October 26, 2018 / 3:28 PM / in 22 days

LIVE MARKETS-How about some German political risk to spice things up?

    Oct 26 - 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    
    
    HOW ABOUT SOME GERMAN POLITICAL RISK TO SPICE THINGS UP? (1510 GMT)
    This sell-off certainly doesn't need any outside help to thrive but another layer of
political risk in Germany could certainly spice things up and make Monday's session even more
interesting. 
    The question is: what will happen if Angela Merkel or the social-democrats suffer a
humiliating defeat on Sunday in the regional election in Hesse? 
    "A shell-shocked CDU may rebel against Merkel and eject her as CDU chairwoman" or "a
desperate SPD may conclude that it needs to renew itself in opposition and desert Merkel in
Berlin", Berenberg economists write, adding however they believe these scenario will not
materialise. 
    But if they do, no doubt the immediate confusion could hit markets in the short term. The
long-term implications, however, would probably not be dramatic.
    "While individual sectors may be affected, for example with the Greens insisting on a faster
exit from coal, the outlook for small-scale reforms in Europe and for dealing with Italy and
Brexit would not change dramatically."   
 
 
 
 
    (Julien Ponthus) 
    *****     
    

    FTSE SLUMPS TO DECEMBER 2016 LOWS
    It was seen as a key test for this session and it has been breached: the FTSE is now trading
below 6,866 points, falling back to December 2016 lows. 
    This is turning out to be the index's worst month in ten years and it's having its worst day
in four months.  
 
 
 
 
    (Julien Ponthus) 
    *****     
     
    
    THIS COULD REALLY HURT SWISS STOCKS (BUT IT'S UNLIKELY) (1445 GMT)
    ING just issued a timely reminder that the consequences of the European Union and
Switzerland failing to reach a new treaty could be dire indeed for Swiss stocks. 
    The EU's executive commission wants progress on a treaty before it renews permission for
Swiss and European equity traders to access each others’ markets beyond 2018.
    Such a scenario would definitely hurt, ING warns. 
    "No need to say that this threat is extremely strong for a global stock market such as
Switzerland. Without this access, the Swiss financial system would be in great difficulty, and
the consequences for the Swiss economy would be significant", ING economist Charlotte de
Montpellier writes.
    We gladly admit that this issue was well below our radar until now but it seems we are not
alone, ING notes. 
    "Firms don't really seem to be worried for now, and we don't expect a discernible impact on
GDP", Charlotte de Montpellier says, adding that "the EU is likely to grant a new provisional
equivalence of one year in January, to avoid any interruption of financial transactions". 
    To find out more about this issue read our September story: reut.rs/2z4iJCe
    
 
 
 
 
    (Julien Ponthus) 
    *****     
    
    
    SELL-OFF CHEMISTRY (1411 GMT)  
    Earnings revisions are definitely looking bad, with analysts downgrading their forecasts at
their fastest pace since 2016, according to Refinitiv I/B/E/S data.
    "Some dark clouds have appeared on the horizon, with earnings revisions recently turning
significantly negative globally", which "increases the likelihood of sell-offs" UniCredit
strategists warn.
    Another indicator that things could turn for the worse is selling-price expectations in the
chemicals industry, which are used as an earnings indicator for cyclical stocks, they note. 
    They are, sadly, down and "suggest that a slowdown in earnings is imminent", UniCredit says.
  
 
 
 
 
    (Julien Ponthus) 
    *****     
    
    
    WHAT HIGH YIELD IS TELLING US ABOUT THE SELL-OFF (1340 GMT) 
    BNP Paribas's chief economist notes that volatility in high yield corporate bonds has not
matched that in equity markets, which is unusual. 
    Indeed, equities and credit usually react to the same threats, be it a recession or a rise
in interest rates. So what's this telling us? William De Vijlder has 4 hypothesis: (the
following is copied from his report) 
    1) corporate bond investors are complacent, which begs the question why 
    2) changes in the outlook for interest rates and growth have not been the driving factor
behind the equity market swings 
    3) equity investors are far more jittery and, in comparison to high yield bond investors,
tend to overreact to macro news 
    4) equity markets are driven by worries about individual company earnings rather than by
macro developments  
 
 
 
 
    (Julien Ponthus) 
    ***** 
    
        
    A LITTLE BREATHER FROM U.S. GROWTH (1320 GMT) 
    This could have been a major turning point for the worse if U.S. GDP data had been weaker
than expected but on the contrary it turned out to be better. 
    The good news hasn't changed the sour mood on the continent's trading floors but has
nonetheless taken about 20 basis points off the downward trend on the STOXX 600. 
    U.S. futures have also reduced losses but so far this clearly ain't no game changer:     
 
