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LIVE MARKETS-New year rally succumbs to virus scare

* European shares down sharply on China virus worries * Miners, luxury, airlines lead sectoral fallers * Italian banks outperform sector as regional vote brings relief * STOXX set for worst day since October * Volatility surges * Wall Street slumps 2% Welcome to the home for real-time coverage of European equity markets brought to you by Reuters stocks reporters and anchored today by Joice Alves. Reach her on Messenger to share your thoughts on market moves: NEW YEAR RALLY SUCCUMBS TO VIRUS SCARE (1437 GMT) One day is all that it took for European stocks to give up all their 2020 gains! The pan-European STOXX 600 index, France's CAC 40 and Germany's DAX are now in negative territory year-to-date as markets are heading for their biggest one-day fall in four months on fast-spreading China virus fears. Among them, the CAC 40 is being hit hard as the index is home to some of the biggest luxury names in the world. (Thyagaraju Adinarayan) ***** CORONAVIRUS OUTBREAK: "AN EXCUSE TO BOIL OVER"? (1346 GMT) With so many strategists struggling to justify buying further into what is still history's longest bull rally, fears surrounding the China coronavirus outbreak seem to provide a welcomed opportunity to push the sell button. Though analysts keep complaining that fundamentals just don't add up for so many fast-rising stocks, a comprehensive market correction followed by reassuring news from the epidemic should allow investors to switch to a buy-the-dip mode at multiples arguably more in tune with the real world. For instance, Rupert Thompson, chief investment officer at Kingswood wrote in a note today that "if we do see a 5-10% correction, we are currently minded to use the opportunity to add to our equity holdings and move overweight from neutral". Anyhow, here's the take of Jim Wood-Smith, CIO Private Clients & Head of Research at Hawksmoor Investment Management, who believes "markets desperately needed an excuse to boil over". It's a long quote but it illustrates quite well widely shares view on the current state of markets. "It (the coronavirus outbreak) has also coincided with a time when markets desperately needed an excuse to boil over. We have stressed, I hope, that 2019 ended on a burst of over-optimism, with American equities in particular becoming very overbought. A fall is/was needed. The froth needs blowing off. The exuberance needs to dissipate. Profits need to be taken. Markets need to take a step back, have a pause for breath, take their foot off the gas. They are over-heated and need to cool down. Gravity and reality need to take hold, a period of catch-up is needed, a correction is overdue." (Julien Ponthus) ***** BUYING THE DIP IN MINING? (1218 GMT) As death toll caused by the coronavirus escalates, European mining sector has tumbled as much as 4% and is on track for its worst day in almost six months as you can see below: The European basic resource index did have quite a nice ride since the U.S./China phase One trade deal eased some pressure on export-heavy groups. That, obviously, could change for good, should the coronavirus outbreak have a lasting impact on the Chinese economy. Below you can see the exponential growth of confirmed cases of the virus. But as mining shares dip down, could there be a buying opportunity here? Jefferies analysts seem to believe so after looking at the precedent of the 2003 SARS in China. Back then, the initial reaction to SARS was sharply negative for metals and mining share prices, but it was followed by a strong rebound. Investors could likely expect a negative knee-jerk reaction if the coronavirus escalates in a similar fashion to SARS, and this might be the "buy-the-dip" opportunity they wish for, says Jefferies. "As we saw in the performance data relating to SARS, the sell-offs offered great buying opportunities," it adds. "Past experiences suggest that the impact of viral outbreaks can be large but also short lived," Deutsche Bank analysts also said in a note. (Joice Alves) ***** CORONAVIRUS OUTBREAK FUELS VOLATILITY SURGE (1134 GMT) Mounting fears about the coronavirus outbreak in China have fuelled a rare volatility surge across European stock markets. That's bound to hurt those who have been constantly betting that lower for longer rates and QE would keep one of the most successful bet in years - selling vol - alive for a while. The Euro Stoxx 50 volatility index, Europe's fear gauge, has jumped