : http://bit.ly/1t8d96b

(Julien Ponthus)

*****

EUROPEAN SHARES GIVE UP GAINS AS MARKETS EYE ECB POLICY SHIFT (1247 GMT)

The STOXX 600 gave up its gains and is now down 0.1 percent as investors eye a

policy shift it the ECB's decision to revisit its communication stance in early 2018.

Here's the link to our story on the minutes from the central bank's December policy meeting:

And here's the market reaction after the minutes were released:

(Julien Ponthus)

*****

BUBBLE CONCERNS FOR U.S. EQUITIES "OVERDONE", AMUNDI RECKONS (1203 GMT)

While a growing number of investors are increasingly nervous about the gap in valuations

between U.S. and European equities and accordingly shifting investments towards the Euro zone or

Japan, it's interesting to note that Amundi (Berlin: 350155.BE - news) is keeping quite a positive view on U.S shares.

"Looking into 2018, we believe that the concerns about a bubble for US equities are

overdone", writes Kenneth J. Taubes, CIO of Amundi's US Investment Management, who believes

there is room for corporate profits to rise.

"We expect that the combined impact of an improving US economy, a stronger global economy

and lower taxes will support EPS growth", Taubes said, adding that stock picking will however be

more important than ever.

"As certain stocks are over-valued, a rigorous bottom-up security selection will be key", he

said.

Here's a SocGen (Paris: FR0000130809 - news) chart showing the gap between valuations in the U.S., Japan and the Euro

zone :

(Julien Ponthus)

*****

MULTI-ASSET MANAGERS REASSESS BOND-EQUITY RELATIONSHIP (1135 GMT)

The prospect of monetary policy normalization this year has got multi-asset managers

thinking about how best to keep their portfolios well-diversified.

Tommaso Mancuso, head of multi asset at Hermes Investment Management, says in a note that

investors should not assume that bonds will keep on acting as a good hedge to their equity

exposure.

"In a market regime in which bonds generate lower expected risk-adjusted returns and

potentially reduced diversification benefits, a balanced portfolio could very well be better off

without bonds," Mancuso concludes.

(Kit Rees)

******

EYES ON THE PRICE: VALUATIONS BACK IN FOCUS FOR 2018 (1006 GMT)

One trend that could materialise this year as the beginning of the end of QE starts to

jeopardise the relative attractions of stock market investing over bonds, is a newfound scrutiny

of equity valuations.

"You've had quite a long period where investors haven't had to worry about valuation risks

much, it's been all about growth - but maybe after a strong 2017 people will look at valuation a

bit more and question whether certain stocks still look good value," says Nick Davis, European

income fund manager at Polar Capital (LSE: POLR.L - news) .

His fund favours domestic European stocks over the region's global exporters on valuation

grounds. "There are some out of favour areas of the market that don't look as expensive, so

there are still pockets of value," he adds.

On sector picks "a lot of what you might describe as boring stocks look quite attractive...

pharma, infrastructure, telecoms for example."

Didier Saint-Georges, managing director at Carmignac, echoes this renewed focus on specific

stocks in a note. "With (Other OTC: WWTH - news) the business cycle soon likely to peak, we are entering 2018 with a

particular attention to stock-picking."

European stock valuations have actually remained steady over the past few months as strong

earnings kept P/E ratios from rising - but they're still above their five-year average.

(Helen Reid)

*****

BITCOIN AND THE FRENCH TV REALITY STAR - PART TWO (0946 GMT)

Not only did the French financial watchdog (AMF) bark when a French reality TV star praised

the virtues of bitcoin investing (see yesterday's post), but the head of the French central bank

- no less - has also jumped in.

"Those who invest in bitcoins do so at their own peril," Banque de France governor François

Villeroy de Galhau, told French news channel LCI when asked to comment on Nabilla Benattia's

advice to put money in the crypto currency.

He also added a piece of advice: "In a general manner, if one day a so-called financial

expert promises you a product which has both a high yield and low risk: run!"

Here's Villeroy de Galhau speaking to LCI.


(Julien Ponthus)

*****

OPENING SNAPSHOT: EUROPE STEADIES (0822 GMT)

European shares have opened little changed as some calm returns to markets after China's

regulator said a report about Beijing slowing its U.S. bond buying was possibly wrong. The STOXX

600 regional benchmark was just flat and sectoral moves were also small, masking bigger

price swings for stocks such as Pandora and Tesco, both down following

results, or Hexagon (LSE: 0GRX.L - news) , which soared after its CEO was found not guilty of insider

trading. William Hill (Frankfurt: 633847 - news) and STMicro were boosted by broker upgrades.


(Danilo Masoni)

*****

SOFTWARE MAKERS IN FOCUS AS EARNINGS ROLL IN (0746 GMT)

The tech rally has slowed somewhat, prompting some investors to say the golden era of

technology stocks is coming to its end, while other say the future direction of the richly

valued sector depends more and more on its ability to deliver earnings growth.

On this front, we'll keep an eye today on software makers like SAP (Amsterdam: AP6.AS - news) and Software AG (IOB: 0NJS.IL - news)

following a strong earnings beat from U.S. peer Progress Software that sent

its shares rallying on Wall Street.

