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UK Money News

LIVE MARKETS-Canary in the U.S. earnings mine

Fri, 15th Mar 2019 12:24

* STOXX 600 jumps 0.6 percent percent

* Tech stocks among top gainers

* London blue chips outperform after Brexit vote

* Investors pin hopes on U.S.-China trade talks Welcome to the home for real-time coverage of European equity markets brought to you by Reuters stocks reporters and anchored today by Josephine Mason. Reach her on Messenger to share your thoughts on market moves: josephine.mason.thomsonreuters.com@reuters.net


While investors shovel money with enthusiasm at U.S. stocks, profit margins are painting a different picture. Analysing profit margins derived from national economic accounts (NIPA), U.S. corporate margins don't look as strong once favourable tax treatments and economic cycles are accounted for, according to Blackrock Investment Institute strategists.

They say that a global earnings recession is very likely in 2019 as U.S. corporate margins have likely peaked. Earnings are a key driver for equity returns over the long term.

Data from U.S. national accounts is a better indicator as profit margins tend to lead benchmark stock index margins, such as those of the S&P 500 and turning points in NIPA margins precede those of the S&P by an average three quarters.

(Saikat Chatterjee)



Should one be active or passive? A new report suggests passive investing, on a roll in recent years, will overtake its older, better-established cousin in the United States by 2021.

The report, by Moody's, says its data showed record outflows from U.S. active funds last year: active investment strategies' share of the total declined to 63.3 percent, from 75 percent in 2013.

The share of passive investment on the other hand has risen steadily and is set to exceed 50 percent by 2021, Moody's projects, versus an estimated 36.7 percent last year.

The boom is global. Fundamentally, it's driven by the belief that index-tracking vehicles such as ETFs are more efficient at channelling corporate earnings into investors' pockets as they cut out hefty fees and commissions to fund managers and traders.

But there are other drivers too. For one, there is growing concentration in the active industry as more money migrates to a small pool of superior managers. Second, there's a trend towards even lower-fee passive products -- Fidelity, for instance, has launched a suite of zero-fee ETFs, Moody's notes.

Passive is gaining ground in Europe too: passive funds' assets will rise to 25 percent by 2025, from 14.5 percent at end-2018, Moody's predicts.

Here, the EU's MiFID 2 rules are helping as these provide better visibility into the fees that active funds are charging.

"These changes will likely push retail investors toward cheaper passive funds, including ETFs, just as they become more widely available through investment online platforms," Moody's concludes.

Whether the passive strategy pays off in these turbulent times, with wild intraday swings in indices and stock prices in recent months, remains to be seen.

(Sujata Rao)



A deal, no deal, a delay - this roughly summarises the chaotic week in the British parliament.

And today, some comfort that the chances of avoiding a no-deal Brexit are rising ... and perhaps a little relief there's no complex Brexit-related vote this evening to contend with.

The market's certainly in a risk-on mood. The relief along with hopes about a U.S.-China trade truce appear to be pervading equities, with the pan-European STOXX 600 up 0.7 percent and the FTSE 100 up 0.8 percent, both likely to finish with their best weekly performance in a month.

Even sterling is taking a breather today after a bumpy ride this week, which saw volatility has hit levels not seen since early January.

Then again, UBS says the currency's resilence this week shows a soft Brexit looks increasingly likely from here.

Still, the exuberance across equities may be a little overdone given the huge amount of uncertainty about the process - PM May heads to Brussels for a summit on Thursday -, slowing economic growth and the fact there hasn't been much more than rhetoric around the U.S.-China trade talks, says deputy chief investment officer Edward Park at asset manager Brooks MacDonald.

He says it's still difficult to get too excited about euro-zone and UK equities given all the headwinds.

"There are still quite a lot of moving parts (to Brexit .......) There will only be limited respite or buying opportunities," he says.

