>>> What to look at today - 19th & 20th of January 2019

Weekly Market Update: Relief rally continues, fueled by trade hopes and early earnings reports The 2019 recovery in equity markets continued this week and upside momentum accelerated into the long holiday weekend for the US markets. Major US indices retook their 50-day moving averages. US/China trades optimism took the lead on shutdown in sentiment.
For the week, the S&P rose 2.9%, the DJIA added 3%, and the Nasdaq gained 2.7%. This week in corporate news, major banking names reported earnings, with all firms noting sharp reductions in their bond-trading revenues. Morgan Stanley bore the brunt of the drop, as its fixed-income division posted its worst quarterly results in three years. Bank of America reported beats on both top and bottom line, while Goldman saw solid gains in its investing and lending unit. Netflix shares lost a little ground after reporting a Q4 miss on its revenue, but the company noted solid subscriber growth numbers ahead of an anticipated price increase this year. Miner Newmont scooped up its smaller rival Goldcorp in a $10B deal that would form the world’s largest gold producer. Fiserv announced it would acquire First Data in a $22B all-stock deal in one of the largest acquisitions ever in the fintech sector. PG&E filed notice for bankruptcy protection as it potentially faces over $30B in wildfire damage liabilities, though holder Blue Mountain argued the filing decision was too hasty. Tesla announced it would reduce its full-time staff by 7% in order to cut costs to produce the Model 3 more inexpensively.


Macro :
- Palladium Is Now More Valuable Than Gold - Barron's : http://bit.ly/2Dmg7Tu
- Central Banks Struggle With Policy Settings, ECB outlook reflects a global shift in central banking - WSJ : https://on.wsj.com/2RF0WO7
- Here's How Europe's Nationalist Parties View The EU - Zero Hedge - http://bit.ly/2QZYdJD

Keep an eye on :
- AZA IM : Air France-KLM and Delta could buy joint 40% stake in Alitalia - Il Sole 24
- ALO FP : Chinese competition no ‘excuse’ for Siemens-Alstom rail tie-up - FT - https://on.ft.com/2RW7kQl
- BA/ LN : Battered British Defense Stock Will Mount New Charge - Barron's : http://bit.ly/2Dl4GLL
- EDF FP : Europe’s new-generation nuclear plants stagger over the start line - http://bit.ly/2MjHIaI
- FB US : F.T.C. Is Said to Be Considering Large Facebook Fines - NYT - https://nyti.ms/2FPc43T
- MC FP : LVMH Said Eyeing Stake in New Guards Group, The fashion group includes Virgil Abloh's Off-White label.
- RNO FP : Paris tells Tokyo it wants Renault-Nissan integration - French side seeks to name Japanese automaker's next chairman - Nikkei - https://s.nikkei.com/2FLEvj0
- 700 HK : With a Billion Users, Tencent Faces Middle Age. That’s a Worry for the Stock. - Barron's - http://bit.ly/2FDhmQC

TheBarrel_Platts_Blog : Europe’s new-generation nuclear plants stagger over the

Europe’s new-generation nuclear plants stagger over the start line - http://bit.ly/2MjHIaI

Years late and massively over-budget, Europe’s first EPR nuclear plants in Finland and France are on the verge of “energizing”, as the sector jargon goes.

Barring last-minute glitches, this will be the final act in what must be the longest-running construction saga in the region.

Finland’s 1993 vote to reject plans for a fifth reactor was one of the first stories I covered as a trainee.

Readers of Power in Europe were already bored witless by all the back-and-forth on the topic when, in 2002, the government changed its mind and the project was waved through.

It was another six years before construction of the new-generation, pressurized water reactor began.

Now, ten years late and two-and-a-half times over budget, TVO’s Olkiluoto-3 EPR is set to spark up in 2019 ahead of full operation in 2020.

Meanwhile a mere eight years late and, at Eur10.5 billion, three times over budget, EDF’s Flamanville 3 EPR in Normandy, northern France is also due to deliver first power in summer 2019.

