Email Facebook Twitter

London South East Natural Resources Briefing webcast: #Emmerson #Alba #Condor Gold #Gold analysis
Angus Energy in talks to buy 'transformational' gas asset in North England

Finance & Stock Market News

LIVE MARKETS-Closing snapshot: Italian stocks avoid worst day of 2018

Wed, 16th May 2018 16:50

* European stocks end higher * Italian shares, banks sink on draft 5Star-League agenda * But Saipem rallies after upgrade May 16 (Reuters) - 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: CLOSING SNAPSHOT: ITALIAN STOCKS AVOID WORST DAY OF 2018 (1547 GMT) It was close, but it wasn't quite the worst day for Italian equities this year. They recorded their biggest drop since the beginning of March, as investors continue to watch developments in Italian politics. But overall, European equities ended the session in positive territory, supported by gains among materials stocks. Here's your closing snapshot: (Kit Rees) ***** ITALY: BRACE YOURSELVES FOR VOLATILITY AHEAD (1540 GMT) Going forward, UBS analysts say that we could see higher volatility due to the growing uncertainty around Italy's political situation. They add that, as the strong performance of Italy's FTSE MIB benchmark has been driven by heavyweight oil major Eni as well as improvements around Italian banks' NPLs, it could be vulnerable to potential profit-taking if investor sentiment starts to crumble. That's exactly what's happening today with Milan's FTMIB down 1.8 percent as we speak and spiking yields on Italy's sovereign debt. UBS says that, since the Italian election, the market had assumed that both 5-Star and the League had moved towards more mainstream outcomes regarding Italy and the euro. "Any incremental element questioning investors' assumption is likely to have a negative market impact," say UBS, though they add that they haven't reviewed their strategic stance until they get "further visibility on the political end-game". Even though the VSTOXX has risen slightly today to a one-week high, volatility remains subdued in Europe. At least for now. (Kit Rees) ***** WHY HAD THE MARKET NOT PRICED IN ITALIAN POLITICAL RISK? (1409 GMT) One dominant theme of the market's reaction to Italy today has been the sudden rethinking of an overwhelmingly calm attitude to Italian political risk. "Amazing that no one cared about Italy until they did," says a trader. Bond yields have surged and stocks sunk as investors rapidly repriced risk, but the question remains: why was this not foreseen? Chris Hiorns, manager of the Amity European fund at EdenTree, reckons investors were too busy being worried about other risks. "I often think that political risk is over-priced into the market, but this time it hadn't really been priced in at all," he says. He sold out of Italian interest-rate sensitive stocks like utilities in January, because he felt they were more risky than the market thought. "You have to question why the Italian market was doing quite so well when the political situation seemed so tenuous," says Hiorns. Italian stocks have been among the best-performing not just in Europe, but worldwide, this year. As investors reawaken to the risk, how will the situation develop going forward? "I think there's significant scope for the Italian bond market spreads to go up, and this will be reflected in the equity market," he says, adding he thinks people will start allocating out of Italy. (Helen Reid) ***** HEAR THOSE ALARM BELLS? THEY'RE RINGING IN ASIA (1306 GMT) "The next bank/financial crisis is most likely to emanate in the China mainland, Hong Kong or other emerging countries in Asia that face serious corporate- and household-sector debt problems," writes Takahide Kiuchi, an economist at the Nomura Research Institute. Kiuchi makes this assessment based on the Bank for International Settlements' (BIS) Early Warning Indicators (EWIs) of banking crises published in its Quarterly Review last March. "Both China and Hong Kong have conspicuously high red (danger) zone readings for the credit-to-GDP ratio and the debt service ratio," he notes. "Except for Canada, the countries/regions with two EWIs in the red (danger) are all emerging countries, specifically China, Hong Kong, and Russia," he points out. This would sure constitute a change from the Great Financial Crisis of 2007 which found its roots in U.S. suburbia, through subprime mortgages. But as was the case back then, what matters really is not where the meltdown comes from but where it spreads. "The impact of a banking or financial crisis that starts in this part of the world (Asia) will most likely extend to the banking systems in more advanced countries, including Japan", Kiuchi believes. Here's a link to the BIS' quaterly review: And because the great financial crisis is 10 years old and Karl Marx would have been 200 years old on May 5, here's a link to a column written by Reuters veteran Bernd Debusmann on Oct 15 2008: Final bonus, his story's "told you so" illustration: (Julien Ponthus) ***** SHORT ITALY, LONG SAIPEM? (1219 GMT) The time has come for investors in energy stocks to consider a portfolio tweak as it looks like momentum for big integrated players may be fading somewhat, while smaller companies like oil services offer a more rewarding upside. The surge in Milan-listed Saipem today, following an upgrade from Bernstein, is symptomatic of the turnaround in sentiment surrounding the sector which was hit