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LIVE MARKETS-Can you spot the German recession?

* European stocks rise

* Retail sector leads gains

* In Asia, Japanese shares climb

* Eyes on Sika (IOB: 0QMA.IL - news) , Italian banks, Morrisons

* Samsung, LG (KSE: 003550.KS - news) warn on profits

Jan 8 - Welcome to the home for real-time coverage of European equity markets brought to you

by Reuters stocks reporters and anchored today by Danilo Masoni. Reach him on Messenger to share

your thoughts on market moves: danilo.masoni.thomsonreuters.com@reuters.net

CAN YOU SPOT THE GERMAN RECESSION? (1623 GMT)

Looking at European indexes this afternoon, you wouldn't necessarily guess that the data

published this morning suggests economic activity actually contracted in Germany in the second

ADVERTISEMENT

half of 2018.

"Today’s data shock is giving rise to speculation about a possible technical recession in

Germany at the end of last year," Rabobank analysts write.

"Even (Taiwan OTC: 6436.TWO - news) if order books and backlogs of work still look good, Germany likely flirted with a

technical recession in H2," Oxford Economics argues.

With (Other OTC: WWTH - news) the DAX up 0.8 pct and the Euro Stoxx rising 1 percent, it's hard to see the gloom of

this morning's European sentiment indicator and November German industrial production

but there you go.

"Let's not beat about the bush: this is a bad report, signalling a weak fourth quarter and

not promising much better for the first quarter of 2019," write ING economists for whom "the

bottom line is that money market rates are likely to remain negative for at least another year".

Tom Elliott, deVere Group's International Investment Strategist also points out the euro

zone is seen as a danger zone.

"Yet there are big risks for 2019 including a possible eurozone recession," he writes in a

market analysis for 2019.

France is also a worry with indicator after indicator amplifying signs that the "yellow

vest" protests are having a bigger impact than first expected on the euro zone's second biggest

economy.

(Julien Ponthus)

*****

VALUATIONS: "SOMETHING TO BE ENTHUSIASTIC ABOUT" (1518 GMT)

On days like today with stocks rising strongly across Europe and the U.S., it's clear there

are some buyers out there picking up bargains in a cheaper market.

Indeed, investors looking for inspiration should focus on how much lower valuations are,

Psigma Investment Management reckons.

"Valuations are really something to get very enthusiastic about," head of investment

strategy Rory McPherson told us this morning.

As you can see below, McPherson has a point: valuations have come down quite substantially

over the past few months and are at their lowest in five to six years, depending on the market.

"Valuations aren't anywhere near the nosebleed levels they got to in 99/2000. Valuations

have really not been the problem for markets, it's very much the question marks around policy

and the business cycle," McPherson argues.

Accordingly he backs Japanese equities which he sees as undervalued, as well as other parts

of Asia and even the UK (although he says the UK isn't "ripe" quite yet - it would be a pretty

risky call ahead of next Tuesday's parliamentary vote).

Earnings expectations, McPherson highlights, are not challenging as there have already been

big markdowns as the "sugar high" of last year's tax cuts washes out.

"Nine and three-quarter years into a bull market there's no slam dunks out there, but we do

think there are some attractive parts of the equity market which you can access," he concludes.

(Helen Reid)

*****

UK RETAILERS: CLOSER TO CHRISTMAS THAN BLUE MONDAY (1356 GMT)

We're getting closer to Blue Monday (Jan 21), allegedly the year's gloomiest day, but

Christmas sales data from Nielsen (EUREX: 11400372.EX - news) and Kantar is keeping the holiday season alive in the UK!

While there were expectations for some Brexit doom and gloom, food retailers got a nice

boost and are up more than 2 percent with clothes retailer Next (Frankfurt: 779551 - news) surging 5.9 percent.

"In London, Christmas sales data is giving reason for optimism as retail facing businesses

ended up less hurt by Brexit than expected," writes Fiona Cincotta at City Index.

While analysts at Jefferies, Citi and HSBC make the case that Tesco (Frankfurt: 852647 - news) was the likely winner of

the Christmas joust, the hard reality is that hard discounters, Aldi and Lidl, are the only ones

gaining market share.

"The Big 4 have now lost 7% share collectively in the last five years," HSBC reminds its

clients.

Another takeaway is that Morrisons is a clear loser and is being punished for it, down 3.2

percent, the worst performance of the FTSE 100.

"Despite slashing prices left, right and centre, Morrisons remains under pressure from the

German discounters," comments IG (Frankfurt: A0EARV - news) 's Chris Beauchamp.

The final case for optimism was provided by pub operator Greene King (Frankfurt: A0F66P - news) for which Christmas Day

was a record in terms of revenue, notes David Madden from CMC (BSE: CMC.BO - news) .

