LIVE MARKETS-Banks? "An oasis of opportunity"

* STOXX 600 hits lowest level since end-August

* Financials, insurance stocks worst-performing

* Umicore (Hamburg: 3771399.HM - news) leads gains while Amundi (Berlin: 350155.BE - news) falls

Feb 9 (Reuters) - Welcome to the home for real time coverage of European equity markets

brought to you by Reuters stocks reporters and anchored today by Julien Ponthus. Reach him on

Messenger to share your thoughts on market moves: julien.ponthus.thomsonreuters.com@reuters.net

BANKS? "AN OASIS OF OPPORTUNITY" (1506 GMT)

We told you about Citi staying bullish on financials but it's not only the sell-side that's

pushing the sector. The buy-side too is showing growing optimism about banks as financial

markets prepare for a higher yield, higher rates world.

Here's Rob James, financials analyst and manager of the Old Mutual Financials Contingent

Capital Fund: "As rates begin to normalise (and that’s what they are doing) bank margins should

begin to recover. Higher margins mean higher profits and higher dividends. This is great news

for investors. Of course, we will need to keep an eye on bad debts – higher loan prices will

inevitably mean higher default levels, but this potential risk should not outweigh the benefits,

as long as the increases in yields are steady, which we believe they will be."

"So, in our view, the banks represent an oasis of opportunity in a tumultuous market."

In the chart you can see how bank stock indexes in Europe have outperformed the broader

market this week, although they haven't been totally immune to the sell-off.

(Danilo Masoni)

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WHY UK UTILITIES WERE NO SAFE HAVEN DURING THE STORM (1430 GMT)

UK utilities underperformed the market during the sell-off, Accendo Markets note today,

"failing to display the defensive attributes that would normally have one rushing to their safe

revenue, profit and dividend streams."

Head of Research Mike van Dulken sees a few reasons for that:

* proposed energy caps by the government

* fear of Labour nationalising the Water sector

* rising interest rates (which make financing more expensive and dividends unlikely to

compete with bond yields)

Here's his conclusion: "As it stands, income seekers have two choices. Risk further capital

depreciation in return for a potentially unsustainable 5% dividend. Or go with Uncle Sam who’s

finally offering a safe near-3% again."

(Julien Ponthus)

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ETF, ETP ASSETS SMASH THROUGH $5 TRILLION IN JANUARY - ETFGI (1356 GMT)

While it will be interesting to see the results from this month, ETFs (Shenzhen: 395013.SZ - news) had another strong

month in January as assets invested in ETFs and ETPs listed globally smashed through the $5

trillion milestone, according to research and consultancy firm ETFGI.

Assets invested in ETFs and ETPs rose by a record 6.47 percent ($313 billion) in January,

sucking in a record amount of inflows ($106 billion).

(Kit Rees)

*****

WINNERS AND LOSERS IN EUROPE THIS WEEK (1318 GMT)

In a pretty exciting week for equity markets, let's take a look at some of the top

performers, and biggest losers, in Europe this week.

∙Best-performing major region: Denmark -2.6% (also Portugal -4.1%)

∙Worst-performing major region: Spain -6.2%

∙Best-performing sector: travel + leisure -2.8%

∙Worst-performing sector: basic resources -6.8%

∙Best-performing stocks: TDC (Amsterdam: TD6.AS - news) +20.1% (rejected takeover approach); AMS

+19.6% (reported jump in Q4 profit); Capita (Taiwan OTC: T1614Y.TWO - news) +18.8%

∙Worst-performing stocks: Orion -17.3% (guidance disappointed);

Randgold Resources -14% (issues around new Congo mining code); Deutsche

Bank -13.4% (has been falling since reporting third annual loss; PT cuts

)

(Kit Rees)

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WILL VOLATILITY SPREAD FROM STOCKS INTO BONDS AND FX? (1301 GMT)

Bonds seem to have been spared a similar spike in volatility thus far, with Merrill-Lynch's

MOVE index of bond volatility rising at a much slower pace than the VIX during the market shock

earlier this week.

Man Group (LSE: EMG.L - news) strategists see this as a sign that this isn't a decisive turn downwards in

markets. "Deeper downturns have historically tended to be reflected in the price action not just

of equity markets but also in numerous other markets, including bond markets, and there has been

little evidence of this," they note.

But currencies could see greater swings, UBS Wealth Management strategist Thomas Flury says.

"The reaction of currency market volatility might be a bit slow, but still, we can see in

most currency pairings a contagion in volatility," he writes.

Higher volatility in turn makes currency hedging pricier, which encourages investors to

reduce risky speculative positions.