 
     U.S. economic growth slows less than expected in third quarter
    (Julien Ponthus) 
    ***** 
    
    EARNINGS SEASON: WHAT'S THE DAMAGE? (1235 GMT)
    We noted earlier that analysts have been downgrading their earnings estimates for MSCI
Europe at their fastest pace since Feb 2016 - which doesn't bode well for the rest of the
earnings season. 
    It looks like companies are going to have to really impress in order to drive share price
moves, and Goldman Sachs strategists note investors have been feeling this season is a "false
start". Earnings have been revised down for all sectors apart from commodities (see below). 
    Here are some of the negatives that have been keeping investors on the sidelines, wary of
buying the dip:
    * The average earnings surprise has been +0.1 percent equal-weighted - below the historical
average of +1.5% - and ex-Financials the market surprised negatively -0.2% 
    * Less than 20 percent of companies reported earnings 5 percent or more above market
consensus
    * October is the third worst-performing month since the global financial crisis
    * Those that disappointed have been punished. GS calculates on average companies that
reported
below-expectations earnings fell 4.7% relative to their sector

    Interestingly, the strategists reckon large misses early in the season may encourage
investors to anticipate disappointments in the rest of the sector, leading to potentially
smoother reactions later on.
    So perhaps the worst of the damage has already been done - only time will tell.
 
 
    (Helen Reid)
    *****
    
    NOT QUITE PANIC LEVELS YET - BUT CLOSE (1128 GMT) 
    From BAML's "The Thundering Word", interesting data on how deep in bear territory global
stocks are.
    Their key finding is that stocks are oversold, "close to prior panic levels" but crucially
not there just yet:     
 
 
 
 
    (Marc Jones and Julien Ponthus) 
    *****
    
    
    THE WORST MONTH SINCE 2011? (1113 GMT) 
    Just a short while ago, European shares were set for their worst month since August 2015,
now it's looking more like August 2011. We're currently down 8.7 percent on the month, Aug 2015
saw an 8.4 percent fall, and Aug 2011 was a 10.5 percent drawdown.
    In the grander scheme of things there's only been 14 months as bad as October 2018 (so far)
in the last 30 years - as you can see below in the monthly chart. 
    Which means we're in the top 4 percent as far as bad months go!
 
 
    (Julien Ponthus) 
    ***** 
    
    CANNABIS GETS YOU HIGH, EVEN IN A SELL-OFF (1017 GMT) 
    Roughly 90 percent of the STOXX 600 is in negative territory but that hasn't spoiled Danish
cannabis firm StenoCare's stock market debut.
    Its shares have more than tripled in value this morning, worth remembering next time a
company decides to cancel an IPO and lamely blames it on "adverse market conditions".
    It's been said for a while now that cannabis could be the  new blockchain in terms of
stoking a market frenzy and it seems the craze is spreading. 
    Pot stocks are hot and not only in Canada, which just became the first Group of Seven nation
to legalize recreational cannabis.
    We've already used this illustration (taken from the twitter account of GAM fund manager
Paul McNamaraon) but hey, a second time can't hurt:      
 
 
 
 
    Pot is hot! Shares in Danish cannabis firm StenoCare surge on debut
    LIVE MARKETS-Is cannabis the new blockchain? nL8N1WS4AE]
    (Julien Ponthus and Ritvik Carvalho) 
    *****
    
    OPENING SNAPSHOT: SEA OF RED ON TECH TREMORS, EARNINGS ANXIETY (0800 GMT)
    The STOXX is set for its worst month since Aug 2015 as it sinks down 1.1 percent this
morning in a broad selloff after results misses from Amazon and Alphabet renewed anxiety about
how fragile this tech-fuelled bull market might turn out to be.
    Results-wise it's a triptych of terror for European investors: So far three main negative
trends have emerged from company results: higher raw material and wage costs, the impact of
tariffs, and a slowdown in China. 
    No surprises then that analysts are downgrading their MSCI Europe earning estimates at the
fastest pace since Feb 2016, according to Refinitiv IBES data. 
    Car parts maker Valeo follows in the footsteps of auto peers with a warning on tougher
European emissions rules and slowing China sales - driving its shares down 17 percent while peer
Faurecia falls 6.9 percent.
    Spanish paper and packaging maker Viscofan has only just started trading and plunged as much
as 22.5 percent after warning it would miss its full-year guidance.
 
