February 15, 2018 / 11:05 AM / a year ago

LIVE MARKETS-Why did the market shrug off U.S. inflation data?

    * European stocks rise to 1-week high
    * Earnings boost Airbus, Aegon, Ipsen
    * Nestle falls on earnings disappointment

    Feb 15 - 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:
    After a correction triggered by wage growth numbers indicating inflation was
building, yesterday's U.S. inflation figure was hotly anticipated. 
    But all the anxiety dissipated rapidly after a sharp dip when inflation came
in higher than expected, and stocks swung back like nothing had happened, and
are rising higher today. Here are a few takes on this mysterious bounceback.
    "You would have expected Wednesday's inflation figures to trigger another
really big down day. But it didn't, and for me that's a clear indication that
inflation is not as big a threat as people made it out to be over the past
couple of weeks," says Lukas Daalder, chief investment officer at Robeco.
    "One of the key factors that was seen to be pretty risky all of a sudden is
not seen as risky - this is an indication the market wants to go higher and at
the moment the 'buy the dip' force is still very very strong," he added. 
    "2017 was a very momentum-driven market, and if that's still the case, which
after yesterday it appears to be, then we will probably see new highs before too
    Another element driving markets up could be investors feeling more confident
having invested in some insurance against a further sell-off.
    "After the carnage the week before, the market has a lot more downside
protection," says a trader. "People would have bought downside options which
means there is not so much urgency to sell."
    UBS Wealth Management's CIO today echoes others in the market who've warned
not to take these monthly releases too seriously as they can be warped by
seasonal factors and adjustments. "One-off data releases tend to be 'noisy' and
may not indicate a change in the trend."    
    (Helen Reid)

    Nestle is the biggest negative weight to the STOXX this
morning, its shares down as much as 2.8 percent to a 10-month low. Its update
clearly disappointed but its share price reaction also highlights that highly
valued companies like the Swiss food giant need to deliver more to keep
investors happy in such markets. Anyway here are some more granular views from
the sell-side views on what went wrong.
    Baader Helvea: "Weak 4Q organic growth and the bare minimum of strategic
decisions. Overall rather a weak set of figures, in our view. The strategic
transformation looks on track, but those hoping for acceleration in speed might
be disappointed. In a volatile stock market environment this might bring
short-term pressure on the share price".
    Zürcher Kantonalbank: "The quality of the margin trend is disappointing,
with savings in marketing and a disappointing trend for the gross profit margin.
Given the stock's higher valuation compared with its peers, we anticipate the
share price will react negatively".
    But UBS sees the glass half full: "While we think these results & guidance
are not enough to re-rate the shares, we highlight some positives that should
limit downside: Nestlé expects US tax reform to result in a 200bps reduction in
its tax rate from 2018 onwards; it is reviewing the strategic options for Gerber
Insurance business, signalling more portfolio management to come; and (3) Nestlé
does not intend to increase its L'Oréal stake and will not renew the shareholder
agreement with L'Oréal to keep its options open in the future"
    Nestle is trading at a price of 20.1 times its earnings, above its 10-year
average and above the PE multiple of peers Unilever and Danone
, as you see in this chart. goo.gl/q9ZyBJ    
    (Danilo Masoni)
    Here's the pitch from Intl FCStone: if you are bullish on the euro, a
cheaper way than bonds or cash to get into that trade is to buy European
equities, in particular Spanish stocks.
    "Spain looks particularly interesting because its forward P/E has fallen by
18.5 percent  since the index peaked in May. Spanish equities trade for 12.4
times forward earnings, matching the levels observed during most of the
sovereign debt crisis," strategist Vincent Deluard writes.
    Here's his chart:      
  Deluard also points out that while European equities did not underperform
during the recent correction, they did not match their U.S. peers during the
preceding "melt-up". 
  Have a look at the STOXX versus the S&P 500:  
    (Julien Ponthus)    
    European shares are on the up in early trading as well-received earnings
updates send shares in Airbus, Ipsen and Aegon to
the top of the STOXX, while a broader bounce in commodities-linked firms and
banks is also adding to gains.
    A fall for Nestle is weighing on the Swiss Index, while the
bond proxy-type sectors are all on the backfoot as bond yields continue to march
    Here's your opening snapshot:
    (Kit Rees)    
    European stocks were set to extend their rally on Wednesday as equity
investors around the world shrugged off a spike in U.S. inflation which had
caused a sharp but short-lived drop in stock markets in the previous session.
Futures indicated gains of 0.5 to 0.8 percent across Europe’s major benchmarks.
    A raft of earnings to digest today including heavy hitters Nestle and
Airbus. Nestle said it had no plans to increase its stake in L'Oreal, and a
trader said the comments had triggered speculation Nestle could sell its stake.
The Swiss food giant’s shares were indicated down 1.6 percent in pre-market. 
    Airbus shares were seen up 3 to 4 percent after profits for Europe’s largest
aerospace group came in higher than expected, although it took a new 1.3 billion
euro hit on its A400M military transport plane.
    With the rand hitting three-year highs against the dollar after
President Jacob Zuma resigned, stocks exposed to South Africa could get a boost.
And autos stocks could gain from data showing sales of passenger cars in Europe
rose twice as fast in January as in the whole of 2017.
    (Helen Reid)
    Once more it's set to be a busy day of earnings, with numbers from the likes
of Nestle, Airbus and Schneider Electric to keep traders busy. Below is a
round-up of this morning's key European company and macro headlines.
    Nestle disappoints in 2017, no plan to increase L'Oreal stake