Rothschild global investment strategist Kevin Gardiner summarises the mood as the market

hopes the surge in the VIX remains contained: "Volatility is always unsettling, but we are still

braced for a setback, not a rout."

(Helen Reid)

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EUROPE EQUITY FUNDS REDEMPTIONS HIT 80-WEEK HIGH (1208 GMT)

"The tide of fresh money flowing into Equity Funds turned sharply in early February as fears

that 2018 is the year when inflation finally takes off sparked a major sell-off," says Cameron

Brandt (Other OTC: BNDT - news) , Research Director at EPFR Global, in his latest update on global flows.

For Europe the abrupt shift has translated into redemptions reaching an 80-week high with

other factors also coming into play.

"Political uncertainty in Italy, Germany and the UK, a broad economic recovery that could

prompt the European Central Bank to accelerate its timetable for normalizing monetary policy and

the resurgence of volatility in US markets kept the pressure on Europe Equity Funds during the

first week of February," he said.

Turning to countries, he said Switzerland Equity Funds recorded outflows 14 of the 19 weeks

since the start of 4Q17, while UK Equity Funds have come under pressure from expectations that

the BoE (Shenzhen: 000725.SZ - news) will resume hiking rates in 2Q18 and that the odds of a disorderly exit from the

European Union are rising.

(Danilo Masoni)

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BEWARE THE PEAK, NOT THE BOTTOM (1204 GMT)

Interesting point from Stéphane Barbier de la Serre, a strategist at Makor Capital Markets:

with everyone trying to figure out how low markets can go, one tends to forget that the real

issue may be that a peak has been set, and that can be seen as a game changer.

"A top has been set for quite some time now on most leading equity indices, which

objectively massively alters the whole investment outlook," he argues.

"If you assume that most international investors are still sitting on huge marked-to-market

gains accumulated all across their portfolios over the last few years, the temptation to

materialize some of those gains is likely to become increasingly compelling in that new

paradigm," he writes.

(Julien Ponthus)

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FINANCIALS SHOULD FIGHT BACK - CITI (1132 GMT)

Banks, financial services and insurance stocks are the worst-performing today, with Europe's

banks index down 1.4 percent and edging closer to the two-month low it hit on Tuesday.

But in the medium term financials should do well, Citi strategists say, keeping their

overweight on the sector within their positive stance on cyclicals.

"Financials are beneficiaries of rising rates, inflation and equity markets and so should be

able to absorb rising volatility," they reckon. The bank's previously said it sees this week's

moves as a correction rather than the start of a bear market.

With (Other OTC: WWTH - news) rising inflation and volatility still top of mind for investors, the bank screens

financial stocks by their correlation with measures of inflation, and negative correlation to

VIX. Citi finds financials including Credit Suisse (IOB: 0QP5.IL - news) , L&G (LSE: LGEN.L - news) , UBS (LSE: 0QNR.L - news) , AXA (Paris: FR0000120628 - news) , and Unicredit (EUREX: DE000A163206.EX - news) should hold up

well in this environment.

Banks were the leaders of this year's 'melt-up' rally, but are now 5 percent down from their

January peak.

(Helen Reid)

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IT HAS A NAME: "THE SHORT VOLATILITY FLASH CRASH" (10h40 GMT)

Only time will tell whether this sticks but Julius Baer (LSE: 0QO6.L - news) has named the U.S. sell-off "the

short volatility flash crash".

"We doubt that we will ever learn the truth behind what will go down in financial history

books as the 'short volatility flash crash'," Christian Gattiker, chief strategist and head

research at Julius Baer, said in a note where he takes the humble point of view that it's

difficult to grasp what really happened.

"This week, the narrative of volatility 'shorties' going into a death spiral, triggering an

algorithmic trading reaction in stocks, is as intuitive as it is logical. I doubt we will ever

learn the real reasons and causes behind this week's events. The take-away is simple: there are

dynamics in financial markets (and beyond) that cannot be grasped by anyone and remain intrinsic

risks... as in 1987, 1997, and 2010".

(Julien Ponthus)

*****

DEUTSCHE BANK EXPECTS THE 'GOLDILOCKS GAP' WILL CONTINUE TO CLOSE (1024 GMT)

Analysts over at Deutsche Bank (IOB: 0H7D.IL - news) don't have a particularly rosy prognosis for Europe's STOXX

600 index.

"We expect the Goldilocks gap of strong growth in combination with a low discount rate to

continue closing over the coming months, mainly because of a softening in Euro area macro

momentum," Deutsche Bank's analysts say, adding that they predict further tactical downside for

the STOXX 600 over the coming months.

