* European stocks at highest since Sept. 28
* Luxury stocks, autos drive gains
* Fiat Chrysler tops STOXX 600 on speculation of Peugeot acquisition
* German investor morale rises, boosted by hope of Brexit delay
* BAML survey finds short European stocks 'most crowded' trade
March 19 - Welcome to the home for real-time coverage of European equity markets brought to
you by Reuters stocks reporters and anchored today by Josephine Mason. Reach her on Messenger to
share your thoughts on market moves: email@example.com
SAYING GOODBYE TO 2018'S SELL-OFF (1714 GMT)
Do you remember the turbulent end of 2018 when markets were roiled by worries over more rate
hike in the U.S. and slowing global growth?
It kind of feels like a distant memory now. In fact today European equities have just made
up for all those losses, pushing the STOXX 600 to its highest closing level since end
September, as investors bet that negative economic surprises have bottomed out and expect the
Fed to remain dovish following its recent policy U-Turn.
For the record the end-2018 sell-off in Europe started on October 4 when the STOXX 600 lost
1.1 percent. It was just the start of a painful quarter during which the
pan-European benchmark fell nearly 12 percent, marking its worst quarter since Q3 2011.
So far this quarter the STOXX 600 is up 13.8 percent, on track for its best quarter in four
years. Here are your closing snapshots.
MODELLING A DEUTSCHE-COMMERZBANK MERGER? WHY BOTHER! (1538 GMT)
The merger-fever rally in Deutsche Bank and Commerzbank shares lasted one day with more and
more analysts joining the chorus of those who would not wager their money on it.
Niklas Kammer, analyst at Morningstar, for example, says it's not even worth trying to build
a financial model on the possible deal given its high execution risks.
"We do not model for a potential tie-up... as we believe the likelihood of a deal to be slim
at this point in time due to the many hurdles needed to be overcome as well as the early stage
of the exploratory talks," he says.
"We question the strategic rationale for the deal with respect to the position both banks
are in currently, their weak performance on restructuring efforts and M&A deals historically, as
well as the soundness of the potentially resulting bank".
Deutsche Bank and Commerzbank were last trading down 2 and 3 percent respectively, giving
back all and part of the gains seen yesterday.
Want more snippets of scepticism about the deal? Here are two.
KBW's Thomas Hallett: "We remain unconvinced that a merger of two troubled institutions will
re-emerge as an stronger single entity (given history of failed revamps and
execution/integration risks). Furthermore, the review of the business may signal a failing of
its current strategy/Plan A and the need for alternative action."
RBC Capital Markets' Anke Reingen and team: "In our view a merger of CBK and DBK has a high
level of execution risk and EPS accretion is dependent on a number of factors."
EUROPE GOING FURTHER DOWN THE BOJ WAY? (1443 GMT)
A report by MNI claiming the ECB would have to include stocks in any future asset purchase
programme may be helping to sustain today's strong rally - but it's been widely pooh-poohed by
investors and traders.
"Well it sounds very speculative - but it's amazing, 10 years after the financial crisis we
are still talking about further QE," says one trader.
Another trader acknowledges expecting the ECB to start buying stocks imminently may be a bit
far-fetched, but says "if Germany starts to falter we could see that happening".
Giuseppe Sersale, strategist at Anthilia Capital in Milan, says: "It seems unlikely to me,
honestly. At the moment there are no discussions about resuming QE. certainly with such a
market, any marginal positive newsflow has an impact."
Beyond this speculative report, the idea adds to the narrative of European monetary policy
moving towards Japanification - the BoJ buys stocks through ETFs as part of its QE programme.
However, it's highly unlikely this governing council will discuss any drastic changes before
the ECB's new president comes in on Nov. 1. And ECB chief economist Peter Praet has previously
dismissed the possibility of the central bank buying stocks.
"I am not sure that this report will have a lasting effect on stocks... but so far market
participants seem to like the story," says a third dealer.
(Helen Reid and Danilo Masoni)
GERMAN DATA: SOMETHING FOR EVERYONE (1332 GMT)
Better-than-expected investor sentiment data from Germany has added to the bullish mood
today, kindling hopes that the worst may be over for Europe's largest economy and pushing
Frankfurt stocks to fresh five-month highs.
The ZEW research institute's monthly survey showed investors' assessment of the economy's
current conditions this month dipped to 11.1 from 15.0 in the previous month. Markets had
predicted a fall to 11.7.
But the gauge of economic sentiment among investors - essentially an expectations index -
caught most attention: it rose to -3.6 from -13.4 in February, way better than -11 expected by
What a difference a month makes.
