Welcome to the home for real-time coverage of European equity markets brought to you by Reuters
stocks reporters and anchored today by Julien Ponthus. Reach him on Messenger to share your
thoughts on market moves: rm://julien.ponthus.thomsonreuters.com@reuters.net
READING THROUGH LAGARDE'S POKER-FACE BERLIN SPEECH (0925 GMT)
Reading through Lagarde's Monday speech in Berlin for policy clues was no easy task, not
least because it officially wasn't about monetary policy.
But while analysts such as UBS's Paul Donovan complained that "investors may need to change
where they look for guidance", others believe that Lagarde, actually, did say something.
For her first official speech, the ex-IMF French chief chose to honour none other than
Wolfgang Schaeuble, a monetary hawk who embodies, at least for a good chunk of the European
left, Germany's hardcore orthodoxy on all things monetary and fiscal.
The obvious signal was that the new French ECB chief is willing to work with hawks and doves
from all geographies.
But add to the choice of praising Schaeuble - Super Mario's nemesis - to expectations of an
impending review of the bank's policy framework, and the temptation is strong to draw some sort
of conclusion.
Speculation is growing that as a way to build consensus on monetary policy across the euro
zone, Lagarde could seek to gradually bring back interest rates to zero in exchange for Germany
to engage (at last!) in fiscal stimulus.
Georg Schuh, DWS' EMEA CIO, told the Reuters Global Investment Outlook 2020 Summit that a
rate hike was a distinct probability.
"In the first year the probability is 25%", he believes, adding the chance of tightening
goes up to 50% in 4 years.
Needless to say, markets have not priced such a move which would completely upset
fixed-income earnings expectations and have equity analysts scramble to reassess risk premiums.
Neil Mellor, a strategist at BNY Mellon notes that there is undoubtedly some pressure for
the (ECB) Bank to be given a lower inflation target more suited to the 'new normal' low
inflationary world".
A new normal of say 1% or 1.5% would limit the need for massive monetary stimulus and thus
to antagonise further Dutch and German bankers and pensioners.
But be careful what you wish for!
"The ECB critics who are currently calling and hoping that the ECB under Christine Lagarde
will lower its 2% inflation target, in order to allow for faster interest rate hikes, should
think twice", ING economists write, arguing you can't have your toast buttered on both sides.
If inflation expectations are lowered to say 1%, it means that the euro zone's limits on
deficits and debt, set at 3% and 60% of GDP respectively, would need to be reviewed to allow
sufficient fiscal stimulus.
"Either lower the inflation target and allow for looser fiscal rules or increase the
inflation target to accommodate for lower structural real GDP growth", ING concludes.
The other option of course is not to open that can of worms.
Some reading:
Germany's Schaeuble calls on Lagarde to respect ECB's "limited mandate"
In first speech as ECB president, Lagarde lauds key critic
LIVE MARKETS-Knot's anti QE rant fuels uncomfortable bubble questions
(Julien Ponthus and Karin Strohecker)
*****
OPENING SNAPSHOT: BANKS AND RETAILERS STEAL THE SHOW (0841 GMT)
Well it took investors just a bit of time to determine what to make of SocGen's Q3 results
but it's now crystal clear: they're good!
Shares in the French bank are up 3.4% and lifting the whole sector to a 1% rise.
This could be a straight fourth day up for European lenders, so maybe the value trade we
were talking about yesterday is at play? -- see our blog -- Value in banks?
Anyhow lenders are posting the best sectoral performance by far after retail, up
0.5%, boosted by the UK's Marks and Spencer and Dutch supermarket operator Ahold
Delhaize which reported better than expected results.
Main losers are car makers with a 0.6% fall. It's a typical gauge of investors' sentiment on
the trade war, so that's telling us something perhaps, but BMW's Q3 results doing little to
cheer up the sector with a 0.5% retreat.
Overall, European stocks have titled to positive territory at the exception of the FTSE,
which is still struggling but now close to lifting itself up out of the red.
Here's your opening snapshot:
(Julien Ponthus)
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ON THE RADAR: UK HIGH STREET BLUES, Q3 UPS AND DOWNS (0750 GMT)
Futures are currently trading just slightly in the red but beware: today's big batch of Q3
is bound to trigger sharp moves at the open.
One of the most spectacular hit could come from the UK high street. Mall operator Intu
Properties is seen falling between 10% and 30% after it said raising equity was an
option as it expects lower rental income with more stores closing down.
That comes with Mothercare set to close all its British stores, and M&S posting
profit down 17% on weak clothing sales.
Shares in struggling Norwegian Air will also be closely watched after it managed to
raise $272 million.
Looking at today's Q3 action just a reminder that the latest data from Refinitiv shows that
earnings expectations for the STOXX 600 have improved for the first time since late August, a
sign that will rejoice investors betting on Europe bottoming up.
Anyhow: In the banking sector, SocGen was a miss with restructuring costs denting Q3
results and is indicated down 2%.
Germany GmbH is providing a lot of the Q3 headlines with Adidas and its sales picking up,
BMW’s operating profit jumping 33% and Wirecard reporting a 43% gain in third-quarter core
profits. Note however that shares in the German payment company are down in pre-open trading in
Frankfurt.
Here are a few big headlines:
UK mall operator Intu forecasts lower annual rental income
Shares in Germany's Wirecard fall in pre-open trading in Frankfurt
Adidas sales pick up pace as Europe back to growth
SocGen's restructuring dents Q3 results but lifts capital buffer
Britain's AstraZeneca to distribute Sun Pharma cancer drugs in China
Ahold reports higher Q3 earnings on strong U.S. business
Struggling Norwegian Air raises $272 million from share sale, bond issue
Andritz Q3 core profit down due to Schuler restructuring
BMW Q3 operating profit up 33% as higher margin SUV sales take off
IT'S RISK-OFF AHEAD OF ANOTHER BIG Q3 DAY (0632 GMT)
European bourses are expected to open slightly in the red this morning after Wall Street and
Asia pulled back in the absence of more news from the trade war front.
According to IG, financial spreadbetters expect London's FTSE to open 17 points lower,
Frankfurt's DAX down 22 points and Paris' CAC to lose 7 points.
Sentiment could of course change quickly at the open given the amount of Q3 releases due
before the bells rings across the continent's trading floors.
Adidas, Alstom, Axel Springer, BMW, Delhaize
and Wirecard are among the corporates about to take the stage.
There's also a big batch of euro zone services PMI which will be closely watched given the
hopes that the macro gloom is clearing up.
(Julien Ponthus)
*****
(Reporting by Danilo Masoni, Joice Alves, Julien Ponthus and Thyagaraju Adinarayan)
Mothercare (MTC)
Marks & Spencer (MKS)
