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LIVE MARKETS-The not-NAFTA deal: not that big a deal?

Published 2018-10-02, 06:01 a/m
© Reuters.  LIVE MARKETS-The not-NAFTA deal: not that big a deal?

* European shares open lower

* Italian banks hit 19-month low

* Royal Mail (LON:RMG) falls another 8 pct

Oct 2 (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

THE NOT-NAFTA DEAL - NOT THAT BIG A DEAL? (0950 GMT)

The rebranded USMCA deal, apart from providing a springboard for many a Village People joke, hasn't been earth-shattering for markets.

"The economic implications are little to none," says UBS chief economist Paul Donovan. "Not-NAFTA looks a lot like NAFTA. What the deal does do is reduce the risks to financial markets of trade being disrupted."

Yesterday's boost to risk appetite was pretty short-lived and investors today are focusing back on Italian risks and weak PMI figures from China which dented sentiment in Asia.

After all, this is just one small step in the bigger trade story.

"Not many people like Trump for his views, but as a businessman he seems to be doing a relatively good job," says David Keir, manager of the global income and growth fund at Saracen.

"What the market is looking for is to see further agreements with the EU, and the big prize is a deal with China."

Here was ING forex analyst Viraj Patel's interpretation of the "USMCA". Our apologies if the song is now stuck in your head.

(Helen Reid)

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WANNA PLAY BREXIT? (0924 GMT)

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Let's forget Italy for a moment and turn to Britain.

Natixis equity derivatives strategists Eric Benoist and Sav Vedi liken the drama around Brexit to "a power struggle of Shakespearean proportions" and look at the rationale for a long positioning in UKX volatility.

"As we approach the withdrawal deadline, we expect asset prices to become increasingly volatile to news flow. The increased uncertainty surrounding the nature of Brexit has historically manifested in pound volatility and weakness. We expect the GBP to remain volatile. However, we do not see the FTSE 100 (UKX) volatility being dampened by that effect, as GBPUSD and UKX correlation picks up," they say.

"Contrarily, we expect UK assets to face turbulent times, and we postulate it may be appropriate to position now for higher UKX equity volatility," they conclude.

The UKX 12-month ATM implied volatility is trading about 1 standard deviation from its 5-year mean, and strategists at the French bank say that is an interesting entry point.

And here is Shakespeare, in a First Folio discovered nearly 400 years after his death.

(Danilo Masoni)

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MORNING SNAPSHOT: ITALIAN STRESS SPREADS (0855 GMT)

A war of words between European officials and the Italian government is fuelling worries that the euro zone may be heading into a crisis and while that is hitting hard Italian assets, the rest of Europe is feeling the pain too.

"Italy remains front and centre for investors in Europe as tensions between Rome and Brussels seem to be mounting," says Neil Wilson, chief market analyst for Markets.com.

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"Talk of a fresh crisis seems overblown at present, but it does look as though the EU and the Italian government are set for a major clash that will have far-reaching ramifications for the EU and the Italian economy, even if it does look rather like markets are getting overly twitchy over a couple of percentage points in the deficit," he adds.

As you can see in the snapshot no European benchmark is trading in positive territory, although selling pressure appears to have eased somewhat, as the economics spokesman of the right-wing League, Claudio Borghi, sought to clarify his earlier remarks which spooked investors by saying: "Leaving the euro is not in the government's programme and it has no plans to do so". Masoni)

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WHAT WE'RE WATCHING BEFORE EUROPE OPENS (0652 GMT)

Weak Chinese manufacturing sector surveys and fresh anti-euro rhetoric in Italy from the head of the lower house's budget committee are set to weigh on European shares at the open with stock index futures trading down as much as 0.7 percent.

Besides the sovereign stress on Italian banks, which could drag euro zone banks lower, UK housebuilers will be in focus after data showed house prices rose 2% in September, topping expectations, and ahead of the construction PMI for the same month which is expected to have remained constant. The sector was hit yesterday by worries over plans to levy an extra fee on foreign buyers of homes.

On the corporate front, Akzo Nobel is on the watchlist after the Dutch paintmaker said it would return 5.5 billion euros to shareholders, fulfilling a promise to give shareholders the large majority of proceeds from the sale of its specialty chemicals unit.

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Some minor dealmaking could also impact share prices with Veolia raising 340 mln euros from the sale of its transport unit, and France cutting down its stake in aerospace firm Safran (PA:SAF).

Eyes also on the auto sector and possible comments on the outlook for global trade, electric cars and diesel costs on the first press day of the Paris auto show.

Other stock movers: Thyssenkrupp (DE:TKAG) might exit German benchmark index after split - WAZ; Ferguson posts higher profit on strong U.S. industrial demand; Wintershall DEA eyes listing in H2 2020, says Handelsblatt; BNP Paribas (PA:BNPP) promotes investment banker Gerardin to deputy chief operating officer; Renault (PA:RENA) offers trade-in incentives for German diesel owners; DX Group posts smaller-than-expected loss as turnaround plan pays off

For more headlines check out the previous post.

(Danilo Masoni)

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EARLY MORNING HEADLINES ROUNDUP: AKZO NOBEL, MINOR DEALMAKING (0558 GMT)

Among the stocks to watch this morning at the open is Akzo Nobel AKZO.AS after the Dutch paintmaker fulfilled its promise of returning billions to shareholders. We'll also be watching the reaction to some small dealmaking activity. Here's an early corporate headlines roundup:

Akzo Nobel to return 5.5 bln euros to shareholders after division sale sells Transdev transport unit stake to Rethmann for 340 mln euros sells 2.35 pct Safran stake to finance innovation fund eyes stakes in boutique investment banks - FT parties agree diesel costs deal - but keep it secret scraps post of operations manager at its Premier Inns Co-op strikes green plastic bag deal with Italy's Novamont - source shareholders back London delisting amid protest Sept car sales fall 25 pct as stiffer emission tests weigh braces for possible new Iran fine of about $1.5 bln - Bloomberg founder sues Netflix (NASDAQ:NFLX) over "Easy" Direct dismisses House of Fraser senior management Masoni)

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MORNING CALL: ITALY BUDGET WOES SET TO WEIGH ON EUROPEAN OPEN (0522 GMT)

European shares are expected to open lower today following losses in Asia and as investors remain cautious following the Italian government decision to raise its budget deficit target, breaching EU rules.

"This uncertainty along with weakness in Asia looks set to weigh on European markets this morning with a lower open expected," said CMC Markets analyst Michael Hewson.

Yesterday, top euro zone officials warned Italy that its plan to borrow billions of extra euros to fund spending pledges could tip the bloc back into crisis. spreadbetters expect London's FTSE to open 18 points lower at 7,477, Frankfurt's DAX to open 57 points lower at 12,282 and Paris' CAC to open 21 points lower at 5,486.

Over in Asia, stocks fell as the lift from an agreement that saved the North American free trade deal faded, with cautious views on the global economy curbing risk sentiment. Masoni)

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<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ headshot

http://reut.rs/2DQkTqc What we're watching

https://reut.rs/2OuHtx2 ITALIAN STRESS SPREADS

https://reut.rs/2P1W3sU Wanna play Brexit?

https://reut.rs/2P5EGY7 Shakespeare

https://reut.rs/2P0ElGo USMCA song

https://reut.rs/2P36jBb

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