Live Markets: European Semis: What does Apple guidance tell us?

LX International

01/08/2018 15:18

LONDON, Aug 1 (Reuters) - Welcome to the home for real-time coverage of European equity
markets brought to you by Reuters stocks reporters and anchored today by Julien Ponthus. Reach
him on Messenger to share your thoughts on market moves:
julien.ponthus.thomsonreuters.com@reuters.net    
    
    
    EUROPEAN SEMIS: WHAT DOES APPLE GUIDANCE TELL US? (1418 GMT)
    Apple's  AAPL.O  solid update is delivering a confidence boost across markets today,
soothing tech sector nerves following Facebook's  FB.O  historic share price drop. More in
detail, it looks like there's also positive news for European suppliers of the U.S. tech giant.
    Credit Suisse has done the number-crunching and says guidance and low inventory levels
reported by the iPhone maker are supportive for European semiconductors.
    Here are the main takeaways from analysts at the Swiss bank:
    * Apple guided for sales of $60-62 billion in the fourth quarter. That would imply around 2
million more units than street expectations of 47.1 million units for the period
    * iPhone channel inventory went down by 3.5 million units, scoring the fourth consecutive
quarter
where sell-through was above sell-in resulting in inventory depletion. They say that suggests a
decent set-up for suppliers in the second half of 2018, something that's already been flagged by
TSMC  2330.TW , AMS  AMS.S , STM  STM.BN  and LGI  001120.KS     

    Still in the Semis space, a report that Infineon  IFXGn.DE  had approached STMicro in 2017
over a possible takeover has livened up the session. STMicro spiked higher briefly on the
headlines before paring gains as investors ponder prospects for any such deal. 
    "Any deal between the two companies will face severe anti-trust scrutiny given their strong
position in semiconductor for Auto and mostly for Electric Vehicles," an Italian broker says.
    (Danilo Masoni)
    *****
        
    EUROPEAN BANKS: A PHOENIX RISING FROM THE ASHES? (1252 GMT)
    Earnings today from Lloyds and BNP Paribas are the latest in a string of positive updates
from banks across the European region - encouraging results which may help revive the sector
after a terrible 7 months of 2018.
    "The overriding message, from the 25 banks reporting thus far, is healthy," say Goldman
Sachs analysts. 
    Profitability for the sector is up 22 percent year-on-year, loans are growing and credit
quality is improving, they note. Plus, with the sector down 8.6 percent year-to-date, valuations
are low with opportunities to pick up bargains (their favourites include BNP, UniCredit,
Standard Chartered, BAWAG and Sabadell).
    Three more key themes from the season GS highlights:
    * results dynamic favours the south of Europe over the core
    * IB results have a positive read-across for French banks
    * the bar to outperform consensus expectations seems low

 
    (Helen Reid)
    *****
    
    MIDDAY SNAPSHOT: RESULTS WEIGH (1145 GMT)
    Results are the main attraction on European equity markets as the STOXX drifts lower, while
the FTSE is a particular underperformer as it comes under pressure from a fall across miners and
a tumble in Next's shares.
    U.S. shares are pointing to gains on Wall Street later on with Apple shares up in premarket
trade after its earnings beat expectations.
    Here's your snapshot:
    
 
 
    (Kit Rees)
    *****
    
    NO HAPPY HOUR FOR SPIRITS MAKERS IF TARIFFS HIT (1113 GMT)
    The EU has said it plans to put 25 percent import tariffs on some U.S. products including
whiskey, but excluding beer and wine - and investors are concerned the U.S. could hit back with
tariffs on EU spirits imports to the U.S. - the biggest market by value. 
    While many companies this earnings season have emphasised how "agile" they are and able to
move production, this doesn't apply to many of Europe's drinks companies. 
    Depending what spirits they make, some brands can't legally move production or bottling
elsewhere as they are "appellation".
    Cognac, Scotch, and Tequila have to be bottled and labelled in France, Scotland, and Mexico
respectively, Morgan Stanley points out. "We cannot produce cognac in Texas," quipped Remy
Cointreau's CFO in results.
    The maker of cognac and cointreau said it would simply have to increase prices for U.S.
consumers in a tariffs scenario.
    Morgan Stanley sees tariffs taking up to 2.5 percent, 5.8 percent and 8.4 percent off EPS
for Diageo, Campari, and Pernod respectively, depending on the demand elasticity (bearing in
mind these are premium spirits sold to less price-sensitive consumers).
 
 
    (Helen Reid)
    *****
    
    STAYING CAUTIOUS: "KEEP SOME CASH READY" (1053 GMT)
    July has passed with the STOXX 600  .STOXX  up 3 percent - a decent gain given the simmering
trade tensions - but August is off to a more subdued start amid conflicting signs over which
direction the trade dispute between the United States and China is headed.
    For that reason, many remain cautious, bracing for more turbulence ahead. This however does
not mean that investors shouldn't be prepared to snap up good companies if their share prices
fall, as economic growth remains healthy. 
    "Our idea is to keep a cash reserve ready to buy companies with good fundamentals when the
opportunity arises," says Luigi de Bellis, analyst at Equita SIM in Milan.
    As a result, Equita has cut the stock weight in its recommended portfolio to 88.3 percent
from 92 percent, against the benchmark weighting of 95 percent.
    There are plenty of deadlines this month to keep track of possible trade war developments.
For a recap, check out this post: TRADE WARS. WHAT TO WATCH NEXT?  urn:newsml:reuters.com:*:nL5N1UN3MO
    De Bellis also notes that the end of the ECB's asset purchases could be another source of
volatility, until its effects become clear. 
    (Danilo Masoni)
    *****
    
    ACTIVE EQUITY FUNDS CLEAN UP IN FIRST HALF (1012 GMT)
    Is it really a stock pickers' market? Apparently so, according to a report from UBS in which
its analysts find active equity funds outperformed their benchmarks after fees in the first half
of this year.
    They looked at the active vs. passive performance of more than 7,500 equity investment funds
sold into Europe. 
    As UBS expects to see higher volatility going forward, the second half could also be a
favourable environment for active managers.
    "In an environment where the dispersion of single stock returns increases, data show active
managers outperform their benchmarks (as a group), after fees," UBS analysts say in a note.
    "While improving relative performance amongst active fund managers is unlikely to reverse
the trend of fund flows into passive strategies, we do think that it may serve to mitigate/slow
the shift to passive funds," they add.
     