And for any tweeples among our readers: https://twitter.com/i/status/1106479513108656128

(Thyagaraju Adinarayan and Josephine Mason)



European shares have managed to breach, by a whisker, Thursday's Oct. 5 high in opening deals, as the appetite for riskier assets spreads from Asia overnight after positive signs over U.S.-China trade talks. Tech stocks, often vulnerable to tension tensions, are the biggest gainer.

Investors don't seem to be tiring of the Brexit news either - London's FTSE 100 is leading the show today, up 0.5 percent, lifted by its heavyweight oil and mining stocks, but even the domestically focused midcaps are rising even as sterling takes a breather after a volatile week.

Wirecard is at the bottom of the STOXX 600 after a Citi downgrade, compounding the German payment company's woes amid a probe of its Asian business, while H&M is down almost 5 percent after its Q1 sales.

Here's your snapshot:

(Josephine Mason)



There's not much in the way of corporate earnings with the results season nearly over.

Better-than-expected results from U.S. chipmaker Broadcom may boost competitors in the euro zone.

H&M, the world's second-biggest fashion retailer, has reported in-line Q1 sales growth, while British pubs group JD Wetherspoon saw a drop in H1 profits as it battles high labour costs.

Otherwise it's court and boardroom drama galore.

VW will be in focus after the U.S. Securities and Exchange Commission filed a civil suit against Volkswagen and its former chief executive Martin Winterkorn over the German automaker's diesel emissions scandal, accusing the company of perpetrating a "massive fraud" on U.S. investors.

UBS shares are seen under pressure after Switzerland's top bank said it is bulking up its litigation provisions to deal with a French court slapped it with a hefty penalty last month.

The news comes a day after Hong Kong's securities regulator banned the bank from leading IPO in the city for a year and hit it with a fine.

Nordic banks will remain in focus after a Swedish TV programme reported that an internal Swedbank report dated last September showed transactions corresponding to 95 billion Swedish crowns between "suspicious" customers in Swedbank and Danske Bank had been done between 2007-2015 in the Baltics.

The shareholder showdown continues at Telecom Italia, with the board giving its backing Chairman Fulvio Conti, who is embroiled in a row with the company's top investor, French media group Vivendi.

Vivendi accused Conti of violating corporate and governance rules by siding with rival investor and activist fund Elliott.

Here are some headlines:

Telecom Italia says board fully backs chairman

Airlines wrestle with calls, cancellations after Boeing MAX fleet grounded

Ethiopian Airlines flight reported trouble soon after takeoff

VW's Scania sees China rebound, braces for Brexit hit to UK orders

German court says RWE was not allowed to cancel Uniper deal

BMW and Daimler seek 7 bln euros savings from shared platforms

Inquiry into Lloyds' handling of HBOS fraud slips to 2020 -source

(Josephine Mason)



Investors appear to be drawing continued strength from the positive noises coming out of the talks between Washington and Beijing to end their protracted dispute over trade and after UK lawmakers voted to delay the country's chaotic (and protracted) exit from the EU.

All the major European stock futures are in positive territory, with the trade-sensitive DAX leading the pack, up 0.2 percent.

How long it can last ahead of the weekend and a crucial European summit for UK PM May next Thursday is yet to be seen.

But for now, there's a risk-on appetite in the air.

(Josephine Mason)



European shares are expected to continue their march higher this morning, extending yesterday gains that saw them hit five-month highs, amid continued optimism over U.S.-China trade talks and the UK's chaotic exit from the European Union.

Yesterday, the STOXX 600 got within a whisker of piercing the Oct. 5 high of 379.83 level and is on track for its best week since mid-February.

Financial spreadbetters IG expect London's FTSE to open 15 points higher at 7,200, Frankfurt's DAX to open 19 points higher at 11,607 and Paris' CAC to open 7 points higher at 5,357.

(Josephine Mason)


(c) Copyright Thomson Reuters 2019. Click For Restrictions - https://agency.reuters.com/en/copyright.html

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