LIVE MARKETS-A question of trust
* European stocks extend losses * Tech, banks hit by trade fears * Euro zone growth slows again in March * U.S. to sign tariffs on China at 1630 GMT * BoE keeps rates steady but two vote for hike March 22 - Welcome to the home for real-time coverage of European equity markets brought to you by Reuters stocks reporters and anchored today by Helen Reid. Reach her on Messenger to share your thoughts on market moves: helen.reid.thomsonreuters.com@reuters.net A QUESTION OF TRUST (1544 GMT) On the subject of tech and the implications of Facebook's recent woes, Northern Trust Capital Markets' analysts point to one key issue: trust.
NTCM explores the idea that, as consumers become less trusting of institutions, they will revert back to true peer-to-peer platforms.
"Facebook is built around trust, specifically trust from users that their private information won't be used for malicious purposes. With that now in question, so too is their value proposition possibly," NTCM's analysts say in a note.
"In time this could also be seen as a turning point in the advent of the blockchain," they add, mentioning their favourite blockchain play, Japan's SBI Holdings while voicing concerns around digital advertisers reliant on third-party data.
Interesting today that internet company Mozilla has suspended ads on FB on concerns of data privacy.
(Kit Rees) ***** FTSE - OUT OF LOVE? (1538 GMT) As miners slide, today's losses mean that the FTSE 100 is close to being down 10 percent year to date - which means that, even though it's still early in the year, the UK blue chip index is on track for its worst year since 2008 (when it fell more than 30 percent).
At the time of writing the FTSE 100 is down 1.5 percent, and over the past few sessions has fallen below lows last seen during February's drop.
"The FTSE 100 is ... knocking on the door of what is often described as correction territory," Richard Hunter, head of markets at interactive investor, said.
Here's a chart showing the FTSE's yearly gains/losses since 1990: (Kit Rees) ***** MIND THE OIL GAP - IT'S WIDENING! (1515 GMT) The gap between oil stocks and the underlying commodity, crude, is widening as majors don't seem to be able to convince investors the shares are a good buy, despite strong results from most oil companies.
Brent crude futures are up 23.3% since the start of 2017, while the MSCI World Energy index is down 3.3%, making for a huge 25 percentage point gap between the stocks index and the underlying commodity over that time. That's an even bigger gap than when we first reported on this in January.
See for yourself on our interactive graphic here: http://tmsnrt.rs/2DPMJUs Here's Goldman Sachs analyst Peter Hackworth's take on it: "Oil prices are back up close to YTD highs, yet the equities have continued to lag (both on an absolute and relative basis) – and this despite earnings upgrades for the majority of US/European subsectors." He reckons the two reasons that stand out, for the majors, are concerns about macro and capital allocation.
"Investor concerns on the macro appear harder to justify now, in our view, and while M&A headlines may continue to act as a headwind for some stocks, overarchingly we believe that the sector's cash generation should be strong enough to support dividends, buybacks and even some select M&A," writes Hackworth.
So, in short, he seems pretty stumped too as to why all these positives aren't translating into share price gains. Those who were betting on 2018 marking a great revival for oil stocks must be getting tired of waiting.
(Helen Reid) ***** VIEW FROM THE BUYSIDE: STICK WITH EUROPE AND EUROPEAN BANKS (1425 GMT) From across the pond, U.S. asset manager Manning & Napier Advisors is still optimistic about the European recovery story despite disappointing economic data coming through, and global strategies fund manager Jeff Donlon still reckons banks are a good bet.
"Some of the recent data has been on the squishier side," admits Jeff Donlon, managing director of global strategies at Manning & Napier.
While many are interpreting this as indicating the economy's going to slow, he argues the figures were bound to fall from last year's peaks. "These are mean-reverting measures, we see a stabilisation at high and still expansionary levels," says Donlon.
"Whereas last year was characterised by growth with risk to the upside, now it's more growth at a stable level." Donlon maintains his positive view on European banks, accordingly, saying loan growth will continue to rise.