Even when complete, there is a cloud hanging over this project due to “anomalies” found in its reactor pressure vessel head, potentially requiring replacement within a few short years. Not a great start to a 60-year operational life.

For Finland, commissioning of O-3 will go a long way to erasing the country’s multi-year electricity supply deficit, freeing up Norwegian and Swedish hydro resource. For France, operational scrutiny will be intense as EDF seeks to prove the design and build a case for further units.

However late, these baseload behemoths are going to be welcome additions to Europe’s volatile power markets.

For the year just passed, over 15 GW of conventional thermal plant closed across Europe, offset by just 3 GW of gas plant adds. Meanwhile 24 GW of wind and solar were installed.

Hefty net closures in recent years mean that Italy, Finland, Hungary and Lithuania go into 2019 reliant on imports.

Under harsh winter conditions Austria, Belgium, Slovakia and Slovenia are equally dependent.

This is ahead of a slew of more determined energy transition actions by European governments, phasing out big chunks of coal and nuclear plant in the early to mid-2020s.

Platts Analytics sees 65 GW of net coal and nuclear closures over next seven years, nearly double the level of closures seen over the last seven years.

The coal closures are front-loaded in the period, with heavy losses across Germany, the UK and Spain before end-2020, ahead of total phase-outs in France (2022), the UK (2025) and the Netherlands (2030).

Nuclear reductions start to hit home with 10 GW of German capacity closed by 2022, followed by removal of 6 GW of Belgian capacity by 2025, and the loss of 4.3 GW in the UK between 2024-2026.

So it’s better late than never for these EPRs. EDF will be keeping everything crossed, meanwhile, that Hinkley Point C offers less drama as it sets out on its own construction journey. Let’s hope some cub reporter is not still writing about it in 2029 . . .

FT : Chinese competition no ‘excuse’ for Siemens-Alstom rail tie-up

Chinese competition no ‘excuse’ for Siemens-Alstom rail tie-up
Rival Hitachi says companies are winning contracts but as yet pose little threat in Europe

European trainmakers Siemens and Alstom should not be allowed to use competition from Chinese companies as an “excuse” for their merger, the head of one of their rivals has said.

Alistair Dormer, chief executive of Hitachi’s global rail business, said Chinese trainmakers were winning contracts around the world but had not properly entered the European market: “I think using the Chinese as the excuse to merge Siemens and Alstom is a bit premature.”

Mr Dormer added: “If you say, well, they’re never going to come to Europe, then I think you’re wrong. I think it’s a matter of time, not if. But I don’t see Chinese manufacturers building factories all over Europe.”

The proposed merger of the rail operations of Germany’s Siemens and France’s Alstom has been looking shakier after the groups said on Wednesday they would not offer any further concessions to the European Commission, which is on the verge of blocking the deal. Several national competition authorities — including in Germany — have raised serious objections.

EU competition commissioner Margrethe Vestager has also rejected arguments from Siemens and Alstom that the merger is necessary to fend off competition from China’s CRRC.

Hitachi Rail, which moved its global headquarters to London in 2014, has a factory in the north-east of England employing 730 people and has contracts to build almost 200 trains for the UK.

If the Siemens-Alstom merger went ahead, Hitachi could stand to benefit from any divestments the companies had to make, but would face a much larger competitor. The companies combined would have €15.3bn in revenues and operating profits of €1.2bn, while Hitachi Rail is forecasting revenues of ¥630bn (€5bn) this year with adjusted operating margin of 7 per cent.

Mr Dormer, who was speaking ahead of announcing Hitachi’s intention to explore bringing battery-powered trains to the UK, said a no-deal Brexit would not be an instant challenge for his UK factory since it had largely local supply chains, but if there were no resolution for months, “I would hope that there will be a lot of people shouting very, very loudly”.

He also said that adopting World Trade Organization tariffs following a no-deal Brexit would “put the UK at a disadvantage” for its exports and would cause Hitachi to revisit its medium-term plans for assigning production between sites in the UK and Europe.

