* European shares fall further after disappointing U.S. data
* U.S. factory activity sinks to 10-year low in September
* STOXX 600 set for worst day since mid-August, down 1.1%
* BAML starts coverage of airlines: IAG, Wizz, RyanAir, Air France top picks
* Ferguson gains after profit beat, Greggs sinks after update
* Wall Street drops sharply
Welcome to the home for real-time coverage of European equity markets brought to you by Reuters
stocks reporters and anchored today by Thyagaraju Adinarayan. Reach him on Messenger to share
your thoughts on market moves: rm://email@example.com
U.S. ISM GLOOM HITS EUROPE HARD: WELCOME TO OCTOBER (1449 GMT)
News that U.S. manufacturing contracted to its weakest level in more than a decade hit
European markets hard, as if traders were just waiting for the right excuse to execute a late
afternoon tactical retreat.
"Big burn for the bulls on that ISM print, which showed a 10-year low for US factory
activity", wrote Neil Wilson at Markets.com, adding: "Welcome to October".
The STOXX 600 saw its sluggish losses suddenly accelerate to above one percent,
making for a dramatic move, just as in New York the Dow Jones, the S&P and the
Nasdaq sunk into the red.
One key indicator to watch out for going forward is how services are holding up.
Brian O'Reilly, head of investment strategy at Mediolanum in Dublin says the big risk is
services, which makes up 70% of developed economies.
"The key for us is if there's a positive print on services, we're ok."
"We know the global economy is in a manufacturing recession, that's been driven by the trade
war. (....) If you see services heading low, that's the last shoe to drop."
On the bright side, "there was a huge move in 1-month dollar OIS 21 months forward and the
treasury yield curve did not flatten which suggests that markets think the ISM will draw the
Fed's attention and make the central bank more accomodative," said Arne Petimezas, analyst at
AFS in Amsterdam.
Here's how the market reaction hit Europe:
And here's a closer look to the ISM data:
(Josephine Mason, Danilo Masoni, Thyagaraju Adinarayan and Julien Ponthus)
BOTTOM UP, NOT BOTTOMS UP! (1357 GMT)
Seems the narrative of Europe having reached peak bad macro news is doing the rounds this
afternoon with cyclicals such as autos , tech and energy in the black in
an otherwise gloomy session.
But macro bottoming up doesn't necessarily mean "bottoms up!" and an open bar policy on
There's no lack of sobering notes on the economic state of the old continent or the
immediate prospects of its stock markets.
"In Europe, the significant underperformance of mid-caps casts doubt over the solidity of
the equity rally, all the more so that earnings revisions over the past 3 months have come down
whilst equity prices headed north", Ostrum Asset Management warned in a note.
"The risk here is that the weakness in the eurozone economy persists", Oxford Economics
noted when reviewing the latest inflation data.
Caution is also of the essence for sectors seen as good bets during a tentative economic
recovery but which face strong issues of their own.
Retail for instance is a tricky one as shown today by Greggs shares' abrupt
(-10%) fall of grace.
Moody's has a negative outlook for the sector for the next 12 to 18 months and warns that
online competition will continue to bite and sluggish growth to put pressure on profits.
"We expect more than 40% of the retailers we rate to record lower profit this year than in
2017 or 2018, or both", the rating agency says, noting the worsening profit trend.
"We now expect weaker performance from higher rated continental retailers including the UK's
Kingfisher, M&S, and Next, as well as Germany's Ceconomy and Metro", they added.
Here's Moody's profit forecast for some big names:
AS CHINA CELEBRATES 70 YEARS OF COMMUNIST RULE, HK VIOLENCE ROILS MARKETS (1154 GMT)
As tanks and troops rolled along Beijing's main thoroughfare for China's National Day
military parade extravaganza, the streets of Hong Kong have descended into deeper violence,
drawing attention away from celebrations for the 70th anniversary of the founding of the
Communist Party, the most important event in the country's 2019 calendar.
And investors are increasingly unnerved.
Stocks with exposure to Hong Kong and Asia - Standard Chartered, HSBC and
luxury goods - have been under pressure since the early summer as pro-democracy protests have
stretched into four months, but they took a hard knock midmorning after reports a protestor was
hit by a bullet by police.
"Looks like this is going to get worse with no solution in sight," says one dealer.
StanChart, down 1.6%, is one of the biggest fallers on the FTSE 100, while Burberry
and Hermes International are 1.1% lower.
