LIVE MARKETS-Stock picks for a world of higher bond yields
LONDON, Feb 28 (Reuters) - Welcome to the home for real-time coverage of European equity
markets brought to you by Reuters stocks reporters and anchored today by Julien Ponthus. Reach
him on Messenger to share your thoughts on market moves:
julien.ponthus.thomsonreuters.com@reuters.net
STOCK PICKS FOR A WORLD OF HIGHER BOND YIELDS (1202 GMT)
As markets are now pricing in the possibility of four rate hikes in the U.S., Deutsche Bank (IOB: 0H7D.IL - news)
just published a timely note about what higher yields mean for stock markets and how to go
beyond the current "bond yields up, stocks down" play.
Companies which are capital intensive and need to borrow a lot in the short term could suffer
but obviously, those facing a debt wall with piles of debt to pay off or refinance are set for a
rough ride.
Here's DB's list:
One other point, which was also highlighted in a Citi note we mentioned earlier on, is that
financial stocks are highly correlated with bond yields. DB finds that "European banks, in
particular, are undervalued given the steeper forward yield curve and low deposit beta in
Europe."
Here's their stocks list and as you can see, they are a few bond proxies on the other side
of that trade. Caution is particularly advised against groups which have financed generous
dividends through debt rather then earnings redistribution.
(Julien Ponthus)
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BRACE FOR "ABOVE AVERAGE" ITALY STOCKS VOLATILITY AFTER VOTE (1131 GMT)
While government bonds may be somewhat pricing in an uncertain outcome for Italy's general
election, the picture looks quite different when you look at the FTSE MIB: Italy's top
share index has left the STOXX 600 behind year to date with a 3.8 percent surge, mainly driven
by gains among bank and autos.
That could make Italian stocks vulnerable to a spike in volatility when markets open on
Monday, potentially creating some extra trading opportunities.
"Most election outcomes should have a limited impact on Italian equities, although they may
lead to some temporary, above average market volatility," UBS WM strategists say.
According to UBS WM, who are neutral on Italy, MSCI Italy is trading at a 12-month-forward
PE ratio of around 13 times, which is two points above its 10-year average but below the MSCI
EMU P/E of 14.5 times. This 10 percent discount is broadly in line with the 10-year average.
(Danilo Masoni)
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BANKS IN "POLE POSITION" FOR DIVIDEND DELIVERY (1040 GMT)
One day after the market read Fed's Powell's remarks as hawkish, banks in Europe are
understandably doing quite well compared to the broader market's weakness.
On top of that there is an upbeat note from Citi analysts, who highlight the sector's
dividend potential, reiterating their overweigh stance.
"Banks sector remains a stand out... and (is)... in pole position for dividends," they
write. They estimate a Compound annual growth rate for European banks of more than 10 percent in
2017-2019.
Here are their top picks that should benefit from the tailwind of higher rates and strong
PMI (Purchasing Managers Index): Credit Suisse (IOB: 0QP5.IL - news) , KBC Groep, Societe Generale (Swiss: 519928.SW - news)
, Standard Chartered (BSE: 580001.BO - news) .
Europe's banks are up 1.7 percent year to date, while the STOXX is down 2
percent.
(Danilo Masoni)
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OPENING SNAPSHOT: EARNINGS FAIL TO SHAKE WALL STREET GLOOM (0812 GMT)
Most bourses and sectors have opened in negative territory in Europe and it seems the fresh
new batch of corporate results has not changed the negative mood set in Wall Street with fears
of U.S. rates rising faster than expected.
Here's your opening snapshot:
(Julien Ponthus)
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ON THE RADAR: EARNINGS, LOTS OF THEM! (0752 GMT)
As we said earlier, pushing aside fears that U.S. rates could rise faster than expected,
there is plenty of news to animate the trading session in Europe. Plus, as data showed
yesterday, there isn't currently much of a case for the ECB to accelerate its path to monetary
normalisation.
Anyhow, here are a few stories which could move shares this morning:
Among the blue-chips there is Bayer (IOB: 0P6S.IL - news) with Q4 profit edging lower, Solvay (LSE: 0NZR.L - news) which
sees a slowing of profit growth in 2018 and EFG International (IOB: 0QJX.IL - news) reporting a worse
than expected 2017 loss.
From the Benelux, Bekaert (EUREX: 11962877.EX - news) reports a flat 2018 and supermarket retailer Ahold
confirms Q4 sales.
In the banking sector, Erste Group reported 2017 profits boosted by the economic upswing in
eastern Europe.
Another possible mover is Safran (LSE: 0IU8.L - news) , which according to Reuters sources, is close to an Indian
combat jet engine deal.
On the M&A front, AstraZeneca (NYSE: AZN - news) will spin off its autoimmune drugs into a new biotech company
and Comcast (Swiss: CMCSA.SW - news) 's $31 bln Sky (Frankfurt: 893517 - news) bid is still making front page news.
For more headlines check out:
(Julien Ponthus)
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NOT SO FAST! A CASE FOR CAUTION ON U.S. RATES (0725 GMT)
While some traders are now betting that the Fed will squeeze in a fourth rate hike this
year, will these expectations really sink in and become the new consensus?
According to CMC Markets (LSE: CMCX.L - news) ' Michael Hewson, there is a case for caution here as the American
economy may not be rising as fast as it currently seems.
"There is an argument that we could be heading for further softness, which might cast doubt
on U.S. rate expectations this year, if sustained", he argues, noting recent "economic data
suggests that the US economy could well be heading for a bit of a soft patch".
An answer might be given this afternoon with U.S. GDP data (1330 GMT).
(Julien Ponthus)
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EUROPEAN STOCKS FUTURES OPEN LOWER (0703 GMT)
Down it is, but nothing dramatic as the worst losses at the moment (that's the FTSE and
IBEX) are limited to 0.5 percent:
(Julien Ponthus)
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MORNING CALL: EUROPE SEEN OPENING LOWER AFTER POWELL SPOOKS WALL STREET (0625 GMT)
Good morning from snowy London!
European shares are expected to open lower, following the trend set by U.S. stocks, which
suffered their biggest daily drops since the early February selloff after Fed Chairman Jerome
Powell revived (not necessarily willingly) fears about fast rising interest-rates.
In Asia, shares extended losses and bonds were sold off as weak factory data from China
revived worries about global economic growth.
In Europe, there will be plenty of companies reporting annual results this morning to
animate the session.
Financial spreadbetters expect London's FTSE to open 53 points lower, Frankfurt's DAX to
open down 82 points and Paris' CAC to lose 35 points.
(Julien Ponthus)
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(Reporting by Kit Rees)