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LIVE MARKETS-Brexit: No news is good news?

Thu, 16th May 2019 12:52

* European shares turn higher, up 0.4% * Nestle hits record high after entering exclusive talks to sell skin health biz * Ubisoft down 12% after results * Thyssenkrupp rises 6.4% on Reuters report Kone eyeing elevator business * Earnings: Generali, NN Group, Bouygues * Asian shares fall after U.S. blacklists Huawei May 16 - 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: BREXIT: NO NEWS IS GOOD NEWS? (1152 GMT) There has been virtually no progress on Brexit since the EU agreed to extend the deadline until Halloween, Goldman Sachs says in a report titled "Brexit: On Borrowed Time". Is no news good news? The silence has not excessively hurt UK stocks as focus turns to the U.S.-China trade war and as most in the market continue to believe a "no deal" Brexit will not happen. "We have taken the view that the longer Brexit is delayed, the greater the likelihood of a general election, the greater the likelihood of a second referendum, and the greater the prospect of 'no Brexit' at all," Goldman Sachs' Europe economist Adrian Paul says. He adds that a heavy Conservative Party defeat in next week's European elections "may well catalyse the departure of Prime Minister May." He keeps his probabilities of Brexit outcomes unchanged: 50% on a close variant of the current Withdrawal Agreement, 40% on "no Brexit" and 10% on no deal. Since the extension of the Brexit deadline the FTSE 100 has fallen 1.4%, although most of that is likely attributable to rising trade war threat. (see below) "Outflows (in UK equities) have been extreme," Credit Suisse points out, saying they believe UK equities offer 15% upside and that the region's depressed valuations offer an opportunity. (Thyagaraju Adinarayan) ***** HUAWEI BLACKLISTING HAS KNOCK-ON EFFECTS FOR CHIPMAKERS (1119 GMT) Trump's move to blacklist Huawei signals a deepening of the trade rift between the world's two biggest economies - and although European and U.S. shares seem to now be shrugging this off, intent on rising again, the consequences of this move are likely to be widespread. One area that's particularly sensitive is the suppliers, including chipmakers, and the whole ecosystem surrounding Huawei. "The rising trade tension makes the recovery in the semicap market more uncertain and may delay the ramp of 5G," write Bernstein analysts Mark Li, Zhen Gong and Edward Hou. "For suppliers, losses of Huawei may be mitigated by the gain of Huawei's rivals, but short-term setbacks are hard to avoid," they add. Among the suppliers TSMC is, according to them, the most exposed to Huawei with 11% of revenues. Bernstein says Huawei has been ordering more from suppliers in anticipation of such a risk and built up inventories of hardware components. But its dependence on software and services to keep its business running means it's still reliant on a global supply chain and may see a "notable disruption" without a supply from the U.S. Bernstein analysts say they remain optimistic, however, and believe a cyclical rebound in the semiconductor equipment market will happen. The reaction from European chipmakers has so far been muted, suggesting investors don't see as much of a direct impact - or perhaps that the specific impact on each company is so far unclear. Asian chipmakers have been underperforming recently, which could be linked to heightened trade risk: (Helen Reid) ***** CORBYN DISCOUNT? UK UTILITIES LAG EUROPEANS (1028 GMT) Utilities shares have been outperforming lately as they benefit from the defensive qualities (dividends/stable businesses) investors like in times of economic and political uncertainty, but if you geographically split the sector it turns out there's a growing gap that puts UK players at a disadvantage to their euro zone counterparts. One factor at play is concerns over nationalisation policies that Jeremy Corbyn's Labour party is pursuing amid the prospect of fresh elections in Brexit-split Britain. These concerns grew after Labour's shadow business and energy secretary leaked the plans late yesterday via Twitter, adding to worries hitting shares in National Grid today after results at the operator of Britain's energy systems also showed an 18% fall in its annual operating profit on costs related to storms in the U.S.. "These results from National Grid are released under the shadow of Labour’s threat to take the company into public ownership as the party releases its Bringing Energy Home policy document," says AJ Bell investment director Russ Mould. National Grid is leading UK utilities lower today, while euro zone utilities