January 24, 2018 / 12:18 PM / a year ago

LIVE MARKETS-UK, a short seller’s paradise?

    * European shares inch lower
    * Utilities drop after Suez warning
    * Tech hit by fresh Apple woes
    * Novartis beats analyst forecasts

    Jan 24 (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  
    UK investment manager Smith and Williamson says its 136-million-pound Enterprise Fund is
running at 14 percent net exposure to equities, near the bottom of its historic range. 
    "Our net exposure is currently at this low level because there are so many shorting
opportunities,” said co-manager Mark Swain
    Stretched UK equity valuations and an end to the Bank of England’s extraordinary support
mean “asymmetric risk to the downside” in UK equities which creates fertile ground for funds
that can go both long and short, he explained. 
    Muted index volatility masks increasingly aggressive stock dispersions within sectors. 
    The fund is currently short on housebuilders, where the managers were unimpressed by the
impact of last year’s Budget and where some valuations now appear stretched versus history,
especially on a price-to-book basis.
    They are also running a small net short in utilities, although generally the fund targets
individual stocks rather than sectors, as they do not want the performance of the fund to be
governed by large factor risks.
    (Tom Pfeiffer) 
    That's what Rachel Winter, senior investment manager at Killik & Co, told us.
    Winter said that inflation, which is starting to come through in the U.S., could lead to
interest rates rising more quickly than is implied by the market. 
    "If that happens, that will be very good for financials," Winter added.
    In terms of materials stocks, Winter said that they tend to do very well when inflation is
rising and would also be supported by a weaker dollar.
    Today, those sectors are the best-performers in Europe.
    (Kit Rees)
    Heavy losses among European chipmakers on fresh Apple worries have put tech back in focus,
adding to expectations that after a stellar year the richly valued sector could have a less
shiny 2018. 
    Columbia Threadneedle portfolio manager David Dudding says over the last 12 months he has
slightly cut his exposure to some technology names where valuations have looked pricey but still
sees very good opportunities in the space.
    "Some investors have been far too quick to dismiss whole categories of the market as
expensive, ignoring the strong competitive advantages and positive long-term growth profiles of
high-quality businesses within these sectors," he writes in a note, adding that some technology
stocks such as Microsoft are by no means expensive and could even perform better this year.
    "The key is to be as stock specific as possible, focusing on the fundamentals of individual
names rather than sectors as a whole," he adds.    
    (Danilo Masoni)
    As we've mentioned, semiconductor stocks are down today following JPM's downgrade on AMS
. But Deutsche Bank have a slightly different assessment, calling concerns over the
iPhone X "just a speedbump".
    "Despite these cuts to our H1-18 view, H2-18 consensus estimates for ams AG still look low
considering that Apple looks committed to roll out three new models with FaceID in 2018, while a
new iPad looks likely," Deutsche Bank analysts say in a note.
    They add that they still see 1.6 billion euros of revenue in 2018, and that recent weakness
in AMS' share price "offers up a strong entry point to a stock with 30% upside." DB is sticking
with its "buy" rating on the stock.
    (Kit Rees)
    European shares are trading slightly in the red in early trading with utilities leading
fallers after a profit warning from Suez, itself down 15 percent. Tech stocks were
also under pressure after JP Morgan cut its rating for Apple supplier AMS to
neutral, pointing to iPhone X order weakness.
    A strong update from Novartis however lifted healthcare stocks, providing support
to the broader market and helping the Swiss index SMI stand out as the only gainer among
major European benchmarks. 
    Among single stocks, Maersk was the second biggest gainer on the STOXX after
Novartis. Maersk was supported by reports it is seeking a partner for its drilling unit
, while a trader also cited an upgrade to buy at SEB Equities.
    (Danilo Masoni)
    European shares are seen opening flat to slightly lower ahead of the release of PMI data
later today. Some strong corporate updates however could provide support, helping the regional
STOXX 600 benchmark index stay close to its highest levels since August 2015. 
    Futures were last trading between flat and a fall of 0.1 percent, reversing opening gains.
    The pharma sector, recently penalized by a rotation into cyclicals, could be on the
watchlist after Swiss heavyweight Novartis posted better-than-expected core net income
in the fourth quarter and forecast 2018 operating profit would grow faster than sales as revenue
from drugs accelerates.
    The retail sector could find support after Dutch-Belgian supermarket Ahold Delhaize
reported fourth-quarter sales growth at at the high end of market expectations, while France's
Carrefour saw upgrades from SocGen, Bernstein and HSBC.
    The overnight headlines:
    Novartis beats forecasts, sees new drugs fuelling 2018 growth  
    Ahold Delhaize Q4 sales lifted by strong Dutch performance  
    MEDIA-Maersk in talks with possible Norwegian partners for drilling unit 
    UK pub firm JD Wetherspoon posts strong Christmas sales 
    Italian local utilities approve six-way merger  
    UK's Purplebricks taps into U.S. East Coast with New York launch
    Barry Callebaut expects chocolate recovery to continue 
    Estate agent Countrywide CEO Alison Platt resigns 
    Average UK motor insurance premiums paid in 2017 highest since 2012 
    Tesco poaches Ulster Bank CEO Mallon for its financial services arm -Sky News
    Anglo American expects to get licenses to expand in Brazil
    Wirecard rejects report on India business that hit stock
    Publicis says was the victim of anonymous destabilisation attempt 
    MEDIA-RBS to sell London headquarters - The Telegraph bit.ly/2E3CTy7
    BMW and Daimler close to merging car-sharing units - executive
    BRIEF-Sage posts 6 pct Q1 revenue growth, in line with expectations
    BRIEF-Fresnillo Says Set To Increase Throughput And Silver Ore Grades
    (Danilo Masoni and Tom Pfeiffer)
    European shares are expected to open just marginally higher with stock index futures moving
between flat and a gain of 0.1 percent. 
    Some strong corporate updates including from drugmaker Novartis, which we mentioned in our
previous post, and Dutch-Belgian supermarket Ahold Delhaize could
provide support, while on the macro front PMI data will grab the attention ahead of tomorrow's
European Central Bank meeting. And Talking about the ECB here is a graphic piece from Reuters
with five questions for Mario Draghi.
    Here is your futures snapshot:
    (Danilo Masoni)
    The healthcare sector could be one to watch this morning after Swiss-based heavyweight
Novartis posted better than expected results. European healthcare stocks have
underperformed the broader market so far this year as expectations of stronger economic growth
caused a switch from defensives into cyclicals.
    The Swiss drugmaker forecast 2018 operating profit would grow faster than sales as revenue
from drugs including its latest blockbuster Cosentyx accelerates and the company exits a period
when patent losses dented results.
    Will Novartis figures help the sector catch up today?
    (Danilo Masoni)
    Good morning and welcome to Live Markets. European shares are set to open little changed
today after Asian shares took a breather, while a fresh burst of speculative selling took the
U.S. dollar to three-year lows on the euro.
    Financial spreadbetters expect London's FTSE to open 9 points lower at 7,722.5, Frankfurt's
DAX to open 2 point higher at 13,561.5 and Paris' CAC to open 1 point higher at 5,536.3.
    (Danilo Masoni)

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