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LIVE MARKETS-"Ambitious" purchase price, regulatory risks loom over Infineon-Cypress deal

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* European shares down 0.4%

* Infineon slumps 7% to >2-1/2 yr lows after Cypress deal

* Kier drops 42% after profit warning

* Chipmakers down 2-3%

* Oil & gas stocks slide

June 3 - Welcome to the home for real-time coverage of European equity markets brought to

you by Reuters stocks reporters and anchored today by Thyagaraju Adinarayan. Reach him on

Messenger to share your thoughts on market moves:

rm://thyagaraju.adinarayan.thomsonreuters.com@reuters.net

"AMBITIOUS" PURCHASE PRICE, REGULATORY RISKS LOOM OVER INFINEON-CYPRESS DEAL (1100 GMT)

Thumbs down for Infineon's $10 billion Cypress bet?

Analysts point to regulatory risks and believe its an "ambitious" purchase price. These

factors are likely weighing on the shares of the German chipmaker, which are slumping 7.4% to

more than 2-1/2 year lows.

Citi analysts, ranked five stars for estimate accuracy on Infineon, see the deal's

risk-reward as "unfavourable", citing hard-to-substantiate revenue synergies and deal execution

risks.

Several brokers remind us about Infineon's failed purchase of Cree's Wolfspeed Power as

regulators deemed the deal posed a risk to U.S. security.

"(The deal) faces significant questions over regulatory overhang, a cycle peak price at a

time cycle is at trough and visibility is low and deal synergies in this space aren’t as easy as

the appear on paper," says Mirabaud Securities analyst Neil Campling.

U.S. lawmakers passed reforms last year that increased CFIUS' ability to scrutinise deals.

Citi also points to recent deals called off in the semis sector.

DZ Bank analysts say the deal is a good step, but comes with an ambitious purchase price.

(Thyagaraju Adinarayan)

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TRADE WAR COULD TRIGGER RECESSION IN THREE QUARTERS (0953 GMT)

If the U.S. goes on to impose 25% tariffs on the remaining $300 billion imports from China,

Morgan Stanley economists believe we could end up in a recession in three quarters.

Morgan Stanley says when 10% tariffs were imposed the corporate sector had greater capacity

to absorb them, but if they rise to and include all imports, they are likely to result in

"higher pass-throughs with more knock-on effects".

How will the knock-on effects pan out? MS says:

* Tariffs will increase costs, and consumers, facing higher prices, may pull back on demand

* Tariffs will spill over to domestic and global supply chains and consequently global trade

flows

* In the medium-term, multi-national companies will incur more costs to develop alternative

supply

sources

* Corporate confidence will take a hit and companies will pull back on capex, hitting global

growth

* Corporates take additional hit on growth and profitability from international operations

"My recent conversations with investors have reinforced the sense that markets are

underestimating the impact of trade tensions. Investors are generally of the view that the trade

dispute could drag on for longer, but they appear to be overlooking its potential impact on the

global macro outlook," Morgan Stanley's chief economist Chetan Ahya says.

The whole Street is shifting its opinion of the trade war as the possibility of a resolution

seems further away: Goldman Sachs pegs the chances of a next round of tariffs on Chinese goods

at 60% (40% earlier), saying the rhetoric in China has intensified.

Below you can see the crux of the matter: the large gap between U.S. exports to China and

imports from China. Tariffs have lessened that gap very slightly so far.

(Thyagaraju Adinarayan)

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WHICH ASSETS HAVE YIELDS ABOVE 30-YEAR AVERAGES? (0847 GMT)

UBS have looked into this and they've found European equities are interesting when it comes

to yields.

"They are one of the few large asset pools to have a yield above their 30-year average (4.0%

vs 3.4%)," strategists at the Swiss house led by Nick Nelson say.

But given recent high-profile dividend cuts such as Vodafone and Royal Mail,

it's also worth asking how sustainable they are.

Here's what Nelson and tem say, which looks somewhat reassuring:

1. Pay-out ratios are not extended (57% vs a long run average of 53%)

2. Free cash flow cover is also reasonable at 1.38x for 2019E

3. Balance sheets are under-geared with gross cash on the balance sheet set to reach c. €900

billion by end-2019

4. Dividends are far less volatile than earnings – the gap between EPS and DPS momentum

tracks the

PMI where there are signs of stabilisation

As you can see in this chart, the gap between Europe's STOXX 600 dividend yield and yield on

the German bund has been rising to its highest in at least a decade.


(Danilo Masoni)

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WHO'S THE SECRET BUYER OF EUROPEAN STOCKS? (0813 GMT)

Although European stocks have taken a battering over the past month, they're still

substantially up this year despite data showing big outflows from equity funds.

The question on everybody's lips, as Goldman Sachs puts it, remains: "Markets are up and

buyers should in any case be matched with sellers - so who is purchasing European equities?"

Cumulative outflows from equity funds year-to-date are larger than in 2016, GS strategists

say, citing Morningstar data.

But looking at ECB data, which also includes flows into equity from multi-asset funds, mixed

or balanced funds, hedge funds, and quantitative funds, they find these other types of funds

have been buying equities so far this year.