Hitachi delivered its first fleet of trains that use both battery and electricity in Japan last year, with batteries that could run for 60 miles on a 10-minute charge — technology Mr Dormer said would improve following developments in the automotive sector. He predicted there would be no more diesel trains on the UK’s railway network by the 2030s.

FT : Heady returns for Burgundy investors as index climbs a third

Heady returns for Burgundy investors as index climbs a third
Growing demand and scarcity saw the wines outperform equities and gold last year

Investors in burgundy wines will be toasting their gains after the fine wines outperformed equities and gold last year.

The index that tracks the movements of the most actively traded wines from the Burgundy region on the secondary market, the Liv-ex Burgundy 150, jumped 35 per cent last year, setting a record high in November, before falling back slightly in December. This compared with pound-denominated gains of 5 per cent for gold and a 12 per cent fall for the FTSE 100 last year.

Growing worldwide demand in wines from France’s Burgundy region has pushed prices to dizzying heights during the past few years. The scarcity of supplies from the region due to bad weather has also fuelled the increase in prices.

Interest from Asian buyers — including the Chinese, who had previously deserted the fine wine market after Beijing’s anti-corruption and austerity campaigns — has also been high, according to wine experts. Once solely focused on the top Bordeaux red wines, Chinese fine-wine buyers have matured and are diversifying into other producing regions, including Burgundy.


Within the fine wine world, Burgundy is regarded as the final destination,” said Justin Gibbs, co-founder of Liv-ex, the online wine exchange. With more than 400 of the world’s largest wine merchants as members, the exchange’s indices serve as a proxy for the whole market.

The interest from oenophiles for burgundies has been such that auctions for the wines have been breaking records. Most recently, Sotheby’s auctioned two bottles of Romanée Conti 1945 at record prices — one for $558,000 and another for $496,000.

The momentum behind burgundies has meant that the Burgundy 150 has jumped almost 170 per cent since 2010, compared with a 19 per cent rise in the Liv-ex Bordeaux 500 and a 7 per cent decline in the Liv-ex 100 broader fine wine benchmark.

However, there are signs that the market may be peaking, said Mr Gibbs. The number of burgundies traded on the secondary market, which has been rising since 2009, fell for the first time last year to 847 from 878 in 2017. If the broadening of the market has stopped, this could be an indicator that growth in the region’s share of overall fine wine trading has reached its highest point, according to wine experts.

While the high prices have brought more sellers to the market, pushing up the “offer” or the selling price for the wines, there are fewer buyers willing to chase prices up to these levels. “You’re running out of people who can pay the higher prices,” said Mr Gibbs.

The test for the market will come from the 2017 vintage, which is being marketed this month. After several years of poor harvests due to bad weather, that year’s production is set to be the largest since 2009.

FT L Ireland rejects bilateral Brexit border proposal

Ireland rejects bilateral Brexit border proposal
Liam Fox floats ‘alternative mechanism’ to backstop

The UK has floated the idea of a bilateral deal with Ireland as part of its Brexit plan B but the Irish government immediately rejected it.

Liam Fox, the international trade secretary, said on Sunday that the UK was looking for “an alternative mechanism” to reassure Dublin that there would be no hard border on the island of Ireland after Brexit.

The EU-UK withdrawal agreement was voted down by the UK parliament last week, partly because of Eurosceptics’ concerns about the so-called backstop, which would keep Northern Ireland in a customs union with the EU in order to avoid border checks.

The Irish foreign ministry said on Sunday there had not been “any official request for a bilateral treaty” to replace the backstop. A government spokesman insisted that such ideas would not be entertained.

“Ireland negotiates as part of the group of 27 European nations,” he said.

Simon Coveney, Ireland’s deputy premier, stressed in a tweet on Saturday the Irish government’s “absolute” commitment to the entire withdrawal agreement, “including the backstop to ensure, no matter what, an open border between Ireland and Northern Ireland” is kept open.