to its highest level this year and since December 3 2020. The violence of the move itself is very impressive. Even if it has lost just a bit of steam from its morning highs, this volatility jump is the fifth biggest in the last five years and the eighth in the last ten years. (Julien Ponthus) ***** BLEEDING FROM VIRUS: 586 OUT OF 600 STOCKS IN RED (1053 GMT) A quick healthcheck of the pan-European STOXX 600 index shows 586 stocks are in red -- that's 98% of the companies listed on the index bleeding due to rising worries of Coronavirus. Airlines, hotels, cars, luxury goods, oil, industrial stocks, you name it, are all among fallers. Here's a snapshot of the intensity of the sell-off: (Thyagaraju Adinarayan) ***** LUXURY UPGRADES IN THE TIME OF CORONAVIRUS (1048 GMT) China is by far the No. 1 growth market for European luxury and the space is understandably hammered this morning on the mounting worries over the impact of the spreading Coronaviris. Still, some brokers stay upbeat. Take Moncler, for example. The Italian brand is among the most exposed to China but has managed to bag in a couple of upgrades, one from Exane which lifted its rating to outperform and the other from MS, which lifted its price target by 9%. If that surprises you, please read on. "While it is too early to draw any firm conclusions on the potential impact on the sector from the virus, we note that disruptive events, especially those affecting consumer sentiment and people travelling, have an impact on the luxury sector's valuation, but have also proven to be historically good times to buy into the sector," Exane analysts write in a note. To be sure, Moncler shares are down more than 3% this morning, mirroring similar losses elsewhere in the sector. Kering, LVMH down 3.6% and Richemont are down between 3.5 and 4%. (Danilo Masoni) ***** THERE GOES THE FTSE POST-ELECTION BUZZ (1038 GMT) Among all the big casualties on the trading floor this morning is the post-election buzz which turbo-charged UK equities after Boris Johnson's landslide win in December. "Before the coronavirus situation broke out, stock markets in Europe as well as the US were in a strong position. In mid-January the FTSE hit its highest level since the summer", wrote David Madden at CMC Markets UK. British blue chips are indeed back below the 7,500 benchmark, which is a real party pooper considering a survey showed on Friday that Britain PLC is enjoying its best month in more than a year. Apart from retail data, other indicators such as for employment, services or manufacturing suggest uncertainty among businesses and consumers has been tempered by Johnson's historic victory, so much so that it could deter the Bank of England from cutting interest rates next week. British mid-caps, which are more sensitive to the health of the UK economy, are also off their post-election highs but not back to where they were before Johnson's victory: And here's a good read: UK business perks up after election, weakening case for rate cut (Julien Ponthus) ***** LUXURY: CHINA VIRUS STINGS HARD, $50 BLN WIPED OFF (0925 GMT) It's not surprising to see more than 95% of the STOXX 600 constituents in red this morning as China's spreading virus outbreak is taking a toll on stocks ranging from miners to perfume makers. Bernstein analysts say Chinese consumers had spent $149 billion during the new year's week last year and that's likely to take a big hit this year due to travel curbs. The jolt is immediately felt in the top luxury names in Europe with nearly $50 billion wiped off from their market value since the outbreak. LVMH, Kering, L'Oreal, Burberry, Hermes, among others, were all trading at multi-year/record highs before the virus broke out. "Markets had been vulnerable to an eventual correction given signs of exuberance such as strong price momentum, high valuations and overweight positioning, but a pandemic is rarely on anyone’s list of negative catalysts...," JPM's John Normand says. Comparing it to the 2002-03 SARs may not be the best way to weigh the impact of virus spread as Bernstein says Chinese nationals accounted for just 2% of the global luxury goods market in 2003 versus a whopping 35% in 2019. (Thyagaraju Adinarayan) ***** POSTCARD FROM ITALY (0924 GMT) Clouds may be darkening on markets this morning on the growing China virus scare but it looks the sun is shining over Italy. Milan stocks are outperforming and the FTSE MIB even managed to rise slightly at one point. Even though further turbulence down the road is not ruled