LIVE MARKETS-Spanish political risks: could utilities be hit?
* European stocks edge higher
* Italy's FTSE MIB attempts rebound
* Trade worries in focus
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SPANISH POLITICAL RISKS: COULD UTILITIES BE HIT? (1032 GMT)
The political turmoil in Italy has hardly blown over but investors are already looking ahead
to the next potential political flare-up in Europe: the Spanish Prime Minister's vote of no
confidence on Friday.
While Italy was the main focus yesterday, some periphery contagion was evident with Spain's
IBEX also falling nearly as much as the FTSE MIB, and banks Santander and Sabadell dropping
substantially.
On Friday Prime Minister Rajoy faces a no-confidence vote in parliament, and analysts at
UBS (LSE: 0QNR.L - news) have prepared for a potential unseating and new government by looking at opposition parties'
policies and how they might impact utility stocks.
In general the parties support closure of nuclear power generation after 40 years, a step-up
in renewables capacity, and lower regulatory returns, they find.
"Under such a scenario we estimate double-digit EPS risk for the most exposed players:
Endesa (LSE: 0N9G.L - news) , Red Electrica (Amsterdam: EL6.AS - news) , and Iberdrola (Amsterdam: ID6.AS - news) ," they write (see chart below).
Switching from nuclear to renewable power generation would require construction of wind and
solar, low-cost capacity which could, according to UBS calculations, reduce power prices by over
10 percent over the long term.
All this is of course only if Rajoy loses the vote, paving the way to a snap election.
Here's our latest on developments there:
Spain's Ciudadanos party said it would not support a motion of no-confidence in Prime
Minister Mariano Rajoy due this Friday, making it unlikely the parliamentary vote will succeed
in unseating him.
(Helen Reid)
*****
"EVERYONE NEEDS TO TAKE A DEEP BREATH..." (0922 GMT)
"..and calm down" - that's the advice from UBS' global chief economist as trading develops
into a picture of (hesitant) relief for Italian stocks.
UBS' Paul Donovan argues bond market moves do not break up monetary unions - bank runs do,
and there's no evidence of these at this point. On top of that, he adds neither Italian parties
nor Italian voters support leaving the Euro, and it's not even certain the two parties would try
to form a government after elections.
Italian stocks did dip to their lowest of the day after League leader Salvini called for a
new vote as soon as possible so there is still some tension, but the dominant tone
from analysts and investors today is one of cautious optimism.
"We believe political uncertainty in Italy will remain elevated for quite some time and
Italian asset prices will continue to be under pressure," write Goldman Sachs (NYSE: GS-PB - news) analysts.
Here's their summary of the Italian parties' current position in the polls, which investors
will be keeping a close eye on as elections loom nearer:
(Helen Reid)
*****
OPENING SNAPSHOT: MILAN AND MADRID IN TENTATIVE REBOUND (0713 GMT)
It's not strong enough to be called a rebound but the bourses of Milan and Madrid have been
trading in positive territory since the open. Volatility is high and not all trading centres are
going north: France's CAC 40 is down 0.6 percent for example and the STOXX 600 is edging down
0.1 percent.
(Julien Ponthus)
*****
ITALY: ARE FEAR INDEXES REALLY TELLING THE WHOLE STORY? (0703 GMT)
The Italian crisis has prompted jumps in U.S. and European volatility indexes but as you can
see on the charts below, they are still well below the peak they reached during the February
sell-off.
The U.S. VIX and the Euro StOXX 50 volatility closed at 17.02 and 20.15
respectively on Tuesday while their record for the year was set at 50.30 and 36.5 on February 6
and February 9.
On Tuesday, Unicredit (EUREX: DE000A163206.EX - news) analysts argued that while the fall back of the VIX since the February
sell-off would theoretically signal "very little concern over future market developments", it
might be misleading.
"The perception of there being a limited amount of risk in global markets derived by the VIX
index is most likely wrong", they wrote, adding that "such metric of risk appetite might be too
specific to characterize the risks global markets are exposed to these days".
(Julien Ponthus)
*****
WHAT WE'RE WATCHING AHEAD OF THE OPEN (0649 GMT)
A rebound of sorts looks to be on the cards for European shares this morning with stocks
futures trading flat to slightly higher, though continuing jitters over Italian politics and
U.S.-China trade relations will keep investors on edge.
With (Other OTC: WWTH - news) little on the company news front, it’s all about politics with a chance now that Italy
could hold fresh elections as early as July, according to sources. Italy’s benchmark hit its
lowest level since July 2017 in the previous session as Italy’s future in the euro zone was
thrown into question.