A similar proposal to the one suggested by Mr Fox was previously backed by the former UK Brexit secretary, Dominic Raab, but did not come to fruition. Leo Varadkar, Irish prime minister, and Philip Hammond, UK chancellor, are scheduled to appear together on a panel this week at the World Economic Forum in Davos.

Mrs May will present a revised Brexit plan to parliament on Monday. Tory and Opposition MPs have expressed dismay at the prime minister’s failure to move her red lines so far, although their precise demands are contradictory.

Many Eurosceptics want Mrs May to limit the backstop and to rule out delaying the UK’s March 29 departure date from the EU. Europhiles want her to rule out the possibility of a no-deal Brexit and to keep the UK in a customs union with the EU.

Mrs May’s statement to parliament on Monday is likely to focus on the process by which she expects to develop a new strategy rather than substantive changes to her existing deal.

Keir Starmer, Labour’s shadow Brexit secretary on Sunday accepted that any Brexit deal “probably does require a backstop”.

He also suggested that Labour’s demand of a general election was no longer “realistic”, because Tory MPs would not vote for it. Sir Keir told the BBC’s Andrew Marr Show that “the options are now in effect down to two”: a close economic relationship with the EU, and a second referendum.

His comments seem designed to increase pressure on Labour leader Jeremy Corbyn, whose preference remains to push for a general election, even though Labour failed this week to pass a no-confidence vote in the government — the necessary first step.

Labour’s official policy, agreed at last year’s party conference, is to push for all options remaining on the table, including a second referendum, if the party “cannot get a general election.” Despite the failure of last week’s confidence vote, speculation about a general election has risen in Westminster, with former Tory leader William Hague saying the media has under-reported the prospect.

David Lammy, a Labour backbencher backing for a second referendum, warned that Labour could split because some pro-EU MPs are “so frustrated [with Mr Corbyn that they might] go off and form another party”.

“The danger is, just like 1983, a new party built around a relationship with Europe keeps the Labour party out of power for a generation,” he told Sky News, referring to the period after Labour breakaways founded the centrist Social Democratic party.

>>> Alitalia 51% stake could be sold to Lufthansa

Alitalia 51% stake could be sold to Lufthansa

Lufthansa [ETR:LHA] could buy a 51% stake in Alitalia, La Stampareported, citing an unnamed source.
If the Italian government wants to retain a majority stake, the German airline would be willing to acquire 49% of the shares, the report said.
Talks around a possible transaction will be held tomorrow, the Italian daily wrote, without elaborating.
After acquiring a stake in Alitalia, Lufthansa would focus its activities on the European market, whereas Air France-KLM [EPA:AF] together withDelta Air Lines [NYSE:DAL] - also a possible buyer - would concentrate more on the US and the North Atlantic route, the report said.
Easyjet has also shown an interest in Alitalia, but Air France-KLM and Delta appear to be the favoured suitors, La Stampa said. These companies could together buy a 40% equity stake in their Italian peer.
Earlier media reports have said that Italian state-owned railway company Ferrovie dello Stato (FS) could take a 25-30% stake in Alitalia, with the Treasury converting part of its EUR 900m bridge loan to Alitalia into a 15% equity stake. The remaining 10-15% of Alitalia would be acquired by another state-owned entity such as Cassa Depositi e Prestiti (CdP).

>>> Air France-KLM and Delta could buy joint 40% stake in Alitalia

Air France-KLM and Delta could buy joint 40% stake in Alitalia - report (translated)
19 JAN 2019
Air France-KLM [EPA: AF] and Delta [NYSE: DAL] could take a joint 40% equity stake in Alitalia, Italian-language daily Il Sole 24 Ore reported. The report cited sources close to the dossier, who said that Air France and Delta signalled in talks last week with Ferrovie dello Stato (FS), the state-owned Italian railway network, that they would each be willing to take a 20% stake in Alitalia.
The report noted that Delta and Air France are keen to see off a rival bid by Lufthansa [ETR: LHA] in order to protect their north Atlantic routes. The Delta/Air France bid appears to have the advantage at present, the report said.
FS is set to take a 25-30% stake in Alitalia, while the Italian Treasury would convert part of a bridge loan it has provided to Alitalia to take a 15% stake. The remaining 10-15% of Alitalia would be acquired by another state-owned Italian entity such as Cassa Depositi e Prestiti.
The article added that the stakes would be taken in a newco holding Alitalia's assets that would have fresh capital of EUR 1bn.
Delta's industrial plan would mean that Alitalia that would continue to hold its maintenance and baggage handling operations as well as the aviation assets.

