LIVE MARKETS-Spanish banks: potential for catch-up after Italian strain
* European shares shrug off fractious G7
* Bank stocks lifted as Italy commits to euro
* Italian banks +5.8%, best day since April 2017
* Trade tremors send autos stocks to 2 1/2 month low
* UK factory output shows biggest monthly drop since 2012
June 11 - 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
SPANISH BANKS: POTENTIAL FOR CATCH-UP AFTER ITALIAN STRAIN
(1527 GMT)
Along with the Italian banks (now up 5.9 percent), Spanish
banks are rallying today with Santander, Caixabank (Amsterdam: CB6.AS - news) , Sabadell and
Bankinter (Amsterdam: BI6.AS - news) up 2.8 to 3.7 percent in a broad-based periphery
relief rally.
UBS (LSE: 0QNR.L - news) analysts see potential for the Iberian banks to catch up
as the political climate stabilises.
Italy's effect on Spanish bond yields translates into a 5 to
30 basis point core capital hit for Spanish banks - a manageable
impact, especially as the banks that are most exposed to Italian
and Spanish bonds also have the strongest capital buffers, they
say.
Meanwhile on the domestic front, investors and analysts seem
pretty sanguine about Spain's new government.
"After a first negative reaction due to the unexpected
nature of the non-confidence vote against PM Rajoy, the market
seems reassured about the incoming government's economic policy
not representing a threat for Spain's ongoing expansion," say
UBS analysts.
"Mentioned as a potential area of action in the past, and
though not emphasised in the last week, our main fear remains
the possibility of some banking levy to help funding expansive
fiscal policies on the welfare front."
(Helen Reid)
*****
FROM SHORT TO LONG VOLATILITY (1432 GMT)
An investor who bought into an inverse volatility ETF
straight after February's vol blow-out has now reversed his
strategy to build a long volatility position.
Clark Fenton, CIO at Agilis Investment Management, said back
then "We had to gather our courage" before buying the ProShares
inverse VIX ETF after similar products had imploded.
Today he's instead betting that volatility is going to come
back up, having sunk after a brief spike over Italian political
fears.
"What's interesting is that volatility on the S&P 500 has
been very very low. It's really come down and there's a lot of
talk about volatility selling strategies coming back apace,"
says Fenton.
"We pulled away from that strategy, we have started to build
volatility positions over the past few days."
The market hurtling towards a global regime of "quantitative
tightening" (QT), with the Fed and ECB meetings looming this
week, is part of his reasoning for the long-vol call.
"In a world of QT every negative headline has a
disproportionate effect," says Fenton. "It's particularly bad if
the QT is happening at a time when the European economy is
starting to weaken, and I have my suspicions that that may well
be the case. That's the double whammy."
(Helen Reid)
*****
"STRUGGLING TO MAKE MONEY" (1330 GMT)
Investors have been having a hard time making money from the
market this year, according to JP Morgan.
Both institutional and retail investors have been much more
cautious than last year as new political risks and drifting
markets make directional bets both more rare and more risky.
Quantitative funds, such as CTAs and risk parity funds, have
done poorly versus discretionary funds, also due to the lack of
strong trends in most markets, says JPM's Nikolaos
Panigirtzoglou and team.
And turnover has been high relative to last year across all
asset classes - as it tends to be when uncertainty is high,
driving investors to nervously reshuffle portfolios.
Retail investors have also bought equity and bond funds at a
much slower pace since the February selloff.
(Helen Reid)
*****
TURNING BULLISH ON TECH AGAIN (1252 GMT)
It looks like high valuations and crowded positioning are no
longer a big worry for investors and after last week's record
run for the Nasdaq (Frankfurt: 813516 - news) , confidence is growing that 2018 will be yet
another strong year for European tech.
"In contrast to our view in Jan, we now believe that 2018
will make it seven straight years of outperformance for the EU
Tech sector. While we still see earnings in-line, we now expect
the sector to relatively rerate," says Citi.
Even (Taiwan OTC: 6436.TWO - news) though economic activity in Europe is set to slow this
year, that should not be a problem for the sector. Citi expects
healthy EPS growth for European tech in 2018 and notes how the
sector's valuation premium widens in times of weaker growth.
Over the last 7 years the European tech index has
more than doubled in value, leaving the broader European market
well behind. The index is up more than 10.5 percent so far this
year, while the STOXX 600 is down 0.7 percent.
Citi's top picks are SAP (Amsterdam: AP6.AS - news) , Capgemini,
ASML (Milan: ASML.MI - news) , Temenos and IQE (LSE: IQE.L - news) .
