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LIVE MARKETS-The outlook for luxury: Not glamorous

* STOXX 600 dips * Irish banks fall on Sinn Fein election score * NMC Health surges on bid approach * Exor up on PartnerRe sale Welcome to the home for real-time coverage of European equity markets brought to you by Reuters stocks reporters. You can share your thoughts with Thyagaraju Adinarayan (, Joice Alves (, Julien Ponthus ( in London and Danilo Masoni ( in Milan. THE OUTLOOK FOR LUXURY: NOT GLAMOROUS (1624 GMT) As the coronavirus hits consumer spending in China the short-term outlook for luxury goods is quite grim. Deutsche Bank's Francesca Di Pasquantonio expects weaker luxury sales in the first quarter of 2020 to add "severe pressure" to the sector, as quarantine, limited travel and an extended holiday period in China hit demand. "And we expect the remainder of the first quarter to also see disruption on the travel and spending of Chinese and potentially global consumers," she adds. Analysts at Citi point that over the past three weeks - when the coronavirus related newsflow intensified - European large cap luxury stocks, which have big exposure to Asia, fell 6% vs. Eurostoxx 50 which was broadly flat. See below how shares in LVMH, Dior, Kering, Hugo Boss , Moncler and Burberry have performed since the beginning of the year. (Joice Alves) ***** GERMANY'S PERFECT STORM, AND IT'S NOT CIARA (1436 GMT) Storm Sabine (also known as Ciara in the UK) has hit Germany but turbulence facing the euro zone's biggest economy is not just meteorological. It's economic and political and for Matthew Cady, Investment Strategist at Brooks Macdonald, it provides a good enough reason to stay underweight Eurozone equities. "Germany might be facing the perfect storm," he says. "As well as facing muted global trade growth, the Coronavirus outbreak, a weak Eurozone financial sector, and UK’s secession from the EU, Germany is now being hit by fresh political risk at home with the resignation of the leader of the CDU party," he adds. All these headwinds -- combined with an already struggling German economy, the perception that the ECB has limited manoeuvre space and downbeat expectations about fiscal stimulus -- mean for Brooks Macdonald that it's best to look elsewhere. For more views and news on Germany's political troubles, here's some reading: BREAKINGVIEWS-Germany’s political vacuum grows bigger UPDATE 3-Merkel protegee Kramp-Karrenbauer won't run for chancellor (Danilo Masoni) ***** NO MATTER WHAT, GERMANY ALWAYS PAYS THE BILL (1351 GMT) Be it trade war, a real war of sorts (like the U.S.-Iran standoff), or the coronavirus, German stocks are always bruised the most given it's exposure to the global economy, especially China. The euro-zone's largest economy exported 93 billion euro worth goods to China in 2018, by far the biggest and more than double that of euro-zone countries. With those numbers in mind, a 10% drop in Chinese imports would shave 0.3% off German GDP and half that off EU GDP, Citi points out. That aside, Europe could also be crushed by bottlenecks created by supply chain disruptions due to falling production in China and this in turn is likely to push European import prices up, Citi adds. "...(The) outbreak is occurring at a time when Euro area business sentiment is recovering and the industrial sector gradually appears in better shape at least compared to last summer, having managed down its excessive inventory position," Citi economists say. Germany would be hit the most in terms of industrials, and who'd be hurt in the tourism industry? UK is likely to be hit the most with the recent stats showing them hosting nearly a third of Europe-bound Chinese tourists annually. Here's the break-up by nights spent in Europe: 31.1% or 9.73 million visit the UK, 16.9% in Italy and 12.7% in France. Staggering stats, isn't it? Here's the full list from Citi: (Thyagaraju Adinarayan) ***** A SENTIX CRACK IN THE 'EUROZONE BOTTOMING OUT' NARRATIVE (1201 GMT) Another real big uncertainty when putting a price tag on European equities is whether the continent's economy is actually 'bottoming out' or quietly settling in a mild macro gloom. Friday's data showing German industrial output suffering its biggest fall since 2009 wasn't exactly reassuring and today's Sentix index falling for the first time in four months is another bad omen. Even if the indicator shows that the coronavirus damage is still limited, there's a distinct possibility it could act as some sort of a downward catalyst for Europe. "Together with recent weak data from the manufacturing sector, the slide in confidence confirms that the eurozone's economic outlook is set to remain subdued in the short-term, and vulnerable to further fallout from the outbreak", Oxford Economics' Maddalena Martini wrote, commenting the Sentix data. On the bright side, the Bank of France believes French economic growth will bounce back in Q1 after transport strikes hit the economy at the end of 2019. Anyhow, you can see below how the improvement in the EZ Sentix seems now to have faded out: (Julien Ponthus) ***** BETTER QUALITY BEATS (1122 GMT) Earnings in Europe are beating estimates and that's good, but the real good news here is that quality is higher than previous quarters. And Morgan Stanley explains why. "Recent quarters have shown a consistent pattern of large downgrades to consensus just ahead of results, followed by earnings beats," strategists at the U.S. bank say. "However, this quarter has shown a higher quality beat, given the downgrades to consensus numbers were much smaller than usual," they add. Other MS tidbits on Europe's Q4 season: * Europe has so