Closing snapshot: NFPs add to positive trade war news

* Nonfarm payrolls increase 266,000 in November

* European shares edge higher

* Germany's industrial output fell sharply in October

* Wall Street strongly up Welcome to the home for real-time coverage of European equity markets brought to you by Reuters stocks reporters and anchored today by Joice Alves. Reach her on Messenger to share your thoughts on market moves: joice.alves.thomsonreuters.com@reuters.net

CLOSING SNAPSHOT: NFPS ADD TO POSITIVE TRADE WAR NEWS (1712 GMT)

It was a good day for European stocks, as U.S. jobs data boosted the STOXX 600 up 1.2% and helped it recover from this week's heavy losses when we sank below the 400 points benchmark.

At about 407, we're basically back to where we stood at the end of last week.

London's FTSE 100 was likewise boosted - up 1.4% on the day - but down around 1.5% on the week overall.

Trade war headlines briefly took a back seat as investors focused on the stronger-than-expected U.S. Labor Department data showed the unemployment rate falling to 3.5%.

"Combine that promising jobs picture with Donald Trump claiming that trade talks are 'moving right along' and China waiving tariffs on some U.S. soybean and pork shipments, and the markets finally began to find some festive cheer sorely lacking so far in December," wrote Connor Campbell, financial analyst at Spreadex.

Trade war news is likely to move back into focus next week, however, as the White House economic adviser, Larry Kudlow, confirmed that the Dec. 15 deadline is still in place for a new round of U.S. tariffs on Chinese goods to kick in.

Here's how Europe's indexes ended the day:

(Elizabeth Howcroft)

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2020 OUTLOOKS NIBLETS (1602 GMT)

Talking about getting a flavour for next year, here are a some niblets to get a taste of this week's batch of 2020 outlooks.

As you can see, there's a clear "cautiously optimistic" feel to them:

Barclays:

"The tactical risk-reward has become less appealing following the rally ytd, but we hold a constructive stance on equities into 2020".

"We believe that the improving growth-policy trade-off, light positioning and relative expensiveness of ‘safe assets’ will provide the preconditions for an extension of the equity bull market into the delayed end of cycle".

RBC Wealth Management

"We have a constructive outlook for stocks in 2020".

Legg Mason:

"We remain very optimistic about non-US growth equities, particularly in Europe."

Hermes:

"2020 offers more of the same. Yet, differences could include a step-up in geopolitical risk that’s so far not been allowed to disrupt stock markets".

Jefferies:

"When it comes to the outlook for the economy, one of our main themes is the potential for the euro area to surprise on the upside next year. It may be an unfashionable side of the argument to take, but we don’t believe the euro area is following in Japan’s footsteps. The balance sheets of the euro area’s corporate sector do not resemble those of Japanese firms, companies have moved back into deficit and as with 2019, business investment should help drive GDP growth next year".

Schroders:

"The fact that eurozone shares have been unloved is shown by the significant outflows from the asset class this year. However, there are tentative signs of this starting to improve, with the pace of outflows slowing. Investors returning to the asset class could be an important source of support for shares in 2020".

State Street Global Advisers:

"Robust domestic demand and healthy consumer spending data lend weight to US equities, where recent monetary policy accommodation has increased risk appetite and reduced the risk of recession".

"By contrast, European equities, while more attractively valued, remain vulnerable to persistent political and structural uncertainties. Shifts in fiscal policy and greater political clarity around Brexit, as well as movement on much needed structural reform, could unlock value in European equities."

BNP Paribas (Q1 outlook)

"Q1 2020 to present opportunities to buy the dip"

"Trade uncertainty is likely to persist even if China and the US conclude a ‘phase-1’ deal. However, we expect the US and the eurozone to avoid recession, and we view the risks as more balanced than at the time of the last Global Outlook".

(Julien Ponthus)

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WILL NEXT WEEK GIVE US A FLAVOUR OF 2020? (1508 GMT)

A UK hung parliament torn over Brexit, France paralysed by a general strike, falling German manufacturing and a full blown U.S.-China trade war is clearly not how investors would like to enter 2020.

Yet all of this could very well be in store for next week.

While the polls still give Boris Johnson a very comfortable lead over Labour's Jeremy Corbyn, many are not jumping the gun and rushing back to snap (arguably) cheap UK shares.

"With just a few days to go before the UK heads to the polls, given the clear political uncertainty, it is sensible for investors to be underweight the UK", says Shane Balkham, chief investment officer at Beaufort Investment.