Among other favourites he points to domestic companies "able to address labour market shortages and supply constraints".
Donlon backs Randstad and Kion, Temenos ("should see an uplift in demand as banks become healthier and invest in systems") and Sopra Steria.
Wienerberger and St Gobain should also stand to benefit, he says, from increased investment into alleviation of supply bottlenecks.
(Helen Reid) ***** IS IT ALL DOOM AND GLOOM FOR TED BAKER AFTER ALL? (1332 GMT) UK retail has been a big focus as the negative newsflow around the sector refuses to let up, and today's release from Ted Baker has caused the shares to drop 7.6 percent.
But investors have been taking another look at beaten-down UK retail stocks recently - as we reported on Wednesday - and some analysts see more positives than negatives in Ted Baker's results.
Comments around a tough global environment and unseasonal weather seem to have drawn most attention. But online was the driver, boosting annual pretax profit 12 percent. E-commerce sales increased nearly 40 percent across the company, while store revenue rose only 4 percent. E-commerce now accounts for nearly 23 percent of Ted's total retail sales.
Secondly, the retailer isn't going crazy on new store openings – it’s planning to increase average retail space by only 4 to 5 percent with capex planned at 30 million pounds sterling, and is aiming to continue investing in its e-commerce sites.
"This performance is even more commendable considering the tough backdrop. The investments in infrastructure are highly supportive of sustained growth," Liberum analysts say in a note.
"We see the c40% growth in e-commerce and +25% growth in North American wholesale as key indicators of the strength of the brand and its recent collections," they add.
Even though analysts at Peel Hunt point to challenges ahead due to unfavourable weather and an early Easter, they admit there are "relatively few retailers delivering 10% profit growth" like Ted.
(Kit Rees) ***** EUROPEAN BANKS HIT 11-MONTH LOW, SET FOR WORST MONTH SINCE BREXIT (1306 GMT) Europe's bank stock index has hit its lowest in 11 months, and this month's declines put it on track for the worst month since Brexit - a pretty impressive feat, with still a week to go. Why is the tide turning on a sector many backed for most of last year as a core #Euroboom trade? Clearly some are concerned that the euro zone's run of stellar economic data is coming to an end - as we detailed below.
Plus, bank stocks have become a very consensus trade: BAML's global fund manager survey on Tuesday showed the second-highest overweight in bank stocks ever. Interestingly the survey of European fund managers showed the overweight on banks, while still high, diminished slightly from February to March.
Commerzbank is sinking 7.5 percent to the bottom of the DAX, while Deutsche Bank is falling 3.6 percent.
And Swedish banks are facing their own issues on top of the broader market mood today, with Goldman Sachs saying competitive pressure in the mortgage market is intensifying.
(Helen Reid) ***** BOO! TWO HAWKS SITTING ON BOE BOARD (1233 GMT) The Bank of England kept rates steady and that was widely expected but the surprising bit was that two of its policymakers voted for an immediate rate rise.
Markets took that as a hawkish signal, briefly sending sterling to a nine-month high against the euro.
The reaction on the FTSE, whose big foreign earners make it very sensitive to fluctuations on the forex market, was less clear. It initially hit a fresh day low and later recovered just a bit. It's now back to a fresh day low, down 1.2 percent, but no jolts.
(Danilo Masoni) ***** LET'S FACE IT: EURO ZONE ACCELERATION IS CLEARLY OVER (1214 GMT) European shares were seen by many outperforming the U.S. at the start of the year but that hasn't happened and this may be due to the loss of momentum in the region's economic recovery with the latest PMI data just confirming this trend.
"Eurozone PMIs in March declined for a second consecutive month, indicating moderation in the growth impulse from the cyclical peak reached at the turn of the year. The decline was larger than generally expected," writes UniCredit head of macro research Marco Valli.
Valli said today's big drop in the PMIs did not indicate downside risks to their positive view on euro zone growth but still the level of caution has increased.