far delivered a net beat... of 10% * Value stocks and large caps are the most surprising * Results currently imply a return to EPS growth for Europe of 2.1% year-on-year in Q4 * Earnings downgrades are deep in negative territory but close to historic trough points (Danilo Masoni) ***** TIME TO CHASE "UNLOVED" PART OF MARKET (1038 GMT) In the last week of January, world stocks showed signs of stress from the coronavirus, falling 2.2%, but in no time they bounced back and now we're talking about stocks being in an "overbought" territory with last week's stellar 2.7% rebound rally. Under the surface, the hardest-hit were the China-exposed assets and cyclicals threatened by a global growth slowdown. That widened the gap between Value and Growth stocks. The three trades that have dominated global stock markets in this low growth, low interest rate environment are large over small, defensive over cyclicals and growth over value, Morgan Stanley's Michael Wilson writes. Wilson says this has created "tremendous" dispersion in the markets between the winners and losers, but highlights that these trades are now "crowded". Morgan Stanley's team, mirroring several others, believe this coronavirus scare will only delay the global recovery but won't "derail" it. "If that’s right, these unloved parts of the market may finally be ready to outperform in a more sustainable fashion." "Since June 2018, we have fought the urge to trade these short-lived rallies and recommend cyclicals or small-caps, but we have to admit we’re intrigued by this latest correction and the evidence suggesting that the global economy could snap back quickly once the economic headwinds from the coronavirus fade." (Thyagaraju Adinarayan) ***** HOPING THE VIRUS INFECTION RATE SLOWS DOWN INDEED (0947 GMT) The main explanation for the somewhat intriguing resilience of stock markets is the widespread assumption that the new coronavirus' infection rate will slow down. The latest data seems to validate that analysis at the moment and many are relying on it to fine tune their risk-on / risk-off gauge. "The data imply that the spreading of the epidemic could stall by the end of February", Generali Investment's Market Spinner note read this morning. "Therefore, we view last week's equity market improvement as backed by fundamentals and continue to see the epidemic as a buying opportunity", they add. Other optimistic views could be found this morning. "Despite the ongoing uncertainty, we continue to filter out the short-term noise and remain overweight emerging market equities", Mark Haefele, Chief Investment Officer at UBS Global Wealth Management wrote. "We continue to monitor the risks to our position, we are optimistic that the decisive actions taken by governments will bring the outbreak under control". Here's our own chart of how world markets have reacted and the infection rate on a logarithmic scale. (Ritvik Carvalho and Julien Ponthus) ***** OPENING SNAPSHOT: IRISH SENSATION (0848 GMT) The results of the general election in Ireland with Sinn Fein now demanding to be part of the next government is moving stocks big time in Dublin. The top two losers on the STOXX 600 are Bank of Ireland Group and AIB Group down 5.3% and 3.9% respectively while the Irish nationalists, having secured the most votes, are celebrating what they see as ballot-box "revolution". ISEQ is underperforming its European peers with a 1% fall while the overall market is limiting its losses to about 0.3% as uncertainties about the coronavirus uncertainties still loom. Among individual stocks NMC Health has indeed reclaimed the spotlight among individual stocks with a bid approach that is lifting its shares up 14%. M&A is also pushing Italy's Exor up 4% with a possible incoming offer by France's Covea for ParterRe. For a change, here are the top ISEQ movers this morning: (Julien Ponthus) ***** ON THE RADAR: NMC HEALTH (AGAIN), INTU AND PARTNER RE (0750 GMT) Shares in NMC Health are back again under the spotlight this morning with preliminary approaches from U.S.-based KKR & Co Inc and GK Investment Holding Group, weeks after the healthcare group came under a short-selling attack from Muddy Waters. Talking about the latter, it has just issued a statement calling Burford Capital’s latest trading update “abysmal”. Meanwhile, troubled UK shopping centre operator Intu Properties is in discussions with its largest shareholder to raise funds to shore up its balance sheet. In auto woes, we have a big news report over the weekend that Daimler is planning to cut up to 15,000 jobs. A possible big M&A move in the insurance sector with Investment group Exor in talks to sell reinsurer PartnerRe to France's Covea in a deal worth around $9 billion. Among Q4 trading updates, German’s software company TeamViewer posted 46% growth in fourth-quarter core profit. Bad news and another setback for Roche whose experimental drug gantenerumab failed to slow cognitive decline in people with a rare inherited form of Alzheimer's disease. (Julien Ponthus) ***** MORNING CALL: PRUDENCE PREVAILS (0625 GMT) European stock markets are expected to open just slightly in the red with the looming uncertainties regarding the impact of the coronavirus keeping investors on their toes. Asian markets pared some losses as workers began trickling back to offices and factories around China but the overall sentiment remained jittery. Financial spreadbetters expect London's FTSE to open 10 points down, Frankfurt's DAX down 10 points too and Paris' CAC to lose 7 points. EURO STOXX 50 futures are currently trading down 0.13%. (Julien Ponthus) ***** (Reporting by Danilo Masoni, Joice Alves, Julien Ponthus and Thyagaraju Adinarayan)