Same case could probably be made for the Dec. 15 tariffs deadline. The world economy won't quite be the same whether we get a U.S.-China phase-one preliminary deal or Trump taking the trade war to the next level.

"Without a Phase 1 deal, the existing tariff increases would act as a further drag on trade and therefore growth", Investec analysts argued earlier this week.

While Paris' CAC 40 has outperformed the euro zone STOXXE benchmark both in 2018 (-11% vs -14.8%) and so far in 2019 (+24% vs +21.2%), investors may start to have doubts regarding President Macron's capacity to pursue his reform agenda.

"France is experiencing the largest general strike in years over proposed pension reform, which has paralyzed it. OK, France is synonymous with strikes, but a general strike is a big deal", a Rabobank morning note read.

Today's indicator from Germany was clear signal that the economic powerhouse of Europe is by no means out of the woods and that the European "bottom up" narrative is not yet validated.

One clear ray of sunshine however: the stellar NFPs sure don't point towards an imminent recession. Fed hike anyone? :-)

Out of all the outlooks being published lately, HSBC's headline "The age of uncertainty", certainly seems to reflect the current vibe even if the British bank, like most of its peers, takes a rather optimistic view for 2020 and remains "pro-risk" in its asset allocation.

But sometimes being too cautious and cost you dearly:

"Going to cash at the start of 2019 felt safe and sensible, but it turned out to be very costly for investors", HSBC analysts wrote.

(Julien Ponthus)

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EUROPEAN BOURSES JUMP ON U.S. JOB DATA (1402 GMT)

It is a very calm day but better-than-expected U.S. job data gave traders some comfort, helping European bourses accelerate gains.

"Forget Star Wars, this year’s Christmas blockbuster is today’s nonfarm payrolls report", Neil Wilson, chief market analyst for Markets.com commented.

The pan-European index is now up 0.9% and the UK blue chip index is rising 1.1% after NFPs increased by 266,000 last month, beating the Reuters consensus of 180,000.

Here is a snapshot of the immediate reaction of the STOXX 600 and the FTSE.

(Joice Alves)

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THE POST DEC. 12 UK HOUSE-BUILDING BET (1313 GMT)

So, let's imagine the Dec. 12 election does give the business-friendly outright Conservative majority some investors are hoping for.

Imagine you're part of that crowd, what would you buy?

Marco Pabst, chief investment officer at Union Bancaire Prive believes UK homebuilders and could be a good bet.

Thanks to their high dividend payments and the fact that the number of housing transactions in the UK still hasn't recovered to pre-crisis levels, stocks like Bellway, Persimmon , Taylor Wimpey, Redrow and Countryside Properties look attractive, he said.

The highest dividend yield out of the companies in the FTSE 350 Household Goods Index is Persimmon's 9.34%. Let's bear in mind however that super juicy dividends are also known to lure investors into value traps.

"Homebuilders are cheap from a valuation perspective but it's also pretty impressive to see how they've restructured their balance sheets since the financial crisis," Pabst said.

Pabst also cited the fact that new homes being built in the UK each year consistently falls around 100,000 short of the government's 300,000 target – so you'd expect it to be top of the new government's agenda in 2020. Along with Brexit, of course.

UK homebuilders were among the top gainers on the FTSE 100 <.FTSE 100> during October's rally when markets took the risk of a no-deal Brexit off the table.

Pabst said he won't invest in the stocks he mentioned until after the election, once the risk of a Labour government putting them in "total reverse" has gone away.

Just this morning British homebuilder Berkeley Group Plc reported a slump in first-half pretax profit, as homes are being sold at lower prices.

The real-estate market has been jammed by Brexit. Last month the number of properties put up for sale in Britain saw its biggest drop in ten years and a Reuters poll found that house prices aren't even expected to keep up with inflation.

On the brighter side house prices rose in November at the fastest annual rate in seven months and 2.1% year-on-year.

But let's not forget that more broadly, British real estate is a troubled sector and M&G Investments suspending its flagship UK property fund on Wednesday was a big reminder of that.

(Elizabeth Howcroft)

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GERMANY: NO LIPSTICK ON THE PIG (1211 GMT)

Germany's industrial output fell unexpectedly in October casting fresh doubts over the country's economic health as the two heavy-weights of the industrial sector, the auto and machinery sector, are pushing down economic activity.

UniCredit says the steep decline is bad but not catastrophic enough to lead the country into recession.

"This is not the time to put lipstick on the pig. This morning’s steep decline in industrial activity is an outright disappointment," writes Andreas Rees, UniCredit's Chief German economist in a note. However, "we think that a decline in German GDP, or even a recession, can be avoided," he adds.