hard during times of falling crude prices that prompted the shutdown of loss-making developments. Saipem's 9 percent rally to the top of the STOXX is even more meaningful if you consider that Italian assets are under heavy pressure on worries that spending plans by the Five Star and the League parties, which are ironing out a deal to form a government after inconclusive elections in March, could put the country on a collision course with Brussels. Morgan Stanley is also strongly recommending oil services firms, mentioning Saipem among its buy-rated stocks. "We now prefer Oil Services over Big Oil for exposure to combined oil price strength and growth in end markets. Multiple expansion and earnings upgrades may drive a return to 'Dreamland', like past cycles. Buy: Tenaris, TechnipFMC, PGS, Hunting , Saipem, CGG and Vallourec," they say. In this chart you can see how Saipem shares have rallied ahead of the FTSE MIB over the last month. Saipem was last up 9 percent while the Italian benchmark is down 2.5 percent, set for its worst day since Jan 2017. (Danilo Masoni) ***** UK-U.S. M&A POWERS TO 19-YEAR YTD HIGH (1157 GMT) Deal-making has been a big focus among UK stocks especially, and ahead of the British royal nuptials this weekend our Deals Intelligence team finds a lot of trans-Atlantic romance between companies, too. Total M&A activity between the UK and the U.S. so far this year has reached a 19-year year-to-date high of $89.6 billion. So far this year there has been a total of 215 deals between UK and U.S. companies, and more than 60 percent of these have involved a UK target and a U.S. acquirer, perhaps unsurprisingly given the still-weak pound. (Kit Rees) ***** MIDDAY SNAPSHOT: EUROPE HEADS HIGHER WHILE ITALIAN STOCKS SLIDE (1137 GMT) Halfway through the session and European stocks are heading higher, thanks to a weaker euro which is down on the back of worries over Italian debt as well as the dollar hitting a fresh 2018 high. Italian stocks continue to struggle, now down at a two-week low and set for their biggest one-day slide since the beginning of March. Over in the U.S., stock futures are just slightly higher as the yield on the U.S. 10-year Treasury holds above 3 percent. Here's your snapshot of European indexes: (Kit Rees) ***** WHO NEEDS THE S&P'S DIVIDEND YIELD NOW? (1128 GMT) Due to reignited inflation fears, investing in risk-free U.S. three-month treasury bills now yields 1.9 percent, roughly the same as the average dividend yield of the S&P 500. Conclusion? "An investor looking for yield is therefore no longer obliged to invest on the stock market," argues Stéphane Déo, a strategist for France's LBPAM. Déo adds that the premium paid for some bond-proxies are "abnormally expensive" and that this should end as bond yields rise. That said European investors still seem to have quite some time ahead of them with the spread between U.S. and German 2-year bond yields at its widest in 29 years: Mind you, it seems that Italian politicians have found a way to make their country's sovereign debt more exciting. Italian government bond yields are on track for their biggest daily jump since July 2017. (Julien Ponthus, Helen Reid and Dhara Ranasinghe) ***** THE S&P IS LIKELY TO DIP ON MAY 31, OR SO GOES THIS THEORY (1013 GMT) There is a trend whereby whenever big chunks of bonds held by the Federal Reserve hit their maturity date, the S&P 500 is likely to decline, writes The Macro Tourist, a newsletter from East West Investment Management. "The days when the Federal Reserve has a large bond maturity have seen abnormally large declines in the S&P 500," the note goes, pointing out that about 26 billion dollars of bonds were maturing yesterday. The S&P did end the day 0.68 percent down. According to our report however, that fall was largely attributed to reignited inflation fears, rising U.S. government bond yields and concerns about looming trade talks between the United States and China. The Macro Tourist also points to a Twitter account which takes the view that there's a clear correlation between maturity dates and the S&P's performance. Looking ahead, The Macro Tourist warns that "the next big maturity day is May 31st" with about 29 billion dollars. Here's a chart below where you can see the correlation doesn't work each time, for instance on Jan 31. Here's a link to The Macro Tourist blog: (Julien Ponthus) ***** OPENING SNAPSHOT: Italy hit by debt report, Elior and Crest Nicholson tumble Italian stocks are by far the laggards this morning, tumbling 0.9 percent while the pan-European index manages a 0.2 percent gain. The report that 5-Star and League want the ECB to forgive debt is weighing on the market, with bank stocks suffering 0.9 percent falls. In results Elior is, as expected, a big faller, down 15 percent and bottom of the STOXX 600 after its profit warning. The stock hit its lowest level since January 2015. On the other hand Micro Focus is enjoying 9 percent gains after it signed a new $40 million contract earlier than expected, saying it would help bolster first-half revenue. French rail transport equipment maker Alstom jumped to its highest since July 2011 after reporting strong annual sales and profits. And in the UK some dismal performances in the mid-cap market: Crest Nicholson is sinking 12.4 percent, hitting its lowest level in 18 months, and on course for its worst losses since the Brexit vote after cutting its margin forecast