In M&A news, Germany’s Bayer (IOB: 0P6S.IL - news) has cleared a major hurdle in its takeover of Monsanto (Hamburg: 1132157.HM - news) after
winning U.S. approval for the deal, though it has agreed to sell around $9 billion in assets.
And we could see more pain for UK retailers with premarket indications calling discounter B&M
1-5 percent lower after its full-year update.
Company news/stocks movers:
Bayer wins U.S. nod for Monsanto deal to create agriculture giant
UK retailer B&M's full-year profit rises 25 pct
Uniper (Swiss: UNIPE.SW - news) supervisory board rejects calls for special audit
British engineer Bodycote (LSE: BOY.L - news) says profit will beat consensus
UK's Londonmetric "nervous" about retail sector outlook
De La Rue (Other OTC: DELRF - news) full-year profit hit by loss of post-Brexit passports
SAS Q2 pretax loss smaller than expected
Royal Bank of Scotland (LSE: RBS.L - news) 's chief financial officer resigns
Daimler (IOB: 0NXX.IL - news) leads $175 mln investment in Uber's EMEA rival Taxify
Vedanta prepares legal challenge to India copper plant closure after fatal protest –
sources
UK's Inchcape (Other OTC: IHCPF - news) pays $20 mln to settle claim it overbilled U.S. Navy
Rolls-Royce says tripling capacity to fix Trent (BSE: 500251.BO - news) 1000 engine problems
Chinese-owned group wins French soccer rights, Canal Plus (Paris: AN.PA - news) empty-handed
Opel agrees job guarantees, investments at German sites
German retail sales rebound with bigger-than-expected jump in April
UK shop prices show biggest fall since January 2017 (–BRC (Shanghai: 600466.SS - news) )
(Kit Rees)
*****
CATCHING UP WITH ITALY (0606 GMT)
European stocks futures have opened slightly lower, and as Italian politics has been front
and centre this week, here's a quick summary of what went down after the European market close
yesterday.
Italy's Democratic Party (PD) has called for snap elections in July, and sources from
several of Italy's main parties said they were in favour of fresh elections on July 29. This
follows an inconclusive vote in March, with the president finally designating former
International Monetary Fund official Carlo Cottarelli as interim prime minister on Monday.
Yesterday Italy's benchmark FTSE MIB index tumbled 2.7 percent and hit its lowest
level since July 2017, while European stocks also fell.
"There was sufficient negative contagion to leave the Eurozone benchmarks nursing their
biggest losses for two months, although it does feel as if this crisis coincides with investors
already looking to scale back risk exposure," Ian Williams, economics & strategy research
analyst at Peel Hunt, said in a note.
(Kit Rees)
*****
EARNINGS: QUIET (0542 GMT)
It's set to be pretty quiet for company earnings this morning, but nevertheless here are the
firms set to give updates in Europe:
HACGn.DE Q2 2018 KPS AG Earnings Release
NAVA.OL Q1 2018 Navamedic ASA Earnings Release
B8FGn.DE Q1 2018 Biofrontera AG Earnings Release
SAGT.OL Q1 2018 Saga Tankers ASA Earnings Release
MATAS (LSE: 0QFA.L - news) .CO Q4 2018 Matas A/S Earnings Release
DMRE.DE Q1 2018 Demire Deutsche Mittelstand Real Estate AG Earnings Release
FRU.DE Q1 2018 Ferratum Oyj Earnings Release
2GBG.DE Q1 2018 2G energy AG Earnings Release
LMPL.L Full Year 2018 Londonmetric Property PLC Earnings Release
STRV.VI Q1 2018 Strabag SE Earnings Release
EVNV.VI Half Year 2018 EVN AG Earnings Release
SAS (LSE: 0O1W.L - news) .ST Q2 2018 SAS AB Earnings Release
(Kit Rees)
*****
MORNING CALL: EUROPEAN SHARES SEEN OPENING SLIGHTLY LOWER (0530 GMT)
Good morning. European shares are expected to open flat to slightly lower, according to
financial spreadbetters, as concerns over Italy continue to worry investors while U.S.-China
trade relations are also in focus.
Spreadbetters see Britain's FTSE 100 edging 0.1 percent lower, Germany's DAX opening flat
and France's CAC down between 0.1 to 0.5 percent.
On Tuesday, the U.S. said that it still holds the threat of imposing tariffs on $50 billion
of imports from China and would use it unless Beijing addressed the issue of theft of American
intellectual property. Asian shares were lower across the board, with the CSI300 index down 1.3
percent.
Wall Street also ended in negative territory as Italy jitters knocked sentiment across the
pond.
(Kit Rees)
(Reporting by Danilo Masoni, Helen Reid, Kit Rees and Julien Ponthus)