The Exodus From European Stocks Continues

(Bloomberg) -- Another week, another exodus from European equities. Stock funds for the region lost $1.9 billion in the period and have now had 56 weeks of outflows out of the past 58. The Stoxx 600 is still bumping along recent highs despite a relatively good earnings season.

About a quarter of companies in the Stoxx 600 have reported figures so far and we’ve seen growth in both sales and profits, according to Barclays. If the numbers continue to look good this week, it may help reverse the massive outflows.

The Exodus From European Stocks Continues

Strategists at Barclays point out that earnings, which had been expected to contract in the first quarter, are off to a good start, while fears over margin pressure haven’t materialized.

JPMorgan strategists share the optimism and see the resilience of topline growth in both the U.S. and in Europe as encouraging. This could prove to be helpful for continued earnings delivery in the second half of the year and beyond, they write.

Separately, Bank of America-Merrill Lynch strategists highlighted in their earning tracker that European stocks are having their best quarter in seven, with a 52 percent beat on earnings per share. And it might not be over. Their quantitative models suggests that the worst period of low profit growth is now behind us. The Citigroup Earnings Revision Index seems to show a similar trend.

The Exodus From European Stocks Continues

Drilling down, the best-performing sectors regarding earnings so far in the season have been: banks, food, health care and technology, according to BofAML. Retail and personal goods are at the bottom, taking into account industries where at least five companies have already reported. Consumer-related sectors are the only ones where less than half of stocks have surpassed EPS estimates.

The Exodus From European Stocks Continues

Finally, 73 percent of value stocks have beaten forecasts so far, BofAML said. Could this be the good news investors were waiting for to begin some rotation? The next few weeks will tell. Bloomberg Intelligence strategists recommend not getting too excited though, especially as reactions seem muted after the recent rally.

In the meantime, Euro Stoxx 50 futures are trading up 0.1% ahead of the open.

  • Watch Spanish stocks after the country voted for the third time in four year to elect a new government and although Sanchez will most probably remain in office. A coalition will be needed and while a pact with liberals Ciudadanos would be seen as a positive for investors, a partnership with anti-austerity party Podemos and Catalan pro-independence parties may be less market friendly option.
  • Watch Cineworld and its U.S.-listed cinema operator peers after the latest installment of the Avengers films broke box-office records over the weekend. Bloomberg Intelligence analyst Geetha Ranganathan said the huge haul for the film could help to boost cinema operators, which have seen box-office receipts fall this yr compared to 2018.

COMMENT:

  • “1Q results have delivered a strong earnings and sales beat to very low consensus expectations,” Morgan Stanley strategists write in a note.

COMPANY NEWS AND M&A:

  • Investor Revolt at Bayer to Escalate After CEO Keeps His Job (1)
    • Bayer Takes Fight Back to U.S. Courts After Investor Rebuke
  • Nissan, Japan Reject Merger Overture From Renault Chief, FT Says
  • Deutsche Bank CIB Won’t Need a Shift: Chairman to FT
  • Commerzbank Is ’Strong Enough’ on Its Own, CEO Tells Welt
  • Philips First-Quarter Adjusted Ebita 1.7% Above Estimates
  • Swedish FSA Found Deficiencies in SEB AML Processes in 2016: SVD
  • Bankia First-Quarter Net Income Beats Estimates
  • Covestro Full-Year Ebitda Forecast Midpoint 3.3% Below Estimates
  • Strabag Dividend Misses Estimates as Payout Ratio Drops (1)
  • Altice Europe to Reduce Capital by Canceling Shares
  • TalkTalk’s Dunstone Seeks $1.3 Billion for Fiber Firm: Telegraph
  • Galp First-Quarter Adjusted Net Misses Estimates
  • Fielmann 1Q Sales Rise 6.3%, Pretax Up 9.4%

NOTES FROM THE SELL SIDE:

  • Credit Suisse says Novo Nordisk would likely be a “key beneficiary” of U.S. health-care reform if it’s enacted, expecting impact to be most favorable to drugs in the $5k-20k/year range with high rebates, according to a note. Broker upgrades Novo to outperform from neutral, PT to DKK360 from DKK310.

TECHNICAL OUTLOOK for Stoxx 600 index:

  • Resistance at 392.7 (July high); 403.7 (100% Fibo)
  • Support at 385.7 (76.4% Fibo); 379.6 (50-DMA)
  • RSI: 68.6

TECHNICAL OUTLOOK for Euro Stoxx 50 index:

  • Resistance at 3,516 (76.4% Fibo); 3,596 (May high)
  • Support at 3,403 (61.8% Fibo); 3,360 (50-DMA)
  • RSI: 72.3

MAIN RESEARCH AND RATING CHANGES:
UPGRADES:

  • Caverion upgraded to accumulate at Inderes; PT 6.80 Euros
  • Elisa upgraded to overweight at JPMorgan; PT 41 Euros
  • HMS Group GDRs upgraded to buy at VTB Capital; PT $7
  • Ingenico Group Upgraded to Outperform at Macquarie
  • Novo Nordisk upgraded to outperform at Credit Suisse

DOWNGRADES:

  • Homeserve downgraded to reduce at HSBC; Price Target 10 Pounds
  • M6 downgraded to hold at HSBC; PT 18 Euros
  • Neste downgraded to hold at Kepler Cheuvreux; PT 33 Euros
  • Sampo downgraded to hold at HSBC; PT 46 Euros

INITIATIONS:

  • Kazatomprom GDRs rated new buy at CICC; PT $19

MARKETS:

  • MSCI Asia Pacific up 0%, Nikkei 225 down 0.2%
  • S&P 500 up 0.5%, Dow up 0.3%, Nasdaq up 0.3%
  • Euro up 0.06% at $1.1158
  • Dollar Index down 0.04% at 97.97
  • Yen down 0.04% at 111.62
  • Brent down 0.5% at $71.8/bbl, WTI down 0.6% to $63/bbl
  • LME 3m Copper down 0.1% at $6392.5/MT
  • Gold spot down 0.1% at $1285.5/oz
  • US 10Yr yield down 3bps at 2.5%

MAIN MACRO DATA (all times CET):

  • 9am: (SP) Feb. House Mortgage Approvals YoY, prior 22.5%
  • 9am: (SP) Feb. Total Mortgage Lending YoY, prior 16.2%
  • 10am: (EC) March M3 Money Supply YoY, est. 4.2%, prior 4.3%
  • 10am: (IT) March PPI MoM, prior -0.2%
  • 10am: (IT) March PPI YoY, prior 3.9%
  • 11am: (EC) April Services Confidence, est. 11.5, prior 11.3
  • 11am: (IT) March Hourly Wages YoY, prior 1.7%
  • 11am: (IT) March Hourly Wages MoM, prior 0.0%
  • 11am: (EC) April Economic Confidence, est. 105, prior 105.5
  • 11am: (EC) April Business Climate Indicator, est. 0.49, prior 0.5
  • 11am: (EC) April Industrial Confidence, est. -2, prior -1.7
  • 11am: (EC) April Consumer Confidence, est. -7.9, prior -7.9

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