Last month's GDP data for Q4 showed Germany's economy stalled towards the end of last year,
only just skirting recession.
This chart showing the ZEW readings against GDP highlights the pace of improvement in
sentiment of late:
It's the latest euro-zone data to surprise to the upside that may help instil more
confidence in one of the world's most shunned stock markets. See recent blogs on Citi's
euro-zone macro surprise index surpassing the U.S.
Today's reading for current conditions shows that some of the temporary factors that weighed
in the economy in H2 2018 and the start of this year are still at play, Oxford Economics chief
French economist Daniela Ordonez says.
But the marked improvement in the expectations index shows that these negative factors are
now effectively fading and point to a strengthening of output, she said.
Marc Chandler, chief market strategist at Bannockburn Global Forex, agrees: "We suspect the
worst is behind Germany but the pace of the recovery is not yet clear."
But let's not get too overexcited. Don't forget the optimistic outlook from the survey does
rather depend on an orderly Brexit by the UK, China stimulus boosting demand for Germany's goods
and President Trump deciding not to slap tariffs on European cars.
With all the twists and turns of those factors, that's a big call.
EUROPEAN BANKS: ENTER IF YOU DARE (1318 GMT)
Banks are the most-shunned sector in Europe along with Media, according to BAML which finds
positioning on European lenders is at a 3-year low, having sunk further this month.
But bearishness may have gone too far, Deutsche Bank analysts write in a note.
The sector is pricing in a three-quarters probability of a recession, according to them,
which is out of whack with forward-looking indicators suggesting this is "not imminent". Indeed,
as we mentioned last week, the euro zone's economic surprise indicator has been quietly rising
For those daring to buy into the sector on hopes economic growth is not as bad as feared,
Deutsche Bank recommends a portfolio tilted to recovery stocks - namely Caixabank, Credit
Agricole and ING, while KBC features in their "Resilience" basket.
Furthermore, despite stalling earnings momentum the analysts say "we characterise this as an
earnings slowdown, not meltdown".
Speculation is rife about the euro area going the way of Japan as the ECB seems to be
running out of tools to boost the economy. But DB has bank stock recommendations even for that
"In a scenario where the ECB 'runs out of runway', our preference is for banks that offer
relatively high net interest income to cost coverage and relatively low NPL ratios - typically
Benelux, Nordic and UK banks," they write.
The note followed Deutsche Bank's thematic report "How to fix European banking... and why it
matters" which was widely maligned on Twitter by market watchers sceptical Deutsche Bank, whose
struggles are well-documented, is the best placed to fix the sector.
AUTO SHORT SELLERS! FEELING SQUEEZED? (1218 GMT)
Autos are the stand-out gainers in Europe this morning with their sectoral index
leading the pack and set for its best session since Feb. 12, last up 2.4 percent.
Besides the M&A chatter involving Fiat Chrysler and Peugeot
, there is no news catalyst but speaking with traders it seems some investors are
covering shorts as the macro picture improves and chances of a Brexit delay increase.
Here are views from a few market watchers we spoke to.
A London-based trader points to BAML, who see autos as a strong contrarian buy with a net
-25% of investors stating they are underweight the sector.
"We think that near all-time low OEM valuations together with pessimism on the sector are
still a very compelling contrarian argument for buying EU Auto OEMs. For 2019 our top picks in
OEMs are all Buys: Daimler, VW, Porsche & PSA," BAML analysts
say in the note.
Meanwhile a trader in Frankfurt says the gains are part of broader strength in cyclicals.
And here's Markus Huber, trader at City of London Markets: "It appears that Brexit will be
delayed after Speaker Bernie refuses to let May vote again on her deal and also sector rotation
carmakers and suppliers are cheap and stand to benefit from measures China is taking do boost
their domestic economy."
So far this quarter, autos are up 14.2 percent, set for their best quarter since Q4 2015.
TIME TO LOOK BEYOND BREXIT? (1027 GMT)
Maybe it's too early but UBS has detected signs that the narrative surrounding UK stocks may
be at a turning point, and argues there is a chance the next three years look different to the
The market certainly seems to be cheery: the FTSE 100 is set for its longest winning streak
May 2017, and has hit its highest level since Oct 5.
"Some of the equity market sensitivity to Sterling has reduced, a significant portion of the
valuation disconnect between international and domestic shares has now closed and... the
returns, margins and leverage in the UK market have lagged the U.S. cycle and more broadly
resemble the patterns seen in Europe," says a team of UBS analysts led by James Arnold.