"Business sentiment has to be monitored carefully in the coming months, especially if trade tensions intensify, because any further significant deterioration in confidence indicators might signal that the balance of risks starts shifting to the downside," he says.
And here's Citi's take on the poor PMI showing: "The sentiment setback has spread from manufacturing to the domestic-oriented services sector, which supports our view that the cycle peaked at the turn of the year, and acceleration is clearly over." The Euro zone STOXX index is down 2.7 percent so far this quarter, while the S&P 500 is up 1.4 percent. That coincides with Citi's economic surprise index for the euro zone falling deeper into negative territory to hit a 2-year low this month, while U.S. economic surprises are on a positive run since October.
(Danilo Masoni) ***** PEAK TRADE RISKS? (1130 GMT) As European shares tumble further heading into midday, some brokers are still relatively sanguine on the trade threat hanging over the market as the U.S. prepares to impose tariffs on Chinese imports.
Goldman Sachs says we're "probably approaching peak trade risk in the near-term", though strategists at the U.S. bank don't hesitate to say retaliation from China is likely, and within days.
"Unlike the steel and aluminium tariffs, which were 25 percent and 10 percent, respectively, the affected categories of imports from China are likely to face a much higher level of tariffs, potentially approaching 100 percent," write Goldman strategists.
Citi analysts reckon the recent growth in world trade will overcome tariffs. They point to figures showing strong growth in global goods trade volumes in 2017, and note that trade growth has now surpassed global GDP growth once again.
"For now, our base case is for moderate increases in global protectionism and for these to mostly remain targeted at specific sectors," they write.
Both U.S. brokers are careful to highlight that Chinese retaliation "could" escalate into a global trade war, however. Watch this space ...
(Helen Reid) ***** U.S. INVESTORS STILL NOT KEEN ON EUROPEAN STOCKS (1023 GMT) Investors in the U.S. are the "key marginal buyers" of European equities, UBS strategists write, and they're, crucially, not keen on the underperforming region at the moment.
One measure of interest, U.S. net buying of Europe ETFs, peaked in May last year after the French elections and has since fallen. U.S. investors are now net sellers - while they're pushing money into ETFs for other equity markets - as Europe's relative performance remains weak.
In local currency Europe has sharply underperformed the U.S., with the latter's strong tech exposure driving better performance. The S&P 500 has returned four times as much as the STOXX 600 since January 2017, as you can see below.
"When the domestic market is performing so well, there is clearly less incentive for U.S. investors to look overseas," note UBS strategists.
The strong euro's also pointed as a dampener on performance, though UBS points out the trade-weighted euro seems to have peaked year-on-year.
(Helen Reid) ***** OPENING SNAPSHOT: EUROPEAN STOCKS HIT A 2-WEEK LOW (0830 GMT) Following the U.S. Fed's rate hike, European stocks have hit a two-week low in early morning trading, led lower by weakness in tech and banking stocks as traders brace themselves for the BOE's policy decision later in the day.
United Internet is the biggest tech faller, down 9 percent after reporting full year earnings towards the lower end of guidance, while elsewhere Svenska Handelsbanken is the biggest STOXX faller after trading ex-div.
Reckitt Benckiser has shot up a hefty 5 percent after pulling out of a bid for Pfizer's consumer health unit. GSK, on the other hand, is down 1 percent now that it could have a better shot at buying the aforementioned unit.
Here's your opening snapshot: (Kit Rees) ***** WHAT'S ON THE RADAR FOR THE OPEN (0743 GMT) It’s a busy day for European investors today who’ll be watching the first day of the EU summit, with Brexit and the U.S. tariffs top of the agenda, as well as the Bank of England’s rate decision and policy meeting after the U.S. Fed surprised market watchers with less hawkish rate guidance.
Earnings and M&A continue to drive European stocks, which are set to fall at the open with futures down 0.3 to 0.6 percent.
The world’s no.2 cement maker Heidelberg Cement, seen as an indicator of Chinese demand, reported record profits and better than expected synergies in its Italcementi takeover, driving it to hike its dividend by a fifth – though the payout fell slightly short of analysts’ average expectations. The stock was indicated flat pre-market.