 
 
    (Kit Rees)
    *****
    
    BIGGEST EARNINGS-DAY MOVES SINCE 2003 DRIVE STOCK CORRELATIONS DOWN (0953 GMT)
    Today's big price swings after results are not unusual this earnings season. We've seen
particularly volatile reactions, both positive and negative, to results.
    "No - it's not your imagination - earnings day moves are getting bigger," say Goldman Sachs
analysts, who reckon Europe's second quarter is delivering the biggest earnings-day moves
(relative to non-earnings days) since they started tracking the data in 2003.  
    As a result, STOXX correlation has been driven to very low levels by these increasingly
idiosyncratic moves (see chart below). This gives investors more opportunities to make money on
active bets on individual stocks, as opposed to highly correlated moves which favour passive
strategies.
    In other observations from this earnings season, GS points out: 
    * some of the biggest gainers have been Value stocks, on in-line numbers and small beats
providing
earnings relief
    * stocks with positive price momentum have been underperforming, driving the Momentum factor
down
while Value rises

 
    (Helen Reid)
    *****
    
    OPENING SNAPSHOT: STARTING AUGUST WITH TIMID GAINS (0718 GMT)
    The STOXX, DAX and CAC are barely managing to stay in the black, as August kicks off with a
flurry of earnings driving the day once again, while benchmarks are weighed down by a new U.S.
tariff plan and central bank updates looming from the Fed and Bank of England. 
    Banks Lloyds and BNP Paribas are gaining after results, adding to a pretty strong earnings
season for financials. 
    Air France is among top movers, up 6.9 percent after its results beat profit expectations.
UK-listed BBA Aviation and Capita, however are top fallers, down 16 percent and 10 percent,
after results. 
    Miners are the worst performers, down 1.4 percent as copper prices slide on news the Trump
administration may propose a higher 25 percent tariff on $200 billion of Chinese imports.
 urn:newsml:reuters.com:*:nL4N1US1I8
    In strong earnings moves, Belgium's Telenet Group is top of the STOXX, up 8.4 percent after
announcing an extraordinary dividend and supportive first-half results. 
    (Helen Reid)
    *****
    
    WHAT TO WATCH AT THE EUROPEAN OPEN: BNP PARIBAS, AIR FRANCE, THYSSENKRUPP (0644 GMT)
    Apple’s better-than-expected results are definitely good news for European tech, which had
just been overtaken as the best performing sector YTD by oil and gas.
    The Apple beat and a strong finish on Wall Street are nevertheless not providing enough
steam at the moment to push bourses across the continent into the black. There’s still a lot of
caution out there on the never-ending trade war saga with contradictory signals from the U.S. At
the moment futures are still just slightly in negative territory.  
    A fresh new batch of PMI data in Europe could also help set a clearer trend after
yesterday’s disappointing GDP data. 
    At the moment, the new salvo of earnings is not painting a particularly grim picture of the
European economy. French bank BNP Paribas is seen rising 2 to 3 percent this morning after
beating consensus, and Air France could also make gains of around 4 percent, traders say, after
pledging revenues despite the recent strikes. 
    While ArcelorMittal seems likely to gain from a strong quarter, Thyssenkrupp will likely
fall after cutting profit guidance. Another mover could be Dialog, seen rising after ending
talks to buy Synaptics.    
    (Julien Ponthus)
    *****
    
    
    FUTURES DIP SLIGHTLY AHEAD OF PMI DATA (0614 GMT) 
    Futures have opened cautiously in negative territory but with the incoming batch of PMI
manufacturing data and quite a lot of earnings to process, it seems this negative trend could
quite easily reverse to positive territory. 
 
 
    (Julien Ponthus) 
    *****     
    
    MORNING CALL: NO SET DIRECTION AHEAD OF THE OPEN (0520 GMT) 
    There is no clear trend emerging yet from financial spreadbetters who currently expect
London's FTSE to open 12 points lower, Frankfurt's DAX 1 point higher and Paris' CAC to edge
down 8 points. 
    On one hand a strong finish on Wall Street and Apple's better-than-expected results should
encourage investors to switch to "risk-on" but caution in Asia and contradictory signals on the
U.S.-China trade saga are bound to keep some of them on their toes.
    There's also a case to wait to get a feel from today's new salvo of corporate earnings and a
fresh batch of European economic data later this morning, with notably manufacturing PMIs for
Germany, Italy, France, the UK and Spain.
    (Julien Ponthus) 
    *****

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open    https://reut.rs/2KfIYcg
STOXX correlations GS Aug 1    https://reut.rs/2n0iemY
Fund performance H1 (-UBS)    https://reut.rs/2LJsvmn
MS spirits analysis Aug 1    https://reut.rs/2M7kT9i
Midday snapshot    https://reut.rs/2M7kQKy
banks stage a comeback Aug 1    https://reut.rs/2M5Aeat
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