for the year, saying higher construction prices were putting pressure on homebuilding. Pub operator Mitchells & Butlers is falling 8 percent after it also cited rising costs as a reason for its profit dipping. (Helen Reid) ***** WHAT'S ON OUR RADAR FOR THE EUROPEAN OPEN (0651 GMT) European shares are set to open without clear direction as geopolitics continue to dominate headlines and rising U.S. treasury yields keep the euro hovering around five-month lows against the dollar, providing some support. Futures on the DAX, CAC, FTSE were trading between a gain of 0.1 percent and a fall of 0.2 percent. A U.S. threat overnight to impose sanctions against the EU after the WTO ruled that Airbus received illegal government funding could further hit Airbus shares and spark fresh jitters over trade wars. Airbus shares, which hit a record high earlier this month as investors continued to buy into European aerodefence stocks, fell 0.9 percent on Tuesday following the WTO ruling. Earnings updates will continue to drive single stock moves. Elior is seen down 7-10 percent after Europe's third-largest catering group cut full-year guidance after posting lower-than-expected preliminary results. Italian stocks could be under fresh pressure after government bond yields jumped following reports that the 5-Star Movement and League plan to ask the ECB to forgive 250 billion euros of Italian debt, according to a draft of a coalition programme the parties are working on. Other stock movers: French group Alstom posts higher annual sales and profits; Paddy Power Betfair says in discussions to buy Fanduel; Micro Focus says early $40 mln contract to help H1 revenues; Burberry beats forecasts as market awaits new Tisci designs (Danilo Masoni) ***** EUROPEAN STOCK FUTURES DIP ON GEOPOLITICS, YIELDS (0629 GMT) European stock futures have opened lower as geopolitical risk rears its ugly head again with North Korea suspending peace talks with Seoul, and investors fret over a rapid rise in U.S. bond yields. UK results coming through include Burberry and Micro Focus: Burberry beats forecasts with 2 pct rise in full-year profit Micro Focus says early $40 mln contract will help H1 revenues National Express says on track to meet FY profit targets PTSB pulls 0.9 bln euros of split mortgages from loan sale Brewin Dolphin H1 pretax profit up 20.1 pct to 34.1 mln stg Pub firm Mitchells & Butlers profit dips on rising costs And some more headlines from companies on the continent, with French catering group Elior not looking too good: French Elior cuts FY guidance on tough competition Orange official calls Ivory Coast telecoms fire act of 'sabotage' (Helen Reid) ***** EARLY MORNING HEADLINE ROUNDUP (0547 GMT) U.S. threatens sanctions as WTO raps Airbus subsidies France says will respect WTO decision on Airbus aid French group Alstom posts higher annual sales and profits BMW targets group pre-tax margins of more than 10 pct Geox gives cautious revenue outlook amid store revamp Italy's Mediaset Q1 net profits down 75 percent year-on-year Fnac Darty, MediaMarktSaturn in purchasing alliance Novartis top lawyer exits over payment to Trump lawyer Credit Suisse commits $250 mln to Israeli healthcare fund MEDIA-Paddy Power Betfair close to acquiring fantasy sports site FanDuel ISS recommends not to back call for special auditor at Uniper And here are some market headlines: > Asian shares fall as N. Korea suspends talks, U.S. yields climb > Wall St drops as Treasury yields surge > Nikkei falls as US yield spike, North Korea worries weigh > Retail sales gain add fuel to U.S. bond selloff > Dollar near 5-mth peak after benchmark Treasury yield vaults above 3 pct > Gold prices edge up on short-covering > Copper struggles as dollar hovers near five-month peak > Oil dips on signs of ample supply despite OPEC cuts, Iran sanctions (Danilo Masoni) ***** MORNING CALL: EUROPEAN SHARES SEEN FLAT TO HIGHER (0521 GMT) European shares are set for a mildly positive start today with financial spreadbetters expecting London's FTSE to open 8 points higher at 7,731, while Frankfurt's DAX is seen up 27 points at 12,997 and Paris' CAC 1 point higher at 5,554. Over in Asia, stocks dipped after Pyongyang abruptly called off talks with Seoul, throwing a U.S.-North Korean summit into doubt, while surging bond yields revived worries about faster U.S. interest rate hikes that could curb global demand. (Danilo Masoni) *****

(c) Copyright Thomson Reuters 2018. Click For Restrictions -

Related Shares:

Back to Finance News

Share Price, Share Chat, Stock Market news at
FREE Member Services
- Setup a personalised Watchlist and Virtual Portfolio.
- Gain access to LIVE real-time Regulatory News (RNS).
- View more Trades, Directors' Deals, and Broker Ratings.
Share Price, Share Chat, Stock Market news at

Datafeed and UK data supplied by NBTrader and Digital Look. While London South East do their best to maintain the high quality of the information displayed on this site,
we cannot be held responsible for any loss due to incorrect information found here. All information is provided free of charge, 'as-is', and you use it at your own risk.
The contents of all 'Chat' messages should not be construed as advice and represent the opinions of the authors, not those of London South East Limited, or its affiliates.
London South East does not authorise or approve this content, and reserves the right to remove items at its discretion.