are slightly higher. And this divergence has been growing over the past few months as the Corbyn discount gradually grew. UK utilities are up only 1.2% year to date and euro zone ones have surged more than 10%. "This (talk of re-nationalisation) has gone from getting leaked to now being official. There is already a discount to some degree," says an equity analyst. "This adds to the risk of holding utilities. Some people will get spooked by this and the terms are very clear that Labour is not prepared to pay fair value," he adds. In this six-month chart you can see how euro zone utilities have left British peers behind. Earnings revisions for euro zone companies have also outperformed those of their British counterparts most of the time. (Danilo Masoni and Josephine Mason) ***** ROCKY RIDE FOR AUTOS (0849 GMT) After a big jump yesterday, autos stocks have come straight back down today, falling more than 1% and nearly back at their levels prior to Trump administration officials saying the president is expected to delay a decision on imported car tariffs. Why the rapidly fading enthusiasm? Here's one trader's take: "The decision to delay tariffs was just that. This does not mean tariffs will not be imposed. Trump tends to stick to what he says and unless there is a compromise nothing has changed other than the time frame." Car stocks have had a rocky ride over the past 12 months, as you can see below. A delay in tariffs, while an initial positive, may not lure many more into the widely shunned sector: (Helen Reid) ***** EUROPE SLUGGISH, NESTLE HITS RECORD, NOKIA JUMPS, EARNINGS IN FOCUS (0721 GMT) Following the exuberance seen yesterday on hopes Trump would delay auto tariffs, the U.S. blacklisting of Huawei is resulting in a sluggish open for European shares and the only beneficiaries of this latest twist from the hot Sino-U.S. front appear to be Huawei rivals Nokia and Ericsson, both rising - also helped by a solid update from Cisco Systems. The pan-European STOXX 600 index is down 0.15% percent in early trading and weakness is prevailing across European benchmarks. Nestle briefly hit a record high after it entered exclusive talks to sell its skin health business in a deal worth 10.2 billion Swiss francs but has later succumbed to the downward trend. Elsewhere earning updates and M&A are driving top movers. Ubisoft is down 10% after its update, while ThyssenKrupp is rallying 6% on a Reuters report that Kone is assessing the viability of a bid for its 14 billion-euro elevators division. Thomas Cook is tanking, down 15%, after the travel group said economic and political uncertainty would impact its profits this summer after it saw an increase in losses. Here's your opening snapshot: (Danilo Masoni) ***** WHAT'S ON OUR RADAR AT THE OPEN (0656 GMT) News that the Trump administration has hit Chinese telecoms giant Huawei with severe sanctions has weighed on Asian shares overnight and is set to drag European shares lower once again today, erasing part of the strong gains seen yesterday when trade-sensitive auto stocks drove the market higher on hopes Trump would delay auto tariffs by up to six month. Futures on main European benchmarks are down 0.1-0.3%. On the corporate front, investors will have to digest some fresh deal-making activity, namely from Swiss food giant Nestle which entered exclusive talks to sell its skin health business in a deal worth 10.2 billion Swiss francs, as well as some good-looking earnings updates from French conglomerate Bouygues and insurers NN Group and Generali. Nestle shares are seen edging up slightly towards 100 CHF after ending on Tuesday at a new record high, helped by investors seeking refuge into defensive stocks amid heightened trade and economic uncertainty. Eyes also on Ericsson and Nokia as both shares are indicated 1-2% higher at the open after the U.S. blacklisted rival Huawei, and following a solid report from Cisco Systems, which posted better-than-expected quarterly earnings and gave an upbeat sales forecast, pushing its shares higher on Wall Street and prompting a few price target upgrades. Banks will stay in focus ahead of an extraordinary meeting of Commerzbank supervisory board on May 21 amid ongoing talk of takeover interest from ING Groep and UniCredit, which meanwhile it said Italian banks could come to the rescue of Carige to safeguard financial stability after BlackRock dropped a planned bid for the struggling regional lender. ThyssenKrupp will be another one to watch, up more than 2 percent premarket. Reuters reported that Finland's Kone is assessing the viability of a bid for Thyssenkrupp's 14 billion-euro elevators division even as the German