As you can see below, the food retail sector seems ready to recover from the lows hit just

after Boxing Day.

(Julien Ponthus)

*****

EUROPEAN DAREDEVILS VERSUS PRUDENT AMERICANS (1309 GMT)

U.S. stocks were the last to join the sweeping bear market in 2018, and that's evident in

American funds' positioning which is actually looking - unusually - more risk-averse than

Europeans' at the moment, according to Bernstein quant strategists.

The strategy team led by Sarah McCarthy notes that both European and U.S. funds misjudged

2018: they had lower betas in the first half of the year when the market was rising, and became

more exposed in the latter part when the market buckled.

Positioning for 2019 shows an interesting divergence, though:

"European funds are coming into the year with betas which are higher than they have been in

recent years - unlike the U.S. funds which appear to be more cautiously positioned," they note.

Funds missed out on the strong outperformance of Low Vol - a factor meant to provide some

insulation from market swings - in the past few months, Bernstein adds.

U.S. funds have increased their exposure to Low Vol significantly since, while European

funds have cut down on that factor, as you can see below. U.S. funds have also increased their

exposure to momentum, Bernstein notes, adding that "looks dangerous to us given how expensive

the factor is".

(Helen Reid)

*****

CARIGE MOVE? 'POSITIVE AND TIMELY' BUT ITALIAN BANKS DOWN AGAIN (1218 GMT)

Italian banks shot up to a three-week high in early trading today following the surprise

approval of a government decree that allows troubled mid-sized lender Carige to

benefit from state-backed guarantees for funding.

Analysts are broadly welcoming the deal as a positive for the rest of the banking sector but

the rally progressively fizzled out and the sector's index is now back in the red,

down 0.4 percent.

"The government's intervention allows for a substantial and definitive stabilization of the

risks linked to Carige and demonstrates its will to protect retail savers," says Giovanni

Razzoli, analyst at Equita.

A Milan-based trader says the government's move is "positive and timely" and notes how that

removes the risks for other banks to have to inject fresh funds into the so-called FTID fund

that provides a guarantee scheme on deposits.

But why have banks eventually turned lower?

There is little immediate news out there to explain the reversal but perhaps after the

recent outperformance, some profit-taking may not be that surprising, especially as bond yields

on Italian government debt are on the rise this morning.

Another analyst notes that today's turn lower in bank stocks tracked a widening in the bond

yield spread between Italy and the safer German bund, which got closer to 270 points, as you can

see in the chart.

(Danilo Masoni)

*****

UNLIKE APPLE'S, SAMSUNG'S WOES LEAVE EUROPEAN TECH UNMOVED (1111 GMT)

One would think Samsung's surprise profit drop and warning about weak chip demand would have

spooked European tech stocks. But the sector is up 0.7 percent at the moment and at its

highest since Dec (Shanghai: 600875.SS - news) . 19.

That's only just slightly underperforming the STOXX 600 and quite a stark contrast with last

Thursday when Apple (NasdaqGS: AAPL - news) took the rare move of cutting its quarterly sales forecast, unleashing a

global tech selloff that sent European tech to its lowest since February 2017.

The take from traders and analysts is that with hindsight, Samsung's warning may not really

constitute a surprise and offers only a limited incremental negative.

Above all else though, the sector has already been heavily hammered. It's down 0.1 percent

for the year so far, behind only consumer staples and luxury goods stocks like Burberry

and Unilever (NYSE: UL - news) , adding to the 11 percent drop in 2018.

"Tech has already been sold hard," said Mike van Dulken from Accendo Markets, making the

case that there is little rationale for stocks in the sector to react twice to the same news,

even if conveyed a second time by Samsung.

It's been a brutal past six months - the tech sector has underperformed the STOXX 600 by 7

percent. ASML (Milan: ASML.MI - news) , which supplies both Apple and Samsung, has underperformed by 11 percent and AMS (IOB: 0QWC.IL - news) '

has been punished even more harshly.

Van Dulken adds that there probably was rotation back into the sector, which is still

technically in a bear market. Hope that China will sucessfully stimulate its economy could also

be a factor, he added.

A look at individual moves among the chipmakers today though and there is still some

bloodletting going on, with ASML down 0.9 percent. Liberum notes that Samsung is ASML's largest

customer with memory accounting for about 70 percent of its deep ultra-violet system sales last

year.

DRAM makers like Samsung will continue to cut capex this year and into 2020 to offset

shrinking profits and falling pricing, which will likely squeeze profits at ASML and other

equipment vendors through the course of this year, Liberum analysts warn this morning.