With that in mind they propose new ways to think at UK stocks and scout for possible picks,
going beyond the simple narrative whereby non-sterling earners have better earnings momentum,
performance and rising valuations.
The new ways however may be a bit trickier to grasp.
"We use long term RoE ranges, international comparisons and laggards within our
international & domestic revenue screens to focus on individual companies," they say.
"We also... look at significant changes in management confidence, as well as extreme levels
of confidence relative to history amongst the UK companies that have reported so far this year,"
This chart shows how the correlation with sterling has reduced, suggesting markets have
become more relaxed about Brexit - barring another major shock.
OPENING SNAPSHOT: EUROPE EXTENDS WINNING STREAK (0828 GMT)
European shares are higher in early deals, with the pan-European STOXX 600 holding at Oct. 4
highs and on track for a fifth straight day of gains. Paris is the only exception among major
bourses, down 0.1 percent as the government struggles to curb "yellow vest" protests after
rioters ransacked luxury boutiques and torched cafes at the weekend.
Among the individual moves, Fiat Chrysler was up 2.9 percent as speculation about a possible
takeover resumed after the Peugeot family, one of the three leading shareholders of French car
maker PSA, said it would support a new acquisition if an opportunity presented itself.
Ocado is up 2.8 percent though as investors cheer a confident outlook even as the online
food retailer warned that a fire at its flagship distribution centre hurt sales growth.
The biggest moves were to the downside though, with telecoms operator Iliad down 6.4 percent
and FTSE midcap-listed Wood Group falling 8.1 percent after their results, Danske Bank dropping
5.9 percent following its tumultuous AGM yesterday and Evraz down 5.9 percent after its share
ASOS shares have plunged 10 percent, on track for their worst day since December after
delivering unwelcome news that teething problems hurt its business in the United States, a key
market for the online fashion retailer.
ON OUR RADAR: RETAILERS GALORE WITH OCADO, ASOS AND SAINSBURY'S (0756 GMT)
European stocks are expected to rise, extending the recent four-day rally that took the
pan-European index to fresh five-month highs yesterday.
Eurostoxx 50 Futures are up 0.2 percent, although the FTSE 100 futures are slightly lower
after their impressive run on Tuesday as deepening Brexit chaos triggered a sterling rally.
UK retail stocks will be in focus, with online retailers Ocado and ASOS both delivering
unwelcome news that issues with distribution centres hurt sales.
Ocado reported slowing revenue growth in its Q1 hit by the fire at its flagship robotic
distribution centre last month. Its shares were expected to fall, with investors hoping for more
details on the impact on business from the incident.
Online fashion retailer ASOS said its new warehouse in Atlanta struggled to cope with demand
in its second quarter, resulting in a dip in sales in the United States, a key market.
Its shares were seen down as much as 10 percent.
Sainsbury's shares may come under pressure after the FT reported the UK supermarket and
Walmart's Asda may commit to cut prices in a bid to get approval for their proposed tie-up
following a negative provisional view by Britain's competition watchdog.
In other earnings news, telecoms operator Iliad was seen down as much as 3 percent after
cutting its 2020 cash flow target. Traders cited weak KPIs and EBITDA guidance as reasons for
M&A attention may turn from banks to cars.
Speculation about a possible takeover of Fiat Chrysler is likely to resume after the Peugeot
family, one of the three leading shareholders of French car maker PSA, said it would support a
new acquisition if an opportunity presented itself.
The Italian carmaker is often mentioned as a candidate for possible consolidation
operations. There weren't many details, but interesting news from Austrian chipmaker AMS which
has agreed to create a joint venture with private equity firm Wise Road Capital.
Ferrexpo shares are seen sharply lower after the iron ore pellet producer said it will delay
the release of its full-year results for 2018 after a review of its donation to charity Blooming
Land identified additional discrepancies.
EUROPE TAKING A BREATHER (0714 GMT)
A lacklustre Asian market overnight has spread to Europe, with futures largely flat
following four days of solid gains on the STOXX 600 that took the pan European index to fresh
five-month highs yesterday.
After its run higher yesterday as the deepening Brexit chaos triggered a sell-off in
sterling in late afternoon, London's FTSE futures are flat.
Asian shares held tight ranges ahead of the Federal policy meeting, which kicks off its
two-day policy meeting later today, with investors expecting the central bank to stick to its
dovish tone and offer for clues about the likely path of U.S. borrowing costs.
Here's your snapshot: