LIVE MARKETS-Where to weather the next storm
* European rebound from 1-week low
* Miners and banks lead sectoral gainers
* Euronext (Euronext: ENX.LS - news) raises bid for Oslo Bors
* Smith & Nephew (Frankfurt: 502816 - news) drops on talk of U.S. deal
* China shares rise
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
WHERE TO WEATHER THE NEXT STORM (1325 GMT)
Investors have piled into emerging markets since the start of the year - the most recent
BAML data released on Friday showed record volumes of cash went into EM equities.
The MSCI EM index index rose 8.7 percent in January, its best monthly performance since
March 2016 and earlier this month hit its highest since early September.
But Capital Economics' market economist Simona Gambarini doesn't reckon that this will last
as investors fretting about the slowing global economy will sell out again this year. She (Munich: SOQ.MU - news)
expects the index to end the year significantly below its current levels.
So where do you go if you're looking for a place to weather another equities storm?
Gambarini reckons within the realm of defensives, healthcare and consumer staples are your best
bet.
In the past 15 episodes since 1997 when the MSCI EM index has fallen more than 10 percent,
those two were the only two sectors whose performance was not as bad as that of the overall
market.
And those with a higher proportion of equities in those sectors - Mexico, Malaysia, Thailand
- are your best bet.
Here's a look at the exposure to consumer staples and healthcare by country and the
performance by sector since the past 15 major routs:
(Josephine Mason)
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IS ONE EUROPEAN'S PAY RISE ANOTHER'S EARNINGS CUT? (1304 GMT)
A lot behind last February's panic was due to wages rising faster than anticipated and
analysts scrambling to reassess equity risk premia in a volatility spike that was quite messy
business.
Headlines at the time were all about how Wall Street hated Main Street's pay rise.
While no one seriously expects inflation to spike anytime soon in Europe, there could be
still be similar headlines soon if wages, which are strongly on the rise, start to dent
corporate profits.
According to UBS (LSE: 0QNR.L - news) , we're not quite there yet even if a squeeze on margins is a key theme for
2019 with the growing gap between revenue beats and earnings misses.
"We expect European companies to deliver sufficient top-line growth to weather the higher
input costs," they write.
"If we take the 2019 forecast nominal GDP growth by region and weight it by the geographic
sales exposure of European companies, then this points to c.5% growth – well above Europe's c.
2¼% wage growth".
Here's their chart showing how revenues beats don't translate in earnings beats:
(Julien Ponthus)
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EUROPE VS WALL STREET: IT'S ALL ABOUT EARNINGS, BANKS AND ITALY (1109 GMT)
JP Morgan is among the few with a positive view on stocks and even though it expects all
regions to take part in the rebound this year, it says Wall Street looks set to leave European
equities behind once again.
Why? It's mostly about earnings delivery, but also about banks and Italy's worrisome
political outlook.
"US growth is likely to be slower in 2019 compared to the stimulus assisted 2018, but US
activity and topline is still expected to beat Europe handily. Buybacks are likely to remain
robust in the US, and significantly above Europe," strategists led by Mislav Matejka say.
Then they add: "Eurozone doesn't usually outperform the US unless Eurozone Banks are in the
lead, and importantly, unless Eurozone Banks beat both the US Banks and Tech. We do not expect
the sector switch anytime soon," they say.
So what could make them turn more upbeat? Here is where they add Italy in the mix.
"Some evidence that Eurozone activity can beat global, and if Eurozone Banks can start
leading. The potential new Italian elections in 2H of the year might end up being a catalyst to
turn more positive on the region," they say.
(Danilo Masoni)
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UK GDP CONTRACTION: BIG NEWS, SMALL MOVE? (1050 GMT)
Looking at the FTSE 250, which is a better barometer of the UK economy than its blue chip
cousin, you wouldn't guess that we've just been served with a GDP shocker this morning.
The British economy actually contracted in December, the biggest fall since March 2016 and
the FTSE 250 is unimpressed, steadily rising 0.6 percent.
Sure, the overall data (Q4 growth at its weakest in six years) was expected but doesn't the
lack of a stronger reaction somewhat echo the indifference or even the complacency that recently
followed GDP contractions in Germany or Italy?
Anyhow, British blue chips are also a tad higher but they're getting a little help from a
slight fall in the pound.
Brexit, is of course the designated culprit for the poor data, and the poor visibility on
that front isn't helping.
"The UK economy is clearly being hampered by Brexit uncertainty, although some Brexiteers
may point to slowing activity in our major trading partners as the explanatory factor, said
Helal Miah, investment research analyst at The Share Centre.
"However, we feel that assurances over the political environment is needed sooner rather
than later for businesses to release pent up investment funds, but the next few weeks/months
will probably continue to see the malaise lead to reduced economic activity", he added.
Here's another quote from UBS WM chief economist prior to the data release which puts things
into perspective:
"Overall consumers are resilient in the face of political nonsense, by taking the sensible
approach of not caring. Companies are, however, inclined to delay investment", Paul Donovan
wrote.
Here's the stiff upper lip FTSE 250 this morning:
(Julien Ponthus)
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OPENING SNAPSHOT: RECOVERY MODE (0834 GMT)
European shares are higher this morning, with the STOXX 600 up 0.5 percent, in a tentative
recovery from Friday's sell-off. Dealmaking in everything from healthcare, food delivery
services and telecoms have dominated the headlines.
Investors are shunning Smith & Nephew, with the shares down 3 percent (if they keep this up,
it'll be their worst day since October), after the FT reported the company is in talks to buy
U.S. medical equipment maker NuVasive (Frankfurt: A0CAYR - news) in a deal that would be worth more than $3 billion.
On the FTSE small caps, KCOM (LSE: KCOM.L - news) is up 12 percent after a report Virgin Media is mulling a
takeover bid, while Just Eat (Frankfurt: A1100K - news) is up 1.8 percent after shareholder CatRock called for the company
to hold merger discussions.
Italian banks are among the top gainers with Banco BPM up 3.7 percent, BPER Banca up 3.5
percent and UBI Banca (Amsterdam: UF8.AS - news) up 2.9 percent. Banco BPM and UBI (Taiwan OTC: 6562.TWO - news) disclosed this morning the capital
requirements set by the ECB.
Here's your snapshot:
(Josephine Mason)
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WHAT WE'RE WATCHING BEFORE THE OPEN (0756 GMT)
European shares are expected to open slightly higher, recovering from one-week lows hit on
Friday, supported by some M&A activity and as a new round of trade talks begins today in China.
Futures on main euro-zone benchmarks were trading up around 0.5 percent, while FTSE futures
were also rising ahead of data on preliminary Q4 GDP, business investment and industrial
production later this morning.
On the corporate front, there are some dealmaking headlines that could liven up the session:
Euronext has raised its offer for Oslo Bors, intensifying a bid battle with Nasdaq (Frankfurt: 813516 - news) for the
Norwegian stock market operator, while in the UK, Just Eat shareholder Cat Rock has urged the
takeaway ordering website to start merger discussions. In premarket trading Oslo Bors is up 2
percent, while Just Eat is gaining 1-2 percent.
London-listed miners such as Rio and BHP are also rising 1-2 percent on the back of a surge
in Chinese iron ore prices, while Italian banks could also be in focus as they disclose capital
requirements levels set by the ECB.
Here are some more headlines:
MEDIA-Iceland Foods weighs moves for Sainsbury (Amsterdam: SJ6.AS - news) 's, Asda stores - FT
Smiths News seals new Daily Mirror contract
Fastjet Says Application Made For Admission On AIM For 9 New Shrs Of 1P Each In Co
Goldman Sachs (NYSE: GS-PB - news) has sounded out Panalpina investors about what price they would be prepared to
accept to tender shares - FuW Praktikus column
Acacia Mining (Frankfurt: 33A.F - news) sees 2019 production of 500,000-550,000 ounces
Germany is set to grant Deutsche Post (IOB: 0H3Q.IL - news) a higher-than-expected increase in postage for letters
from the summer - FAZ
(Danilo Masoni)
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EARLY MORNING HEADLINES ROUNDUP: DEALMAKING IN FOCUS (0648 GMT)
Turning to the corporate front, it looks there are some dealmaking headlines that could draw
investors' attention this morning.
Euronext has raised its offer for Oslo Bors, intensifying a bid battle with Nasdaq for the
Norwegian stock market operator, while in the UK, Just Eat shareholder Cat Rock has urged the
takeaway ordering website to start merger discussions, while - according to the FT - Smith &
Nephew has held talks to buy U.S. medical equipment maker NuVasive.
Here's your early morning headlines roundup:
Euronext hikes bid for Norway's Oslo Bors
Just Eat shareholder Cat Rock calls for merger talks
Smith & Nephew in talks to buy NuVasive for over $3 bln - FT
Sports Direct drops Patisserie Valerie offer - FT
Chairman of Imperial Brands (LSE: IMB.L - news) to quit amid board reform - The Times
Democrat Schiff questions if Mueller probing Trump-Deutsche Bank (IOB: 0H7D.IL - news) link
Credit Suisse (IOB: 0QP5.IL - news) investment bank won't shrink more - chairman
U.S. hedge fund Hound Partners discloses 5 pct stake in UK's Metro Bank (Frankfurt: 6MB.F - news)
Ryanair CEO's new share option scheme targets doubling profit in 5 years
Leonteq CEO sticks to operating income goal - FuW
UBS CEO Ermotti could switch to supervisory board -SonntagsZeitung
(Danilo Masoni)
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EUROPEAN SHARES SEEN EDGING HIGHER (0618 GMT)
Stocks in Europe are expected to open slightly higher today, recovering part of the heavy
losses suffered last week which sent the pan-regional STOXX 600 benchmark index
tumbling to 1-week lows.
Financial spreadbetters at IG (Frankfurt: A0EARV - news) expect London's FTSE to open 29 points higher at 7,100,
Frankfurt's DAX to open 35 points higher at 10,941 and Paris' CAC to open 18 points higher at
4,980.
Over in Asia, Chinese stocks rose after they resumed trading following a week-long Lunar New
Year holiday, as U.S. and Chinese trade negotiators geared up for a fresh round of discussions
this week.
(Danilo Masoni)
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