See below how European tech is in a bear market and still at the levels it was about two

years ago.

(Julien Ponthus and Josephine Mason)

*****

OPENING SNAPSHOT: RETAILERS AND BANKS LEAD EUROPE TO 3-WEEK HIGH (0844 GMT)

A broad rally across retail, banking and media stocks is driving gains across Europe this

morning. The STOXX 600 index is up 0.6 percent at its highest since Dec. 17 in early deals.

The retail sector is the best performer, up 1.3 percent, with Carrefour (LSE: 0NPH.L - news) leading

Paris' CAC 40 after a BAML upgrade and clothes retailer Next topping London's FTSE 100.

Morrisons isn't faring so well after its disappointing Christmas trading update.

Construction and materials stocks are also lagging the broader market after a warning from

UK building materials supplier SIG (Frankfurt: 888153 - news) that sluggish markets in the UK, France and Germany have hurt

revenue. FTSE midcap SIG is down 4.8 percent.

Otherwise, broker moves are driving some of the biggest moves: Rotork (Frankfurt: RO41.F - news) is leading the pan

European index after Goldman upgraded the stock and Smiths Group (Frankfurt: QS2A.F - news) is down 2 percent on the FTSE

after a downgrade in a note on the capital goods sector. Signify was cut by BAML and is bottom

of the STOXX 600 pack and Kion, downgraded by Goldman, has fallen 5 percent.

In France, Bouygues (LSE: 0HAN.L - news) is down 2 percent after Credit Suisse (IOB: 0QP5.IL - news) lower its rating on the stock and

in Italy Prysmian is leading the Milan blue chips after a Goldman upgrade.

(Josephine Mason)

*****

HEADLINES ROUNDUP: EYES ON SIKA, ITALIAN BANKS, MORRISONS (0728 GMT)

Turning to the corporate front, eyes will be on Sika after the Swiss chemicals

company offered to buy smaller French rival Parex for an enterprise value of 2.5 billion Swiss

francs, while Italian banks could be on the watchlist too after the Italian government approved

a decree aimed at shoring up troubled lender Banca Carige (Dusseldorf: -BJ51.DU - news) .

In the UK, Morrisons kicked off a big week for retailers with a disappointing

update. The country's fourth largest supermarket group missed forecasts as its sales growth

slowed in both its retail and wholesale businesses over the key Christmas period.

There was bad news from South Korean consumer electronics giants overnight, which may add

further sting to fears about a global tech slowdown following Apple's shock warning last week

and could hit chipmakers again.

LG Electronics (KSE: 066570.KS - news) , the world's second-biggest television set maker, warned on Q4 profits and

Samsung blamed low chip demand for a shock profits warning.

Meanwhile, stock index futures have opened up slightly, confirming earlier indications from

spreadbetters. Data showing that German industrial output unexpectedly fell in November for the

third consecutive month did not have an immediate impact on DAX futures, last up 0.3 percent.

Here's your headlines round up:

Sika offers to buy French firm Parex for enterprise value of $2.6 bln

Italy offers state-backed options to shore up Carige

Sales growth at UK's Morrisons slows in Christmas period

Dassault business jet deliveries down, Rafale higher

Nissan's Ghosn claims innocence in first appearance since November arrest

STMicroelectronics (LSE: 0INB.L - news) and Cree (NasdaqGS: CREE - news) sign multi-year silicon carbide wafer supply deal

French car parts manufacturer Valeo (LSE: 0RH5.L - news) plans more cuts - FT

BASF workers in Taiwan (Taiwan OTC: 6549.TWO - news) suspected of leaking company secrets

Daimler (IOB: 0NXX.IL - news) to invest $573 mln in autonomous trucks

Nvidia (Swiss: NVDA.SW - news) says new self-driving platform to hit streets next year

(Danilo Masoni)

*****

MORNING CALL: EUROPEAN SHARES SEEN UP SLIGHTLY (0633 GMT)

European shares are expected to recover the slight losses seen in the previous session, as

hopes of a possible Sino (Dusseldorf: 1205802.DU - news) -U.S. trade deal help offset persistent worries over global growth with

Samsung Electronics positing a below-consensus fourth-quarter profit as a slowing

Chinese market takes its toll.

Spreadbetters at IG expect London's FTSE to open 19 points higher at 6,830, Frankfurt's DAX

to open 33 points higher at 10,781 and Paris' CAC to open 16 points higher at 4,735.

Over in Asia, trade optimism helped prop up some shares with Japan's Nikkei last up 0.8

percent, although losses in China dragged MSCI (Frankfurt: 3HM.F - news) 's broadest index of Asia-Pacific shares outside

Japan down 0.2 percent.

(Danilo Masoni)

*****