 
    (Helen Reid)
    *****
    
    WHAT'S ON THE RADAR: STOCKS TO TUMBLE, VALEO SINKS ON PROFIT WARNING (0653 GMT)
    It looked set to be a day of heavy losses for equity investors with European futures down
sharply – 0.6 to 0.9 percent - after U.S. futures tumbled following results from Amazon and
Alphabet– prompting renewed concerns about the dominance of tech in this market cycle. 
    Car parts maker Valeo could be the biggest faller of the day, indicated down 10 to 15
percent after its results missed estimates by 22 percent and it slashed guidance for next year
by 11 percent. The warnings echoed Daimler’s and others in the auto sector flagging disruption
from tougher European emissions tests and slower sales in China, and the sector could be bruised
as a result.
    Stronger results from British Airways owner IAG could help the travel & leisure sector which
has been under pressure with airlines warning of fuel costs rising. 
    With some analysts citing a report Brexit talks are in deadlock, Britain’s FTSE 100 will be
a focus although sterling was unchanged on the day. Lender RBS said it had taken a 100 million
pound impairment provision to account for greater economic uncertainty, the first concrete sign
Brexit is clouding the outlook for banks. 
    Investors will also be digesting the impact on healthcare companies, including Roche and
Novartis, of Trump's plan announced overnight to create a global pricing index for prescription
drugs based on lower prices paid in other countries.
    Of the Europe-listed pharma names, Roche, Ipsen, Grifols and UCB have the biggest exposure
to the U.S. Medicare Part B according to Goldman Sachs. One trading desk saw Roche falling 2
percent on the news.
    (Helen Reid)
    *****
    
    FUTURES DOWN SHARPLY AS TECH SELLOFF, BREXIT DEADLOCK SAP RISK APPETITE (0617 GMT)
    Futures have opened sharply lower, suggesting it's going to be a pretty heavy fall for
European stocks after U.S. stock futures tumbled overnight on Amazon and Alphabet results.    
    A Bloomberg report that U.K. Prime Minister Theresa May’s Cabinet is not close enough to
agreeing a way forward for top level Brexit negotiations to resume is likely to add further
uncertainty to UK markets.
    
    (Helen Reid)
    *****
    
    EARLY MORNING HEADLINES ROUND-UP: RYANAIR, VALEO, LAFARGEHOLCIM (0610 GMT)      
    A profit warning from French auto parts maker Valeo - its second in three months -
will underscore mounting concerns in the automotive sector about the impact of tougher European
emissions tests and slowing sales growth in top market China.    
    Ryanair may get a lift after signing a preliminary contract deal with Belgian cabin crew and
pilots as the budget airline aims to avert further strikes that have grounded planes and
disrupted travel for thousands of customers. 
    Brace for action in the construction sector after LafargeHolcim, the world's largest cement
maker, became the latest building materials company to warn of higher costs. The company
reported consenus-busting Q3 earnings, but lowered its profit expectations due to rising fuel
and raw materials costs.
    Last week German rival HeidelbergCement trimmed its profit guidance, sending its shares down
as much as 10 percent to a near four-year low.
    In the chemicals sector, BASF posted slightly lower-than-expected quarterly profits and
reiterated its full year guidance.  
    Aside from the onslaught of earnings, there is some IPO activity with shares in Danish
cannabis oil firm StenoCare debuting, aiming to take advantage of a recent surge in investor
interest in a substance that is still banned or restricted in many markets.
    Spanish bank Ibercaja has been in touch with advisers on a potential IPO, sources said, part
of a legal requirement to protect the financial health of Spanish savings banks.
    
    Volvo Cars Q3 income falls due to launch costs, higher tariffs                 
 
    Spain's Caixabank Q3 net profit down 27.6 pct due to Repsol sale               
    Asset manager Amundi reports higher Q3 profits                          
    Signify beats expectations with 8 pct rise in Q3 core profit                   
 
    UBS CEO Ermotti won't rule out M&A, says options are limited                   
 
    Volkswagen deals ready truck business Traton for stock market listing 
    Brewer Ambev squeezed by Brazil competition, Argentina inflation
    AIG receives UK approval for Brexit restructure
    Freenet open to offers for its $1 bln stake in Sunrise - CEO
    NordLB stake sale sparks merger talks among German public sector banks - sources

    Lufthansa eyes divestments of non-core businesses - handelsblatt newspaper
    (Josephine Mason)
    *****
    
    EUROPEAN MARKETS HEADING SOUTH AGAIN (0525 GMT) 
    Any hope of a sustained recovery after yesterday's modest recovery across European markets
will be dashed, with the market's facing further pressure at the open today, taking their lead
from Asian and U.S. markets overnight.
    FTSE 100 is expected to open 64 points lower at 6,940, DAX is expected to open 117 points
down at 11,190 and CAC 40 is expected to open 62 points lower at 4,970, according to David
Madden, market analyst at CMC Markets UK.

(Josephine Mason)

***** 


    
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below