January 26, 2018 / 5:34 PM / in 9 months

LIVE MARKETS-Closing snapshot: dollar slump spoils new year rally for Europe

    * European shares recover from 1-week low
    * STOXX 600 end week flat
    * Trump says wants a strong dollar

    Jan 26 (Reuters) - 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: dollar slump spoils new year rally for Europe (1725 GMT) 
    European shares edged up on Friday, helped by a solid update from luxury group LVMH but not
enough to counter the impact of a rising euro, which spoiled their strong start to the year and
left them broadly flat over the week. Here's your closing snapshot, have a great weekend: 
 
    (Julien Ponthus)
    *****    
      
    
    U.S. TAX CUTS-VALUE-HUNTING IN UNREVISED EUROPEAN ESTIMATES (1525 GMT) 
    Estimates for European companies which have a large chunk of their revenues in the U.S. have
not been properly revised in light of Donald Trump's tax cuts, and there could be some hidden
value in that, argues the president of French asset management Wise AM.
    As an example, François Jubin notes that the consensus for France's eyewear group Essilor
(43 percent of sales in the U.S. according to him) has not changed since the announcement of the
tax overhaul. (Our data shows its has been revised up by meagre 1.3 percent in the mast 30 days)
 
    If you go hunting, take a look first at Alasdair Pal's Dec. 21 article and his
chart (below), naming European companies with substantial revenues in the U.S. 
 
    (Julien Ponthus and Alasdair Pal)
    *****     
    
    EARLY AFTERNOON SNAPSHOT: STOXX 600 TURNS FLAT ON THE WEEK (1402 GMT)
    Trump has spoken in Davos and data has shown U.S. economic growth unexpectedly
slowed in the fourth quarter . 
    These two potentially market moving events however had little impact on financial markets
and European shares continue to trade well in positive territory.
    Perhaps worth of notice is that the STOXX 600 has hit a fresh day high, up 0.6
percent, turning flat on the week. 
    The euro zone index is also rising but still on track for its first weekly loss of
2018 as the surging euro has raised worries over exporters.  The FTSE is also down on
the week and set for its second straight week of losses.
    In the snapshot the STOXX 600's weekly moves and the euro/dollar:    
 
    (Danilo Masoni)
    *****
        
    A PSYCHOLOGICAL SWITCH: BEARS SURRENDER, GREED TAKES OVER (1305 GMT) 
    Are we in a melt up? Is FoMO (fear of missing out) driving the markets?
    Here's the take of Mark Dowding, a portfolio manager at BlueBay Asset Management, on how
markets underwent a psychological switch in the last few months: 
    "The investor psychology has switched more towards greed. We've seen an equity market that
for a number of years has climbed a wall of worry. Investors have been fearful of valuations,
fearful of geopolitical risks, but it feels like in the last few months, investor fears have
been dissipating and greed has come to the fore." 
    "That's why you see in equities a capitulation of part of the bears and something of an
intensification of bull-market stocks. Having risen gradually for a number of years, the move
looks likes it's turning more parabolic in nature as greed takes over."    
 
    (Dhara Ranasinghe and Julien Ponthus)
    *****
       
    BANKS ARE HOT, SURE, BUT ACHTUNG! (1210 GMT) 
    Investing in European banks has been one of the best trades of the year so far, with the
sector up close to 7 percent in barely a month, more than double the gain of the
pan-European STOXX 600. 
    With rising yields, a buoyant euro zone economy and cash flowing towards cyclical stocks, it
could seem like a no-brainer but here's a word of caution from S&P: don't expect a dramatic
turnaround among underperformers, especially two German ones. 
    The rating agency has identified six major banks which "continue to undergo significant
strategic and operational adjustment" and expects them "to make some progress during 2018, but
not to improve significantly".
    Within these six banks the outlook is broadly improving for RBS, Barclays, Credit Suisse,
and Standard Chartered. 
    But things are not so rosy in Germany and for Deutsche Bank which "is likely to remain a
sustained relative underperformer in its core businesses." For Commerzbank, the outlook is
negative with the "risk that the bank won't build and then sustain capitalization". On the
upside, Commerzbank's woes are fuelling M&A speculation.  
    Here's what the performance of the two German banks looks like when compared to their peers
since the financial crisis:     
 
    (Julien Ponthus)
    *****    
    
    ANOTHER BUMPER YEAR SEEN FOR ITALIAN SMALL CAPS (1133 GMT)
    Italian stocks have shown resilience to uncertainty surrounding the outcome of a national
election in March and one of the reasons cited for that is a wave of inflows generated by tax
breaks granted to investments into small and mid caps.
    Even though the so-called PIR scheme, which is running into its second year has raised
worries of a possible bubble forming, it looks that the bonanza is set to continue.
    In a research note today, Equita estimates PIR inflows at 9.1 billion euros this year after
attracting 11 billion in 2017 in a market dominated by Banca Mediolanum and Intesa
Sanpaolo. They note that Italian small caps trade at 18.3 times 2018 estimated
earnings, a 29 percent premium to the Italian market and above the 5-year average of 20 percent.
    Here some past Reuters stories on the PIR effect and below a chart showing how Italian
small/mid caps have outperformed their peers in Europe over the last 12 months:
    BUZZ-Italian real estate stocks rise on PIR inclusion rumours
    BUZZ-Equita drops expectation of Italy small-caps correction
    BRIEF-Banca Mediolanum confirms target of 3 bln euro PIR inflows in 2017
    Bubble risks loom for Italy's small caps as new fund scheme sparks rally    
 