Another purchaser is the corporate sector. With new issuance and rights issues diminishing

while buybacks have increased recently, companies have been a net buyer of equity.

"This does not represent the full picture... but it does give a more complete view than

focusing purely on equity fund flows," they write.

(Helen Reid)

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OPENING SNAPSHOT: INFINEON SLIDES, OIL STOCKS SKID (0726 GMT)

European shares are sliding 0.6% as lingering trade war worries keep investors away from

risky assets. Goldman Sachs economists say they now see a 60% chance that the U.S. will slap

tariffs on the final $300 billion of Chinese imports.

Infineon is down 5%, the top faller on the pan-European STOXX 600 index after it agreed to

buy Cypress Semiconductor for $10 billion.

Chipmakers in the region are falling 2-3%, despite expectations from traders that M&A in the

sector could be positive for these stocks. Clearly escalating rhetoric in a global trade war is

trumping that - so to speak.

Wirecard is a rare riser after its CEO tweeted that the company is steering towards an

"outstanding" first-half of 2019.

Oil & gas stocks are the worst-performing in Europe as Brent crude falls 1.1% amid stalling

demand and as trade wars fan fears of a global economic slowdown.

Confirming a risk-off trade, the defensive food & beverage, utilities and telecoms sectors

are down 0.1-0.4%, outperforming the market.


(Thyagaraju Adinarayan)

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WHAT'S ON THE RADAR: CHIPS, AIRLINES, CASINO STOCKS (0647 GMT)

After the worst monthly performance since January 2016, European stocks are set to start

June on the back foot again. Futures point to another weak open with the trade-sensitive German

blue-chip index seen 0.6% lower.

In corporate news, chip sector M&A is making big headlines after Germany's Infineon agreed

to buy Cypress Semiconductor, which makes microchips used in cars and electronic devices, for

$10 billion.

Infineon shares were last trading down 5.2% in pre-market but traders expect its regional

rivals AMS, Dialog Semi and BE Semiconductor to rise on the M&A

news.

William Hill shares are seen 3% higher by one trader on reports in the Sunday Times

and the Telegraph that it had held merger talks with Las Vegas casino giant Caesars

Entertainment last year.

Traders expect shares of European airlines to come under pressure after IATA slashed profit

forecasts due to the ongoing trade war.

In the UK, construction company Kier is seen dropping 10-20% after a profit warning.

A few other headlines to watch out for:

Kier sees 2019 operating profit lower than expected

Dignity says welcomes proposals to regulate UK funeral plans

Danske Bank to sell Estonian private loans unit to LHV in $458 mln deal

(Thyagaraju Adinarayan)

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NO SIGNS OF RESPITE (0554 GMT)

European shares are expected to be under pressure again today and there are no signs of a

respite as June begins.

"Risk assets are likely to remain highly sensitive to rhetoric around trade, until there are

signs of a more constructive approach by both China and the US," Peel Hunt's Ian Williams says.

The ongoing trade war is certainly hurting global airlines and IATA says the industry's

profits are expected to come down by more than a fifth.

In corporate news, M&A is making big headlines today: German chipmaker Infineon to buy

Cypress Semiconductors in 9 billion euros deal. One trader however says he struggles to see the

deal getting approval, pointing to Infineon's attempt to buy Wolfspeed from Cree, which was

blocked by CFIUS.

Fiat Chrysler is discussing a Renault special dividend and stronger job

guarantees in a bid to persuade the French government to back its proposed merger between the

carmakers, sources close to the discussions said.

Major corporate headlines:

Infineon to buy Cypress Semiconductors in 9 billion euros deal

Sephora to shut U.S. stores for day of diversity training after racial incident

EXCLUSIVE-FCA discusses improved Renault merger bid to win French backing

Aluflexpack aims to raise 140 million euros in latest Swiss IPO

Sunrise takeover of Liberty Global unit under review by competition authorities

Global airlines slash profit forecast on protectionism fears

(Thyagaraju Adinarayan)

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EUROPE ON THE BACKFOOT AGAIN (0517 GMT)

European stocks are expected to open lower again this morning on worries of a prolonged

China-U.S. trade war and Washington's new tariff threats against Mexico. The pan-European STOXX

600 index dropped 5.7% in May, its worst monthly performance since January 2016.

"For most of this year the assumption had been that, for all the sound and fury around the

imposition of tariffs, they wouldn’t last that long and any damage could be easily mitigated.

Now it seems that tariffs are likely to last a lot longer and be more wide ranging than

originally thought," Michael Hewson at CMC Markets UK says.

Financial spreadbetters IG expect London's FTSE to open 31 points lower at 7,131,

Frankfurt's DAX to open 69 points lower at 11,658, and Paris' CAC to open 37 points lower at

5,171.

In corporate news, German chipmaker Infineon Technologies agreed to buy

U.S.-based Cypress Semiconductor for $23.85 per share in cash (enterprise value of 9

billion euros).

(Thyagaraju Adinarayan)

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(Reporting by Danilo Masoni, Helen Reid, Josephine Mason and Thyagaraju Adinarayan)