Jan 31 - 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
CLOSING SNAPSHOT: AN AVERAGE DAY, A STELLAR JANUARY (1738 GMT)
The STOXX 600 ended the day flat but on the month it's quite another story with a stellar gain of 6.2 percent.
That's quite an impressive start of the year after a turbulent and disappointing 2018.
Over the last 15 years, there has only been 7 months which posted better performances!
With that in mind, why let an Italian recession or gloomy macro spoil the mood?
(Julien Ponthus)
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DEUTSCHE BANK/COMMERZBANK: THE STORY IS IN THE SHARE PRICE (1613 GMT)
M&A speculation usually spices things up and only very rarely does it pour cold water on stocks.
But the Bloomberg merger story on Deutsche and Commerzbank certainly did that and more.
A possible government-brokered merger between the two rivals is spooking the market with Deutsche Bank down 4.2 percent and Commerbank sinking 6.2 percent.
Not clear at that point whether it's worse to be married to Deutsche Bank or to be Deutsche Bank!
Anyhow, CMC's Michael Hewson found a nice way to sum things up: the share price dive "probably tells you all you need to know about what investors think of this story".
(Julien Ponthus)
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OLD FAITHFULS SHINE (1556 GMT)
To understand the STOXX 600's stellar run-up this month even as investors grapple with a swathe of geopolitical and economic risks, it's worth a look at one of the star performers: Europe's utilities.
During the prolonged rout of the past three months amid worries about U.S. interest rate hikes, the slowing global economy and the U.S.-China trade spat took off, the sector has outperformed the STOXX 600 by 11 percent.
That compares with other old faithfuls - telecoms and real estate which are outperforming by just 1 percent and 5.5 percent respectively:
Utilities hit their highest since November 2017 this afternoon, and are on track for its best monthly performance since October 2015 as investors flock to the safety of old-reliables. Today's Q4 euro-zone GDP data is a case in point.
Deutsche Bank analysts note the sector outpaced the broader market by 13 percent in 2018, only its second year of outperformance since the financial crisis.
While some of the gains are due to a rotation into utilities late last year, Deutsche also notes the improving fundamentals.
"A sharp rebound in power prices has turned almost a decade-long headwind into a tailwind with repaired balance sheets enabling utilities to start lifting investment," the bank's analysts James Brand and Duncan Scott say. They expect strengthening earnings growth in 2019 with scope for companies to give fairly positive outlooks.
They have lifted their targets by mid- to high-single digit percentages for Iberdrola to reflect higher earnings estimates and for Italian utilities - Enel and SNAM - to reflect moderating sovereign risk.
Willem Sels, chief market strategist at HSBC Private Banking, is underweight European ex-UK equities, but is nibbling at utilities and telecoms given the uncertainties facing the region. (He's overweight EM and U.S.)
(Josephine Mason and Helen Reid)
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INVESTOR CONFIDENCE DECLINING IN MYSTERIOUS WAYS (1317 GMT)
State Street just released its Investor Confidence Index which measures risk appetite through buying and selling patterns and shows global confidence hit its lowest on records back to the start of 2012.
The most interesting fact is perhaps not its sharp fall but perhaps that it has continued to pull back while markets were rising.
"Noteworthy is that this retreat has continued through the third week in January, even as stock prices had over January partially recovered from Christmas-eve lows," State Street Associate Kenneth Froot writes.
Another oddity is that "while the market narrative focuses on the deteriorating global environment, whether it be weaker data in China or rising recession risks in Europe, investor confidence is deteriorating faster in the US than it is in other regions," notes Michael Metcalfe, head of global macro strategy.
The index for North America decreased to 66.8 points in January from 74.5 points a month earlier, while it fell by 2.6 points to 90.3 points in Europe and decreased in Asia by 10.3 points to 100.2 points.
"This panic, and it is no longer an exaggeration to use this term, is as much about bursting a bubble in US expectations, as it is about weakness in fundamentals outside of the US," Metcalfe adds.
Here's a link to State Street's index and here a snapshot of the January index:
https://bit.ly/22LdBOy
(Julien Ponthus)
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AMID "BREXIT FATIGUE", BUYING OPPORTUNITIES IN UK STOCKS (1243 GMT)
Diagnosing investors with an acute case of Brexit fatigue, Jefferies global equity strategists have some ideas about how to make the most of a confusing and intractable problem which is driving many to look elsewhere.
So, why buy British?
"The FTSE 100 equity market offers at least a two-decade high spread between free cash flow yield (excluding financials) versus Gilts," writes Jefferies' chief global equity strategist Sean Darby and team.
"UK bank stocks offer good value at a time when the market is not concentrating on the growing likelihood of an interest rate hike by the BoE," they add.