HSBC has dropped 0.4% recovering a bit of ground lost in the morning after the South China
Morning Post and television reports said at least one person was wounded in the chest by police
firing live rounds.
The worry is Hong Kong may have a "Tiananmen Square moment" says another, referring to
China's crackdown of student-led protesters 30 years ago.
The chart below shows HBSC, StanChart and Gucci-owner Kering have been particularly hard hit
since June due in large part to their exposure to Hong Kong, as well as worries in general over
the slowing Chinese economy.
HSBC and StanChart get about a quarter of their revenue from the former British colony.
(Josephine Mason and Thyagaraju Adinarayan)
DEFENSIVES DOWN, CYCLICALS UP! (1106 GMT)
European shares have turned negative after hitting multi-week highs and while there's no
clear trigger behind the reversal, internal market dynamics offer a clue of what's going on.
Among country indexes Switzerland's SMI is leading losers, down 0.2% while in
sectors food & beverage and healthcare are among the top fallers. What do the
Swiss index and those two sub-indexes have in common? They're defensive!
Meanwhile we're seeing euro-zone banks and autos keeping up with good gains,
suggesting that people are once again turning their favour to the value/cyclical part of the
market. And rising bond yields, despite the weak inflation, appear to corroborate the move.
So what's driving the switch?
Traders point their fingers to expectations that the bad macro news in Europe may bottom out
with BAML saying European cyclicals should outperform defensives by 5% in the months ahead.
Also PMI numbers confirmed that Germany's manufacturing recession deepened in September but
the final number of 41.7 was a touch above the flash estimate 41.4.
"It's a bit of both," says a London-basd trader, referrring to the BAML view and the
better-than-expected PMI as factors driving today's price action.
In the chart you can see how Defensives stocks in Europe have started to lose
ground against Cyclicals after hitting a relative three-year high at the end of August.
LADIES AND GENTLEMEN, FASTEN YOUR SEAT BELTS (1001 GMT)
It's clear skies for airline shares to take off as cloudy macro economic conditions are seen
bottoming out in Europe, according to Bank of America Merrill Lynch.
BAML analysts turn "overweight" on the sector saying the sector has been priced for an
outright Euro area recession, which we think is unlikely.
The bank sees 18% outperformance for airlines by year-end, driven by positive Euro area PMI
momentum and mildly positive oil price momentum. European airlines trade at a significant
discount to other sectors and are sharply in negative territory this year. (see chart below)
Inline with the recent growth/value rotation theme, BAML is positive on all the battered
European sectors: airlines, mining and banks.
In individual airline stocks, BAML has a "buy" rating on easyJet, IAG,
Ryanair and Wizz Air as it believes Brexit should not disrupt air traffic
The bank has an "underperform" rating on Lufthansa citing a tough domestic market
and high pensions.
HOT AUTUMN: A WAVE OF 2020 PROFIT DOWNGRADES IN STORE? (0939 GMT)
The macro in Europe has been very bad and while 2019 profit forecasts have been downgraded
aggressively, 2020 forecasts are largely untouched - pointing to growth of more than 9%.
Is that a realistic number?
Probably not and a string of warnings from the likes of IAG, Pearson,
Imperial Brands, Salzgitter, Dixons, Pendragon and Kier
over the last few weeks may be a sign of what's in store.
It may be that before taking the axe, analysts are waiting for companies to change their
guidance during the upcoming Q3 reporting season.
"Analysts are usually slow to adapt forecasts to macroecomic data. They wait for clear
signals from management, hence they have barely touched FY20 estimates," says Stephane Ekolo,
strategist at Tradition in London.
"For the EU space, I believe that the cut should be material. Soft data (PMIs) momentum
keeps deteriorating and ... plenty of profit warnings across sectors underline how trading
environment is getting more difficult," he adds.
In the chart you can see the stark contast between the steadily downgraded 2019 earnings
forecasts and 2020's for the STOXX 600 pan-European index.
OPENING SNAPSHOT: RISK ON! (0735 GMT)
There are solid gains across indices driven by trade-sensitive autos and tech as investors
hope for progress in U.S.-China trade deal when the two countries meet for talks next week.
The pan-European STOXX 600 is up 0.4% and is just shy of hitting its highest levels
in nearly 1-1/2 years.
Tech stocks are mainly boosted by Apple component suppliers after Apple's Tim Cook
told a German newspaper that sales of the company's newest iPhones were off to a strong start.