Barron's : With a Billion Users, Tencent Faces Middle Age. That’s a Worry for th

With a Billion Users, Tencent Faces Middle Age. That’s a Worry for the Stock.

What does an online company do next after securing a billion regular users? Chinese phenomenon Tencent Holdings is trying to answer that question against the trickiest economic backdrop in China for at least a decade.

The company issued the 7.0 version of its ubiquitous social platform, WeChat, in December, the first “full number” upgrade in four years. WeChat creator Allen Zhang, whose aura among the faithful resembles Steve Jobs’, preached its virtues for four hours at a subsequent developers’ conference, focusing on new video-streaming features that will “let people record what they’re really experiencing.”

But investors are unconvinced that a maturing Tencent (ticker: 700.Hong Kong) can maintain the youthful growth spurt that its stock valuation reflects. U.S. tech titans may be a better buy after their recent selloff. “Everything on WeChat is fine and wonderful,” says Colin Gillis, director of research with hedge fund adviser Chatham Road Partners. “But I would much rather have Amazon (AMZN) or Alphabet (GOOGL) shares.”

WeChat is a dozing giant in terms of actually making money for Tencent. Wary of alienating users with an ad blitz, the platform earns less than one-quarter as much per eyeball as global analog Facebook (FB), says Brian Bandsma, an emerging markets portfolio manager at Vontobel Quality Growth. The upgrade might be expected to narrow that gap and turbocharge Tencent’s bottom line. But aggressive monetization would violate Zhang & Co.’s cultural commitment to being a public utility of sorts that app developers can seamlessly graft onto, says Matthew Brennan, managing director of Beijing-based consultant China Channel. “[E-commerce giant] Alibaba Group Holding (BABA) is like a landlord renting you space in a virtual mall,” he says. “WeChat views itself as a platform where you can build a million followers without being squeezed.” Zhang reiterated this view in his talk, promising, “We have the patience to nurture [WeChat] slowly.”

Chinese authorities, meanwhile, still threaten the business that has been Tencent’s cash cow: online gaming. The government recently ended a 10-month moratorium on approving new games, but has not greenlighted any Tencent products. The industry could see permanent restrictions aimed at saving the eyesight and pocket money of gaming-mad Chinese youth, analysts say.

Nor can Tencent be unaffected by China’s broad economic slowdown. While gaming and social networking are relatively defensive businesses, a hard landing would bite at the company’s hundreds of outside investments, like upscale e-tailer JD.com or ride-share service Didi Chuxing. “China has never experienced a business cycle” under a market system, says Gil Luria, director of research at D.A. Davidson. “We don’t know what the effects might be.”

Comparative evaluations have also shifted against Tencent, as its shares rebounded 30% since Nov. 1, while the U.S. FAANGs struggled. No two tech giants are exactly alike, but Tencent’s price-to-forward-earnings ratio of 32 looks rich compared to Facebook’s 20 and Alphabet’s 23. The Chinese company is more than twice as expensive as Amazon on a price-to-sales basis.

None of which spells calamity for Tencent. China’s economic rise continues, and the company’s sway over its online life looks locked in despite feisty new competitors like teen-focused ByteDance. The go-slow approach makes sense long-term as loyal users stick with WeChat for services from watching movies to paying their bills, Vontobel’s Bandsma argues. “The pace of growth is very reasonable at this point in time,” he says. “This is basically a monopoly.”

Monopolies age too, though, and can be buffeted by forces beyond their control. Right now, Tencent is not the best opportunity out there.