They argue some Brexit indicators suggest the most likely outcome of Tuesday's parliamentary votes is an extension to Article 50, saying UK CDS have dipped, the UK economic uncertainty index has dropped, forward pound currency volatility has retreated and the FTSE 250 has outperformed the FTSE 100.
Indeed, the domestically-focused FTSE 250 is up 7.8 percent this month - set to seal its biggest monthly gain since Dec 2010. That's more than twice the FTSE 100's 3.6 percent gain.
As you can see below, Jefferies' view doesn't necessarily chime with many other investors' take-away from Tuesday: Berenberg, Deutsche Bank, and Goldman Sachs upped their chances of a no deal Brexit as a result of the votes. https://tmsnrt.rs/2See2B9
(Helen Reid)
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GLOOMY MACRO BUT HEY, ECB SAYS QE REDUCES INEQUALITY (1136 GMT)
There's been a hailstorm of horrible macro data this morning, from German retail falling on its fastest rate in 11 years, to British car production posting its biggest drop since the 2008-2009 recession.
The bitter cherry on the cake is certainly Italy landing a recession and the euro zone economy slowing down to its lowest growth in four years.
The takeaway of today's data is that prospects for monetary normalisation remains as elusive as ever.
"We expect the ECB to revise down its GDP forecasts, of 1.7% growth this year and next, in March and to make clear that it does not expect to raise interest rates until next year at the earliest", commented Andrew Kenningham, chief Europe Economist at Capital Economics.
Kenningham isn't the only one to expect some extra dovishness from the ECB, with speculation about another TLTRO and even another round of QE if more bad stuff hit the fan.
On the controversial topic of QE, the ECB's claim yesterday on Twitter that its asset purchases program had reduced inequality in the eurozone was met with quite a lot of sarcasm, including by Rabobank strategist Michael Every.
"The ECB have made a (false) economic case that QE helps inequality, when actually it exacerbates it", he wrote while his colleague Christian Lawrence quipped that "next the ECB will be telling us negative interest rates help the homeless".
With the new-found dovishness of the Fed, Michael Every makes the point that we may be ill-prepared for what's to come.
"Our global institutions, like central banks, are in serious trouble even before we have to deal with a trade war, Hard Brexit, geopolitical risk, the May EU elections, or the next US recession, any of which could happen".
Here's a link to the ECB's Twitter account and a video in which it explains why QE reduces inequality.
https://twitter.com/ecb/status/1090540815456391168
(Julien Ponthus)
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EUROPEAN STOCKS CURB THEIR ENTHUSIASM AS ECONOMIC CONCERNS LINGER (0956 GMT)
Although the headline news that the Fed is stalling rate hikes, heeding the market's signals, was taken very positively, the fact euro zone stocks have already erased all their early gains and the STOXX is close to doing so indicates investors are looking more closely at the reasons why the Fed is taking a breather: and they're not good news.
The central bank removed its assessment that risks to the economic outlook are "roughly balanced", and slightly downgraded its assessment of economic activity to rising at a "solid" rate from a "strong" rate.
With trade tensions also still bubbling, there is no shortage of risks to equity investors.
Maya Bhandari, portfolio manager of multi-asset at Columbia Threadneedle, has written a note considering those other risks. Here are her main calls on the trade war, recession fears, and Brexit:
* a likely de-escalation of the trade war: "by all counts a zero-sum game"
* as a result, Asian and Japanese stocks in particular are likely to re-rate
* asset markets appear to be pricing in around a 50 percent chance of recession over the next year
* because of that bearish outlook, Bhandari reckons recession hedges "appear to be somewhat overvalued"
* Columbia Threadneedle expects slower but above-trend economic growth in most regions, supporting mid-single-digit earnings growth
* on Brexit, the asset manager sees a 60 percent chance of an orderly exit, 20 percent chance of an extension of Article 50, and 20 percent chance of a no-deal
* multi-asset portfolios have continued to build sterling exposure across sterling-based funds to "further desensitise client portfolios to Brexit-induced swings in value"
Despite all this, the MSCI AC World stock index is still set for its best January ever - and its strongest month since Oct 2015:
(Helen Reid)
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FED PATIENCE IS MUSIC TO MARKET'S EARS (0826 GMT)
The Fed's strong signal of stalling rate hikes has sent European markets rallying strongly this morning, following yesterday's gains on Wall Street. The STOXX is up 0.5 percent at its highest since Dec 4, and the DAX is up 1.1 percent.
As one trader notes, the watch-word from Jerome Powell yesterday was patience: "Jay Powell used the word 'patient' seven times in the press conference."