How Germany will avoid a recession, according to the Italian bank:

1) Domestic demand is expected to be robust enough to keep the economy afloat.

2) There are some underlying signs of stabilisation.

3) There are also some rays of hope. The new-orders-to-inventories ratio included in the manufacturing PMI survey bounced back in October/November to slightly below one from its lowest level since the global financial crisis

4) Renewed rise in car sales in China and car registrations in the EU.

Meantime, the German Dax index is trading in positive territory, up 0.3%.

(Joice Alves)

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SELLING BONDS AND RUSHING BACK INTO EUROPEAN EQUITIES (1131 GMT)

It's over! After 85-consecutive weeks of outflows, European equity funds have finally returned to inflows, Morgan Stanley analysts write this morning in a strategy note.

As one could expect, the move into risk assets comes with flows for European bonds turning negative.

It doesn't change the picture for 2019 with so far $100bn of outflows from equities and $50bn of inflows into European bonds. It could, however, be a tipping point.

"We think we will see a resumption of European equity inflows as global equity investors increase exposure to the region and European asset allocators move some funds from bonds to stocks", they write.

It's not only an European things though. According to Bank of America Merrill Lynch and EPFR Global data, global equity funds received $7.2bn in the week to Wednesday and U.S. equities sucked in $2.6bn, their biggest weekly inflow in a month.

Looking into the latest batch of 2020 outlooks, analysts still seem torn over whether U.S. shares will continue to outperform their European peers in 2020.

(Julien Ponthus)

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TGIF: EUROPEAN SHARES EDGE HIGHER (0900 GMT)

European bourses are trading in positive territory this morning after Trump said trade talks with China were "moving right along".

The pan-European STOXX 600 index rose 0.2%, with banks, technology firms and retail companies leading the gains.

The bluechip London index rebounced with trade-sensitive financials and miners leading the recovery.

Germany's Dax was flat at the open after the country's industrial output fell unexpectedly in October, but the index quickly bounced back.

In terms of single stocks, France-based biopharmaceutical group Ipsen is on track for its worst day ever, down 24%, after it announced partial clinical hold for palovarotene ind120181 and ind135403 studies.

Here is a snapshot of European bourses this morning:

(Joice Alves)

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MIXED SIGNALS (0755 GMT)

Stock futures of most European bourses point to a slightly higher start as investors are feeling more confident the U.S. and China are closer to seal a trade deal after Donald Trump said yesterday talks with China were "moving right along".

But investors will also have fresh weak data to digest. German industrial output fell unexpectedly in October on a sharp drop in production of capital goods, pointing to persistent weakness in the backbone of the economy that may stabilise in the coming months, the Economy Ministry said this morning. On the corporate front, insurers will be under the spotlight after Phoenix announced its biggest-ever deal. It agreed to buy Swiss Re's ReAssure unit for $4.1 bln.

Homebuilders are also on our radar: Berkeley Group is seen down at the open after it reported a slump in first-half pretax profit. The company sold fewer homes at lower prices in the Brexit hit real-estate market.

On the small cap front, one trader sees Haynes up 10% after the company reported it expects HY adjusted profit before tax to finish ahead of prior year by c. 37%.

Associated British Foods is seen higher by one trader at the open as the company kept its FY forecast for earnings growth and said it plan further expansion of its Primark fashion chain. Other corporate stories:

WPP to return $1.2 bln to investors via repurchase after Kantar deal

Italy's Sanlorenzo prices IPO at 16 euros/share

AB Foods forecasts earnings growth in 2019-20 year

Telecom Italia, Open Fiber trade barbs over single network project

UK's CMA raises local competition concerns over Stonegate's takeover of Ei

(Joice Alves)

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EUROPEAN STOCKS SEEN HIGHER (0635 GMT)

European bourses are seen opening slightly higher this morning as investors are feeling more confident the U.S. and China are closer to seal a trade deal after the U.S. President Donald Trump said yesterday talks with China were "moving right along".

Trump's upbeat tone in comments was enough to spark buying across Asia overnight, despite a lack of agreement between the two countries over whether existing tariffs should be dropped as part of the "phase one" deal to end the 17-month trade war.

Financial spreadbetters at IG expect London's FTSE to open 18 points higher at 7,156, Frankfurt's DAX to open 56 points higher at 13,111 and Paris' CAC to open 23 points higher at 5,825.

(Joice Alves)

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(Reporting by Danilo Masoni, Joice Alves, Julien Ponthus and Thyagaraju Adinarayan)

First Published: 2019-12-06 10:33:10
Updated 2019-12-06 19:13:44


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