    (Danilo Masoni)
    *****
    
    TIME TO RE-ENGAGE WITH DEFENSIVES? (1030 GMT)
    According to Deutsche Bank strategists, it is.
    In their latest update they affirm their overweight stance on defensives versus cyclicals
and upgrade utilities from benchmark to overweight: "Defensives have sold off by more than would
have been suggested by the rise in bond yields".
    That being said they point to property firms Vonovia and Deutsche Wohnen,
tobacco group Imperial Brands and beer company Heineken as buy-rating stocks
that are beneficiaries of a renewed fall in bond yields. 
    For those who instead believe yields should continue to rise, they highlight BNP Paribas
, Credit Suisse, Saint Gobain and AXA.    
 
    (Danilo Masoni)
    *****    
    
    OPENING SNAPSHOT: EUROPE BOUNCES BACK (0835)
    European shares have opened higher this morning, bouncing back from a one-week low hit in
the previous session, as the euro pulled back from a 3-year high. In corporate news, a
well-received update from LVMH a dividend increase at Telia and upbeat broker notes for Michelin
and Thales are helping the STOXX 600 index rise 0.3 percent.
    Here's your opening snapshot:    
 
    (Danilo Masoni)
    *****    
        
    WHAT YOU NEED TO KNOW BEFORE EUROPE OPENS (0744 GMT)
    European shares are expected to bounce back on Friday with main stock index futures pointing
to gains of around 0.3 percent. Such gains however would not be enough to prevent the STOXX 600
from scoring its first weekly loss this year. 
    Luxury goods makers will be in focus after LVMH said it had made a favourable
start to 2018 after a revival in Chinese demand boosted sales last year and spurred on some of
its major brands like Louis Vuitton. Its Q4 like-for-like sales were higher than forecast.
    There were strong results and a bullish forecast from Intel, which could help ease market
jitters about semiconductor demand, while Commerzbank could be supported after
Handelsblatt reported that Goldman, Barclays and SocGen are interested in buying its EMC
division. 
    Eyes also on Zalando and Ocado after big price target increases by RBC. 
    
    Other stock movers:
Telecom Italia deputy chairman gives up operational powers - sources 
Nestle to cut 400 jobs in France 
CFM says LEAP engine output 4-5 weeks behind schedule
Telia Q4 core profit matches forecasts  
SSAB Q4 operating profit lags forecast, proposes first dividend since 2012

Givaudan confirms targets after double-digit profit rise
BRIEF-Autoliv announces goodwill impairment in Autoliv Nissin Brake
    (Danilo Masoni and Tom Pfeiffer)
    *****
    
    EUROPE STOCK FUTURES EDGE UP (0715 GMT)
    The euro is rising again this morning but remains below the fresh three-year peak of
$1.25 hit yesterday, with the dollar recovering following U.S. President Donald Trump's Davos
forex "coup de theatre". 
    Just one day after his Treasury Secretary Steve Mnuchin sent the dollar plunging, Trump
surprised markets by saying in a CNBC interview he "ultimately" wanted a strong dollar. You can
watch the interview here: goo.gl/iyNhLt
    The euro pull-back is set to help European shares this morning, with futures on main
regional benchmarks all rising around 0.3 percent.    
 
    (Danilo Masoni)
    *****
        
    
    LUXURY GOODS MAKERS IN FOCUS AS LVMH SOUNDS UPBEAT (0643 GMT)
    Luxury goods makers could be among the stocks to watch today after LVMH said it
had made a favourable start to 2018 after a revival in Chinese demand boosted sales last year
and spurred on some of its major brands like Louis Vuitton.
    Here in bullets the key highlights from results at the world's biggest luxury goods maker.  
 
    * Operating profit up 18 pct in 2017, as expected
    * Q4 like-for-like sales higher than forecast
    * Chinese demand continues to boost luxury goods market   

 
    (Danilo Masoni)
    *****    
    
    
    MORNING CALL: EUROPEAN SHARES SEEN STEADYING (0621 GMT)   
    Good morning and welcome to Live Markets. Following losses in the previous session, European
shares are expected to open little changed today as the battered dollar won back some ground
after President Donald Trump surprised markets by saying he wanted a strong U.S. currency. 
  
     Financial spreadbetters expect London's FTSE to open 2 points lower at 7641.6 points,
Frankfurt's DAX to open 16 points higher at 13430.5 point and Paris' CAC to open 1 point higher
at 5496 points.
    (Danilo Masoni)
    *****

    
 (Reporting by Danilo Masoni, Julien Ponthus, Kit Rees, Helen Reid)
  
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