conglomerate pursues plans to list it. Shares in Thomas Cook are seen falling up to 15 percent after the travel group said economic and political uncertainty would impact its profits this summer after it saw an increase in losses. It also said it had received multiple bids for its airline unit after it was put up for sale. Among top gainers could be Norsk Hydro. Its shares are seen rising 4-10% after a Brazilian court has lifted one of two production embargoes on a key plant owned by Norwegian metals maker. Other possible stock-moving headlines: National Grid full-year profit slumps on storm costs; Spun-off Alcon gives first full-year guidance as it posts flat sales; Burberry treads water as awaits new ranges filter into stores; Societe Generale to restart banking operations in Australia; Roche: FDA approves drug combo Venclexta plus Gazyva; French group Arkema to buy U.S.-based ArrMaz in deal worth $570 mln; Wienerberger confirms outlook as it swings back to net profit; Wienerberger confirms outlook as it swings back to net profit (Danilo Masoni) ***** FUTURES FALL, EYES ON NESTLE, THYSSENKRUPP, EARNINGS (0614 GMT) Besides news from the hot Sino-U.S. front (the U.S. sanctions against Huawei), which are set to weigh on the European open today, there is some dealmaking activity and more earnings updates that could keep investors busy this morning. Futures on main European country benchmarks are down between 0.1% and 0.3%. Nestle is on the watchlist after the Swiss food giant said it entered exclusive negotiations to sell its skin health business to a private equity-led consortium in a deal worth 10.2 billion Swiss francs. Still in M&A, Reuters reported that Finland's Kone is assessing the viability of a bid for Thyssenkrupp's 14 billion-euro elevators division even as the German conglomerate pursues plans to list it. Among the early morning earnings to digest we have those from insurers Generali and NN Group, which both beat profit estimates, while French group Bouygues keept its goals after better-than-expected first quarter results. Overseas we had good looking updates from Cisco, which reported better-than-expected quarterly earnings and gave an upbeat sales forecast, while Chinese e-commerce giant Alibaba beat fourth-quarter revenue forecasts, helped by diversification into cloud computing. Tencent Holdings posted a record quarterly profit. Back to Europe, sources said that Commerzbank plans to hold an extraordinary meeting of its supervisory board on May 21 to discuss strategy, while the organisation that defends shareholder interests in the Netherlands called on ING Groep to clarify whether it is interested in acquiring its German rival. ING as well as Italy's UniCredit are seen as possibly interested in a tie-up with Commerzbank. Here are other possible stock-moving headlines: French group Bouygues keeps goals as Q1 operating loss narrows Generali Q1 profit beats forecast, rule changes weigh on capital Insurer NN Group Q1 core profit surges 50%, beats estimates Sunrise boosts FY profit guidance after Q1 profit growth Ubisoft's fourth quarter misses company's expectations Euronext's first-quarter core profit drops as costs bite Spun-off Alcon gives first full-year guidance as it posts flat sales U.S. tariffs against Airbus would harm Delta - airline official Britain's NSF presses on with $1.7 bln Provident hostile bid Telecom Italia and Vodafone to sign deal to merge towers in Italy by summer end UniCredit chairman does not rule out industry rescue of Carige (Danilo Masoni) ***** EUROPEAN SHARES SEEN DOWN AGAIN AS US BLACKLISTS HUAWEI (0526 GM) European shares are expected to open lower this morning after the U.S. administration hit Chinese telecoms giant Huawei with severe sanctions, risking add more stress to the difficult trade talks between the world's two largest economies. In the previous session European stocks surged after U.S. officials said President Donald Trump was expected to delay auto tariffs by up to six months. Financial spreadbetters at IG expect London's FTSE to open 32 points lower at 7,265, Frankfurt's DAX to open 56 points lower at 12,043, and Paris' CAC to open 18 points higher at 5,360, after Asian shares fell overnight following the U.S. blacklisting of Huawei. "While the suspension of auto tariffs is welcome it certainly doesn't mean that President Trump can’t create ripples in other ways, and this is reflected in the more mixed reaction amongst Asia markets. This in turn is expected to translate into a lower European open later this morning," says Michael Hewson, Chief Market Analyst at CMC Markets. (Danilo Masoni) *****

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