out, the outcome of local elections over the weekend has eased worries over a snap election which, some fear, could hand power to anti-immigrant and anti-EU right-wing leader Matteo Salvini. Here are a few views: UniCredit: "We expect the center-left victory in Emilia Romagna to help ease some pressure within the ruling coalition and provide some support to government action in the coming months". Barclays: "With the centre-left win in Emilia-Romagna, the risk of a government crisis in the short term has receded somewhat, yet many hurdles persist: the future nature of the coalition with a fractured M5S, the thin majority in the Senate, the regional and referendum votes further into 2020 (among others)". Citi: "Following the regional elections, we believe that a country risk stabilization in the short-term is now more likely". Italian banks, which are highly sensitive to local politics because of their big holdings of sovereign bonds, are up 1.1%. Poste Italiane, which also has a large government bond portfolio, is the top gainer on the STOXX. (Danilo Masoni) ***** OPENING SNAPSHOT: CHINA-EXPOSED SECTORS UNDER PRESSURE (0841 GMT) European stock exchanges opened in negative territory with mining, airlines and luxury companies suffering the most as China coronavirus death toll climbs to 80. The China-sensitive mining sector is down 3.4% and travel & leisure index is 2.2% lower as investors are growing anxious about the new virus. Despite the week-long holiday to celebrate the Chinese new year, investors are concerned people will avoid travelling. Hotel group Accor is the worst performer of the French index and airlines Lufthansa, Fraport, Easyjet, Air France- KLM and Ryanair are all lower between 4 and 5.8% in the early minutes of trading. In the heavily Asia-exposed luxury space, Burberry, Christian Dior and LVMH are also feeling the heat of the spreading virus outbreak. Here is a snapshot of the European bourses: (Joice Alves) ***** ON OUR RADAR: LUXURY AND AIRLINES (0759 GMT) Futures point to a lower start of the week for European bourses as investors are growing anxious about the economic impact of China's spreading virus outbreak. Traders are seeing European airlines and luxury stocks opening down 1-2%, while China-exposed miners should come under pressure too. There will also be some results to digest: Traders are seeing Landis+Gyr Group down 3-3.5% after company confirmed FY 2019 guidance at lower end of all ranges. Petra Diamonds 1H revenue fell 6%, dented by lower prices as the diamond industry grappled with soft demand from China because of the trade war with the U.S. and the anti-government protests in Hong Kong. In the retail space, one trader is seeing H&M down 1% after it said on Saturday that data security breaches found at its German unit were unacceptable and it was cooperating with authority. [nL8N29U0FA} Reuters reported that a Swuss regulator probes board role in Credit Suisse spying scandal, as the spying debacle risks tipping the bank into a crisis that could engulf its top executives. In terms of M&A, Swiss food giant Nestle bought Allergan's medical nutrition business Zenpep. And the founder of British subprime lender Amigo is putting his 60.6% stake of the company on the block. Amigo is seen 5% lower this morning. (Joice Alves) **** EUROPEAN STOCKS SEEN LOWER (0642 GMT) Bourses in Europe are expected to open lower imitating Asian markets as investors are growing increasingly worried about the economic impact of China's spreading virus outbreak. Last week, investors took some relief when the World Health Organisation said the coronavirus outbreak was an emergency in China but not yet a global one. But they are now getting more anxious as more cases add on. Back in Europe, investors will have a week long of political events to digest: Yesterday, Italy's right-wing leader Matteo Salvini failed in his effort to overturn decades of leftist rule in Emilia-Romagna, one of Italy's richest regions, home for Ferrari luxury cars. Later this week, Britain is due to leave the EU and said it will set out more details about its objectives for a free trade deal with the European Union after the country leaves the bloc on Friday. Taking all into consideration, financial spreadbetters at IG expect London's FTSE to open 75 points lower at 7,585, Frankfurt's DAX to open 164 points lower at 13,576 and Paris' CAC to open 75 points lower at 6,028. (Joice Alves) ***** ​ (Reporting by Danilo Masoni, Joice Alves, Julien Ponthus and Thyagaraju Adinarayan)