(Danilo Masoni)
*****
BLOCK TRADING BACK ON THE UP (1138 GMT)
The share of dark trading executed in large blocks has come
back up this week, having fallen the two previous weeks. As of
Friday June 8 it's 45.25 percent of the total traded on dark
pools, according to Fidessa. The share of dark trading executed
in large blocks has risen since MiFID II came into force,
restricting non-transparent trading for many stocks outside of
"large-in-scale" blocks.
The most traded stock in large blocks was RPC (NYSE: RES - news) with
78 trades, while the highest value traded was in Novo Nordisk (LSE: 0QIU.L - news)
- with 99 million euros' worth changing hands.
Market share remains hotly contested between the big block
trading venues, as you can see below. Liquidnet is currently in
the lead in terms of market share - with 28.7 percent of total
dark pool block trades - with ITG (Shanghai: 600755.SS - news) 's Posit second and the LSE's
Turquoise Plato in third place.
(Helen Reid)
*****
PRIVATE EQUITY FUELLED M&A BOOM (1043 GMT)
Shares (Berlin: DI6.BE - news) in UK car auctioneers BCA Marketplace (LSE: BCA.L - news) have
hit a record high this morning after the company rejected a
buyout offer from private equity firm Apax Partners.
It's the latest in a flood of attempted or completed
takeover deals targeting UK stocks, and according to Bernstein
analysts it's also in line with a broader, worldwide surge in
private equity dealmaking.
The share of deal activity taking companies private has
reached a high not seen since 2007, Bernstein's global
quantitative analysts find. Pension funds' allocation to private
equity has also increased in recent years.
"This is a classic sign of a business cycle moving towards a
"late expansion" phase," they write. "This increase in activity
tied to the remarkable jump in pension fund allocation to
private equity and increase in committed but uninvested capital
seems highly likely to dampen future returns from private
equity."
The rise in pension funds' allocation to private equity, and
the jump in dealmaking, are likely linked to a diminishing
breadth of growth opportunities in listed companies. The number
of listed companies is shrinking and buybacks are exceeding
issuance globally, Bernstein points out - meaning investors
increasingly need exposure to private assets in order to earn a
better equity risk premium.
(Helen Reid)
*****
A BANK-SHAPED HOLE IN THE EUROPEAN MARKET (1000 GMT)
While banks are the top performers today on relief over the
new Italian economy minister's pro-euro stance, they remain the
laggards over this year to date, down 11 percent.
UBS analysts point out that they're the exception, leaving a
"bank-sized hole" in a strongly cyclical-led market.
"Given the move in yields, this pro-cyclical market should
not come as a great surprise," they write. If yields continue to
rise then cyclicals should too.
But the performance of cyclicals versus defensives is now
lagging yields significantly - which is all down to the banking
sector decoupling with yields (see chart below).
Why the lag? UBS reckons investors' concerns about growth
disappointment and trade disputes trumped the rising yield
narrative.
UBS however reiterate their overweight on banks, saying the
sector should catch up with the rest of the cyclical universe
thanks to a supportive long-term environment with domestic
growth, corporate releveraging, a rebound in capex, (slowly)
rising rates, and the potential for M&A.
Their top picks? Banco BPM, Credit Agricole (Swiss: ACA.SW - news)
, Credit Suisse (IOB: 0QP5.IL - news) , Danske Bank (LSE: 0NVC.L - news) , ING
, Lloyds, Santander and UniCredit (EUREX: DE000A163206.EX - news)
.
(Helen Reid)
*****
MID-MORNING SNAPSHOT: MOVING HIGHER (0937 GMT)
European shares have started the first day of the week
shrugging off the weekend's fractious G7 and a promise by
Italy's new economy minister to keep the country in the euro is
providing a big relief for Italian stocks.
In the UK, factory output showed its biggest monthly drop
since 2012, weakening the pound and boosting the export-oriented
FTSE index.
Here's your snapshot:
(Danilo Masoni)
*****
WHAT'S ON OUR RADAR AHEAD OF THE OPEN (0651 GMT)
European stock futures are indicating a strong start,
shrugging off the fallout from a tense G7 meeting over the
weekend with gains of 0.3 to 0.7 percent for the major
benchmarks.
At the start of a week packed with political and central
bank events, with an historic summit between the U.S. and North
Korea on Tuesday followed by Fed and ECB meetings, investors in
Europe are choosing to look beyond the G7 meeting Societe
Generale analysts branded “shambolic”.
They are also likely expressing relief that Swiss voters
rejected, by a landslide, a campaign to radically alter the
country’s banking system. The “no” vote pushed the Swiss franc
down, which could deliver a boost to Swiss exporting stocks. The
new Italian economy minister’s vow to stay in the euro and cut
debt levels was sending Italy’s bonds higher and is likely to
lure relieved investors back into Italian stocks, too.