SAP however could be hit by a Morgan Stanley downgrade to equal weight with a reduced price

target of 105 euros, while Software saw its price target lifted to 39 euros from 35 euros at

Barclays (LSE: BARC.L - news) . Earlier this month chipmaker Dialog Semiconductor (LSE: 0OLN.L - news) , recently hit by investor

fears it could lose top customer Apple (NasdaqGS: AAPL - news) , reported sales above its own outlook but its shares fell

following an initial positive reaction.


(Danilo Masoni)

*****

WHAT'S ON THE RADAR FOR THE EUROPEAN OPEN (0740 GMT)

European futures are pointing to a slight recovery for the region’s stock markets on

Thursday after a bond market sell-off in the previous session brought an end to the breakneck

New Year rally in equities.

All eyes on UK retailers again as Marks & Spencer (Frankfurt: 534418 - news) and Tesco became the latest in the

squeezed sector to report on Christmas trading, with diverging results.

Tesco’s Christmas sales fell short of market forecasts, continuing a trend of general

merchandise being much weaker than food growth, while M&S beat forecasts with a smaller than

expected fall in clothing and homeware.

Pre (Shanghai: 600048.SS - news) -market indications see Tesco dipping while M&S could make a slight gain.

A trader says "If Tesco is the miss it seems on first glance, would be surprised if it

doesn’t take a decent knock here."

Online still seems to be winning with Boohoo raising its sales forecast again, and

shares called up 3 to 5 percent.

Unlisted companies which could also provide a read on the health of Britain’s high street

include department store John Lewis, which said margin pressure was rising and volatile trading

would continue over the next 12 months, and House of Fraser, whose Christmas sales fell.

And a source-based report that Nestle (Swiss: NESN.VX - news) could pick a buyer for its U.S. chocolate business by

the end of the week, a deal expected to top $2.5 billion, could move the Swiss food giant’s

shares.

In other company news and potential stock movers:

Swiss exchange probing Clariant (IOB: 0QJS.IL - news) over possible Huntsman disclosure breach;

Nestle to pick U.S. chocolate business buyer by end of week-sources;

French group Sodexo keeps goals despite slow start to Q1;

Richemont posts solid Q3 sales growth thanks to jewellery, Asia;

CEO of Sweden's Hexagon found not guilty of insider trading;

Tesco reports 1.9 percent rise in Christmas like-for-like sales;

M&S clothing sales slightly better than expected in Christmas quarter​;

Ultra Electronics (Frankfurt: 909716 - news) sees "significant exposure" to U.S. defence spending;

Premier Oil (LSE: PMO.L - news) output set to rise by more than 10 pct

(Helen Reid)

*****

FUTURES POINT TO RECOVERY FOR EUROPEAN STOCKS (0705)

European stocks look set for a recovery stronger than spreadbetters' calls suggested -

futures are up 0.2 to 0.4 percent across the major benchmarks. This indicates early gains after

a downbeat day yesterday when bond market worries seeped into stock trading.

Here's your snapshot:

(Helen Reid)

*****

BITCOIN BURNED BY SOUTH KOREA BAN TALK (0654 GMT)

Another eye-catching mover overnight was Bitcoin, which is down nearly 10 percent after

South Korea's justice minister said the ministry is preparing a bill to ban cryptocurrency

trading through its exchanges, dealing another blow to the cryptocurrency whose sharp rally has

hit a speed bump over the past weeks.

(Helen Reid)

*****

RESULTS AND DEAL TALK TO DRIVE TRADING (0635 GMT)

While we await some major UK retailers reporting today including Marks & Spencer and Tesco,

results from Richemont and Sodexo have just hit the wire, while a late source-based story on

Nestle's U.S. chocolate business sale could move the Swiss food giant.

Cartier watch maker Richemont reported solid fourth-quarter sales growth thanks to

strong jewellery demand in Asia:

Food services firm Sodexo, which suffered broker downgrades hitting its shares on

Tuesday, reported a slow start to its Q1 but stuck to growth and margin forecasts:

Nestle is said to be picking a buyer for its U.S. chocolate business by the end of

the week, with Ferrero seen as a front-runner:

(Helen Reid)

*****

MORNING CALL: EUROPEAN STOCKS TO DIP AS GLOBAL RALLY FIZZLES OUT (0614 GMT)

Good morning and welcome to Live Markets. Stocks in Europe look set for a more hesitant open

today with spreadbetters calling for slight gains for the DAX - which suffered a big fall

yesterday - while the FTSE and CAC 40 are seen dipping.

In Asian trading the New Year rally petered out as bond markets continued to sell off and

Reuters reported Canadian government sources increasingly believe Trump will soon announce the

U.S. intends to pull out of NAFTA.

Here are your early calls:

DAX is expected to open 5 points higher at 13,286.5

CAC 40 is expected to open 2 points lower at 5,502.7

FTSE 100 is expected to open 3 points lower at 7,745.1

(Helen Reid)

*****

(Reporting by Danilo Masoni, Helen Reid, Kit Rees and Julien Ponthus)