Reckitt Benckiser shares are seen rising up to 5 percent after the company pulled out of the running for Pfizer’s consumer health business. Traders say the market was worried Reckitt would overpay for the acquisition target.
A report that GSK is now in pole position for the Pfizer unit is also doing the rounds in trader notes before the open, and the stock is indicated down 0.5 to 2 percent.
In a further sign that E.ON and RWE’s break-up of Innogy has improved sentiment on the German utility stocks, a government source said the state of Bavaria has scrapped plans to sell its 1.4 percent stake in E.ON.
And the latest UK retailer to report seems to be bucking the trend of disappointing performance: Ted Baker said online sales surged, helping it to a 12 percent jump in profit.
Additional headlines: Retailer Ted Baker's annual profit rises as online sales jump Online broker IG Group's Q3 revenue rises as client base grows Lamprell expects lower revenue in 2018, posts loss in 2017 BRIEF-Kuka FY Net Income Of EUR 88.2 Mln IBA posts 39 mln euro FY net loss after 'challenging year' Deutsche Bank further narrows price range for IPO of DWS unit Stobart Group says no longer pursuing regional carrier Flybe (Helen Reid and Kit Rees) ***** FUTURES FALL, EYES ON BOE AND EU SUMMIT (0708 GMT) Stock futures have opened lower across European benchmarks, down 0.3 to 0.6 percent as investors' attention turns to the EU summit opening today, and the Bank of England's rate meeting.
The two-day European Council begins today with Brexit on the agenda as well as the U.S. tariffs on steel and aluminium. The Bank of England's MPC meeting is top of mind too, with the market closely watching the vote balance and language.
The central bank is likely to stay on course for an interest rate rise in May - you can read our full preview here: "Given market pricing, the bigger surprise and market reaction would be a 9:0 vote with language revolving around a hike but not committing to one as soon as May," write Societe Generale analysts.
Here's your screenshot of early futures trading: (Helen Reid) ***** EARLY MORNING HEADLINE ROUND-UP (0646 GMT) In earnings and M&A news today, the world's no. 2 maker of cement, Heidelberg Cement , gave an early Easter present to its shareholders, hiking its dividend by a fifth on record profits and higher-than-expected synergies from its Italcementi takeover. The dividend of 1.90 euros per share for 2017 did however fall short of analysts' expectations for a 1.99 euro payout.
In M&A news, Bayer won Australian approval for its purchase of Monsanto after getting EU regulators' clearance on Wednesday. Meanwhile Reckitt Benckiser overnight said it had ended discussions with Pfizer Inc over buying its consumer healthcare business.
And after E.ON's deal with RWE to carve up Innogy, the German state of Bavaria has dropped the idea of selling its 1.44 percent stake in the utility, a source said.
HeidelbergCement to hike dividend by a fifth on synergies Bayer wins EU approval for $62.5 bln Monsanto buy Reckitt Benckiser pulls out of Pfizer consumer health auction Bavaria plans now to keep 1.44 pct stake in E.ON - source Saint-Gobain CEO expects resolution of Sika case by end of year MORNING CALL: EUROPEAN STOCKS TO FALL AFTER LESS HAWKISH FED(0618 GMT) Good morning and welcome to Live Markets.
European stocks are called to open lower this morning after the Fed raised rates overnight and forecast two more hikes for 2018, a guidance seen as less hawkish than anticipated.
The slower pace of rate hikes weighed on the U.S. dollar, which could have a knock-on effect today on European exporters earnings in dollars.
Chinese shares slipped overnight to two-week lows, with trade war fears still gripping investors.
Oil prices near six-week highs could however give a boost to energy stocks in European trading today.
Spreadbetters call the DAX 48 points lower at 12,261, the CAC 40 down 20 points at 5,225, and the FTSE 100 22 points lower at 7,017.
(Helen Reid) *****