STMicro, Dialog Semi, Infineon, AMS and ASML
all up 1%-2%.
AMS is under particular scrutiny as its near $5 billion takeover offer for German lighting
company Osram Licht that trumped one from private equity investors expires today.
Airlines are gaining altitude after BAML initiated coverage with a bullish view on British
Airways owner IAG, Ryanair, Wizz Air and Air France, saying
"Brexit should not disrupt air traffic rights", according to traders. The brokerage started
Lufthansa and Norwegian Air with an "underperform" rating.
BAML says: "Good time to gain exposure to high-quality airlines with strong balance sheets."
In single stocks, Ferguson is the top gainer on the FTSE 100 and STOXX 600
indices after the plumbing parts distributor reported better-than-expected profits.
ON OUR RADAR: TECH, GREGGS, DEUTSCHE POST, CREDIT SUISSE (0653 GMT)
Stock futures indicate a higher open for Europe as investors back risky assets underpinned
by hopes that there would be no further escalation in U.S.-China trade tensions. The world's top
two economies will be back at the negotiating table next week to restart talks.
European markets are seen up 0.2% to 0.4% buoyed by strong gains in Wall Street and Asia,
driven by the tech sector.
Shares of European iPhone component suppliers STMicro, Dialog Semi,
Infineon, AMS could get a nice boost from Apple's overnight rally
after report sales of the company's newest iPhones were off to a strong start.
In other company news, British baker and takeaway food group Greggs is seen rising
1%-3% after it reported another strong quarter with company-managed shop like-for-like sales
rising 7.4% in the 13 weeks to Sept. 28.
Credit Suisse shares are rising 0.4% in premarket trade after CEO Tidjane Thiam
gets a clean chit in an internal investigation into the botched surveillance of the bank's
former wealth management head Iqbal Khan in a probe that cost Chief Operating Officer
Pierre-Olivier Bouee??????? his job.
DHL owner Deutsche Post set new profit targets and said it would invest heavily
in areas like warehouse automation and analytics as it seeks to keep up with fast-growing
ecommerce. One dealer says the targets are in-line, "but would have hoped for more ambition".
Dealers see the shares coming under a bit of pressure.
UK plumbing parts distributor Ferguson seen up 1%-2% after reporting profits
slightly ahead and boosting dividend, while shares of upholstery and flooring provider SCS Group
are seen down 5% after it said it had a challenging start to the year. The statement
may kindle worries about Brexit uncertainty on consumer spending.
Swiss chemical company Clariant is likely to move on its updated financial outlook.
In broker research, British Airways owner IAG, Air France and Wizz Air
could fly higher after Bank of America Merrill Lynch start coverage with a "buy"
rating. The bank is bearish on Lufthansa, starting with "underperform".
Credit Suisse clears CEO in spying probe, COO Bouee to go
Deutsche Post plans new investment as ecommerce booms
Thyssenkrupp appoints new CEO in bid to rebuild confidence
Mediaset debt rises as pan-European growth kicks in
Italy's Generali pulls out from race for bancassurance partnership BBVA - press???????
British baker Greggs sees sales growth slow in latest quarter
AstraZeneca's combo lung disease therapy falls short of FDA approval
MORE GAINS, TECH IN FOCUS (0535 GMT)
European stocks are seen opening higher as worries over further escalation in U.S.-China
trade tensions abate as the world's top economies are scheduled to restart trade negotiations.
Positive vibes from Wall Street's rally overnight is set to fuel gains in the pan-European
STOXX 600 index, which ended Monday at its highest closing level since May 2018.
U.S. tech sector drove Wall Street higher with record highs now within striking distance.
Apple shares were in spotlight after CEO Tim Cook told a German daily that sales of the
company's newest iPhones were off to a strong start.
Apple suppliers in Europe could potentially rally on the strong iPhone sales report.
Financial spreadbetters IG expect London's FTSE to open 19 points higher at 7,427,
Frankfurt's DAX to open 55 points higher at 12,483, and Paris' CAC to open 13 points higher at
Our wrap-up on Q3: Global stocks stalled in Q3 as bonds boom and dollar zooms
(Reporting by Danilo Masoni, Joice Alves, Josephine Mason, Julien Ponthus and Thyagaraju
(Sharecast News) - Lancashire Holdings: JP Morgan upgrades to neutral with a target price of 700p.