    Airbus takes 1.3 bln euros charge on A400M military plane

    Schneider Electric ends 2017 on high note despite currency
    Capgemini annual revenue beats on strong Digital and Cloud
    Norwegian Air reports bigger-than-expected Q4 loss
    Aegon reports Q4 earnings above analysts' expectations

    Straumann FY revenue hit $1.08 bln on higher sales
    Insurer NN Group's Q4 profit jumps on Delta Lloyd takeover

    Insurer Lancashire warns of tough year ahead, swings to loss

    Anglo-Dutch RELX to end dual-company structure, profit rises 6 pct

    Britain's ConvaTec 2017 profit down 3.3 percent on supply issues
    Lloyds axes $140 bln Standard Life Aberdeen contract

    European car sales up 6.8 pct in January, led by French gains
    French unemployment falls to lowest level since 2009
    Amazon says to create 2,000 jobs in France in 2018
    Hedge fund Bridgewater makes $22 bln bet against European firms

    ANALYSIS-Sorry, not sorry: Wall Street not quitting 'vol' products

    (Kit Rees)
    Stock futures have opened robustly higher - up 0.5 to 0.8 percent - across
the major European benchmarks, indicating yesterday's rally will be extended.
German bund futures have opened lower, however, as yields continue to rise
across markets.
    Looks like JP Morgan may have been prescient in its Monday note arguing "The
negative correlation between stock and bond prices is not dead, in our view, it
will quickly reestablish itself and ultimately prove a valuation cushion in case
of further equity weakness."
    (Helen Reid)
    After yesterday's U.S. inflation data, European investors will be focusing
on, among other things, speeches by ECB policymakers Praet, Mersch and
    "We think they might signal that the recent market turbulence is not a
source of concern given the strength of the current expansion," write Societe
Generale analysts. "They are also likely to reiterate that the asset purchase
programme will continue until September this year and that what happens beyond
then is entirely data dependent."
    A heavy slate of earnings today to keep traders and investors occupied as
well: Airbus announces it's taking a 1.3 billion euros charge on its
A400M military plane, clouding its better-than-expected profits, while budget
airline Norwegian Air reports a bigger than expected Q4 loss. Other big
companies reporting today include Nestle and Capgemini.
    In other results: 
    Schneider Electric ends 2017 on high note despite currency headwinds

    Straumann FY revenue hit $1.08 bln on higher sales
    Insurer NN Group's Q4 profit jumps on Delta Lloyd takeover
    (Helen Reid)
    Good morning and welcome to Live Markets. 
    European stocks are called to open strongly higher today, following the lead
of Asian markets which gained after Wall Street shrugged off a spike in
inflation many had feared would derail equities once again.
    Asian shares rose overnight after U.S. stocks took the inflation data in
their stride, with the Dow Jones up 1 percent and the S&P 500 up 1.3 percent.
Bonds plunged, however, as Treasury yields jumped, in anticipation of more rapid
U.S. interest rate hikes.
    Currency movements could colour European trading today, with the euro
hitting a 10-day high against the dollar as the greenback suffered further
    Spreadbetters call the DAX 132 points higher at 12,470.9, the CAC 40 up 50
points at 5,215.2, and the FTSE 100 35 points higher at 7,248.8. 
    (Helen Reid)

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