It's a pause investors are cheering and using as an opportunity to buy back into stocks.
Otherwise, it's earnings galore this morning with heavyweight FTSE 100 companies Shell, Diageo, and Unilever reporting alongside disappointments from Switzerland's Swatch (down 7.6 percent) and Germany's Software (down 9.3 percent).
The oil and gas sector is up 1.8 percent to its highest since Dec 5 - nearly two months - thanks to strong results from oil major Shell.
Unilever, on the other hand, is down 3 percent after its Q4 sales missed expectations due to inflation in Argentina and flat volume growth in developed markets.
Here are today's top movers:
(Helen Reid)
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WHAT WE'RE WATCHING: EARNINGS ALSO FROM UNILEVER, BT, SHELL (0752 GMT)
European shares are expected to open higher today after a dovish policy decision by the Federal Reserve sent Wall Street rallying and Asian equities to a 4-month high.
Futures on main European benchmarks are up 0.3-0.6 percent, setting the pan-European STOXX 600 index to open at its highest in nearly 2 months.
The gloomy macro backdrop that made the Fed more patient could help support the shares in companies that pay stable dividends and are less exposed to the economic cycle such as utilities and telecoms, while banks and cyclicals could face more headwinds.
On the corporate front, there are plenty of corporate results to digest.
Nokia will be on the in focus after the telecom network equipment maker posted stronger-than-expected quarterly results but traders called the stock to fall 2-7 percent at the open saying its network guidance disappointed.
BT Group was seen rising 3-5 after it reiterated its outlook, while Unilever was expected to fall around 2 percent after it reported lower-than-expected fourth-quarter sales, hurt by flat volume growth in developed markets. Swatch posted lower-than-expected results, hit by a downturn in Asia and weak sales in France, sending its shares down 4-5 percent in premarket. Shell is seen rising after Q4 profit beat expectations.
Other stock movers: H&M sticks to dividend despite surprise Q4 profit fall; Diageo's half-year sales rise on India, China demand; announces share buyback; Berry Global considers possible cash offer for Apollo target RPC
For more headlines check out the previous post.
(Danilo Masoni)
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HEADLINES ROUNDUP: NOKIA CONFIDENT, SWATCH DISAPPOINTS, BID WAR FOR OSLO BORS (0641 GMT)
Turning to the corporate front the session is likely to be livened up by some more earning updates and one to watch this morning will be Nokia after the telecom network equipment maker forecast stronger-than-expected 2019 results. News like this --> EU considers proposals to exclude Chinese firms from 5G networks may also help.
On a downbeat note is Swatch, whose results missed expectations amid a downturn in Asia and weak sales in France, while in M&A there's an nice development for Oslo Bors investors after Nasdaq made a bid for the Norwegian stock market operator, setting up a takeover battle with Euronext.
Here's your headlines roundup:
Nokia sees strong 2019 profit
Swatch Group FY results disappoint, slowdown in Q4
Nasdaq bids $771 mln for Oslo Bors in Euronext challenge
Roche says operating profit rises, helped by Ocrevus
Essity Q4 core profit tops forecast
WPP to sell its 49 pct stake in consulting firm Richard Attias
Deutsche Bahn discusses selling assets to boost finances - sources
Italy's Nexi set to sign up banks for IPO this week - sources
Italy's Popolare Bari says to beef up capital ratios in H1
Anglo-American lays off 180 workers at Chile copper mine
Flybe dismisses top investor call for chairman removal, sale inquiry
(Danilo Masoni)
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PATIENT FED TO SEND EUROPEAN SHARES HIGHER (0622 GMT)
Indications from spreadbetters point to a stronger start on European stock markets today after the Federal Reserve kept interest rates steady, signalling a possible end to its drive to tighten monetary policy amid signs of slowing global growth.
The U.S. central bank discarded its promises of "further gradual increases" and said it would be "patient" before making any further moves.
"Only a few months ago, the Fed was extremely confident and expected to hike three times in 2019 and a final time in 2020. Today, the Fed adopted a wait-and-see approach and carefully removed references to further rate hikes," says Rabobank strategist Philip Marey.
"All’n all, both the FOMC statement and Powell’s press conference confirm our view that the Fed’s pause is in reality the end of the hiking cycle. We expect the Fed’s target range for the federal funds rate to remain unchanged for the remainder of the year, followed by rate cuts in 2020 as the economy starts to slide into a recession," he adds.
Financial spreadbetters at IG expect London's FTSE to open 14 points higher at 6,956, Frankfurt's DAX to open 54 points higher at 11,236 and Paris' CAC to open 24 points higher at 4,998.
In Asia, stocks rose to a four-month high following the Fed's policy decision.
(Danilo Masoni)
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