M&A is still rampant in the UK stock market. Ones to watch
today include Inmarsat (Other OTC: IMASF - news) which, after a sharp rally on bid
speculation on Friday, confirmed after the close that it had
rejected a takeover offer from U.S. firm EchoStar.
British car auctioneers BCA Marketplace could also be moved
by news private equity firm Apax Partners is considering making
an offer for it. It’s not alone in the private equity dealmaking
space: Bernstein analysts said the share of deal activity taking
companies private has reached a peak last seen in 2007.
Ocado could also be a mover after a double upgrade to
“outperform” from Bernstein – a bold call for a stock already up
152 percent this year.
On the negative side, Daimler (IOB: 0NXX.IL - news) shares could be dented after
the Bild am Sonntag reported the German regulator found defeat
devices in its diesel cars. And Rolls Royce shares are indicated
down 1 percent after it said a problem affecting the durability
of its Trent (BSE: 500251.BO - news) 1000 engine had been discovered in another engine
type, requiring further inspections.
In other company news/potential stock movers:
German regulator found defeat devices in Daimler diesel cars
-BamS
Rolls-Royce says compressor issue found in different Trent
1000 engine
EDP sees merits in Chinese suitor's plans, but offer too low
(Helen Reid)
*****
FUTURES POINT TO MODEST GAINS AT THE OPEN DESPITE
"SHAMBOLIC" G7 (0609 GMT)
Futures for the leading European stock benchmarks are up 0.1
to 0.3 percent, indicating a stronger open.
There's not much on the macroeconomic front expected today
but Societe Generale (Swiss: 519928.SW - news) analysts say investors will be watching the
Bank of France business sentiment and UK construction and
manufacturing output - a slow start to a heavy week of political
and central bank events.
Here's SocGen (Paris: FR0000130809 - news) 's take on the G7 fallout: "After some initial
wobbles at the open, markets in Asia took the shambolic end to
the G7 summit in their stride, regardless of the fact that on
the surface the risk of a further escalation of U.S.
protectionist measures has increased."
And some extra headlines that could shake up trading, with
M&A still rampant in the UK market:
Comcast (Swiss: CMCSA.SW - news) to win unconditional EU okay for Sky (Frankfurt: 893517 - news) bid - sources
British watchdog probes reports that meat found in
vegetarian meals
Apax considering an offer for BCA Marketplace
Inmarsat rejects EchoStar takeover bid, says it undervalues
firm
(Helen Reid)
*****
EARLY MORNING HEADLINE ROUND-UP (0537 GMT)
The G7 fallout includes a further souring of U.S.-Canada
relations, and a promise from German Chancellor Merkel to act
against U.S. tariffs on steel and aluminium. She (Munich: SOQ.MU - news) also said
Trump's decision to pull out of the G7 communique via tweet was
"sobering and a bit depressing".
In Europe investors will be relieved that the Swiss rejected
a plan to transform the country's financial landscape by barring
commercial banks from electronically creating money when they
lend, in a landslide referendum vote.
On the corporate front Swiss chemicals firm Sika (IOB: 0QMA.IL - news) is on a
massive takeover drive, and French energy stocks could be moved
by the energy market regulator's plans to recommend higher
natural gas energy prices.
Sika targets up to $1 bln in takeovers a year to quicken
growth
U.S.-Canada dispute escalates after tense G7; Trump renews
criticism of Trudeau
Swiss voters reject campaign to radically alter banking
system
With (Other OTC: WWTH - news) sales boom in mind, Gucci tightens grip on suppliers
French energy regulator to recommend higher natural gas
prices
Merkel: EU will act against U.S. tariffs on steel, aluminium
Caixabank To Buy 51 Pct Of Servihabitat Servicios
Inmobiliarios For 176.5 Mln Euros
(Helen Reid)
*****
MORNING CALL: EUROPEAN SHARES TO SHAKE OFF G7 SHOCK (0514
GMT)
European stock benchmarks are seen opening stronger this
morning after an early wobble in Asian trading after U.S.
President Donald Trump backed out of a joint G7 communique over
the weekend.
The clear lack of a united front among the group dented
Asian shares, but they went on to recover and edge higher as
investors looked ahead to an historic U.S.-North Korea summit on
Tuesday.
Investors have also this week to get their heads around a
two-day Fed meeting starting tomorrow, and an ECB meeting on
Thursday at which policymakers could signal intentions to start
unwinding the bank's massive bond purchasing programme.
At the start of a busy week, spreadbetters call the DAX 20
points higher at 12,787, the CAC 40 down 4 points at 5,446, and
the FTSE 100 16 points higher at 7,697.
(Helen Reid)
*****
(Reporting by Danilo Masoni, Helen Reid, Kit Rees and Julien
Ponthus)