They see the STOXX 600 as around 6 percent below the fair-value level implied by their

tactical model (current fair-value of 410, that is).

But by the middle of the year they see this fair-value declining to 370 on their models.

Here are some key stats for the STOXX 600:

∙ set for worst week in two years

∙ down 4.5 percent year to date

∙ currently its biggest yearly decline since 2011

∙ down 8 percent since its Jan 23 peak

∙ index is at 371.90 points at time of writing

(Kit Rees)

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"GROWING PAINS" TRIGGERED LATEST STOCKS SELL-OFF - UBS WEALTH (1016 GMT)

Another heavy U.S. and Asian sell-off overnight, but UBS Wealth Management is staying

overweight on global equities. Why?

- The fundamental economic outlook is still positive

- Little sign of contagion from equities to other asset classes

- Moves of this magnitude are not uncommon: there have been 23 "bull market corrections"

since 1940

"Like Monday's sell-off, we believe the latest move lower was initially triggered by

"growing pains" as investors digest the implications of above-trend economic growth for central

bank policy and inflation," says Mark Haefele, UBS Wealth Management's Global Chief Investment

Officer.

He says investors with a long-term horizon could "use this opportunity to begin to rebalance

portfolios after the recent drawdown, if they are able to tolerate further volatility over the

weeks to come."

(Tom Pfeiffer)

****

STOCKS OPEN SLIGHTLY LOWER, UMICORE SHINES (0818 GMT)

As futures indicated, stocks have opened lower but not falling as drastically as the U.S.

yesterday. Financials and industrials are the biggest weights on the STOXX 600, which is down

0.6 percent.

Umicore is shining at the top of the STOXX, gaining 6.4 percent after it raised 892

million euros through an equity placement which it will partly use to fund investments in its

rechargeable battery materials business.

But Maersk is falling 4.6 percent, the worst performer, after its

fourth-quarter profit missed expectations.

Interestingly U.S. futures are up 0.6 to 0.7 percent, pointing to a stronger open across the

pond.

(Helen Reid)

*****

WHAT'S ON THE RADAR FOR THE EUROPEAN OPEN (0746 GMT)

We're officially in a correction, the bottom of which is elusive and could very well throw

the bulls out of their nine year run.

European stocks are set to open moderately in the red after Wall Street’s fresh sell-off but

don’t seem to be on their way to replicate the extent of their U.S. peers fall.

Limited news on the corporate front so far but quite an event in Britain with the Daily

Mirror buying the Daily Express.

There's a potentially huge M&A deal with traders pointing to an FT report saying L'Oreal

is ready to buy Nestle (Swiss: NESN.VX - news) 's 23 bln euros stake in the French cosmetics company.

European banks are giving encouraging signals with Mediobanca (Milan: MB.MI - news) this morning lifting its

dividend.

On the other hand Britain's Nationwide Building Society (LSE: NBS.L - news) reported a 6 percent fall

in nine-month statutory pretax profit, hurt by lower consumer spending.

Belgium’s Umicore also easily managed to raise close to 900 million euros to fund new

investments in rechargeable battery materials at a discount of 2.7 percent to Thursday's closing

price.

Maersk missed fourth-quarter core profit expectations.

German consumer electronics retailer Ceconomy reported a 16 percent drop in operating profit

last month due to price reductions around Black Friday.

(Julien Ponthus)

*****

"A REASSESSMENT OF THE INFLATION OUTLOOK IS NATURAL" (0731 GMT)

This late-cycle environment leads logically to readjustments in the market around inflation

expectations, says JP Morgan Asset Management global market strategist Kerry Craig.

"Equities can handle higher rates and bond yields... what they are not good at dealing with

is the pace at which they move," adds Craig.

"A reassessment of the inflation outlook at this point in the cycle is natural and markets

are adjusting for this," he says, adding that markets still haven't adjusted to the expectation

that the U.S. Federal Reserve could raise rates four times in 2018.

He reckons, with the S&P 500 falling into correction territory, the most severe market

swings have passed. We'll see about that later today...

Next (Frankfurt: 779551 - news) week's U.S. inflation numbers will of course be key, and Craig admits a strong figure

could cause more disruption.

(Helen Reid)

*****

FUTURES POINT TO A LIMITED RETREAT AT THE OPEN (0711 GMT)

As we noted earlier, European markets don't seem to be heading to replicate Wall Street's

overnight fall and set to post only limited losses. That being said, European bourses already

had a fair beating during the previous sessions.

DAX futures are now even in positive territory:

(Julien Ponthus)

*****

"HERE WE ARE IN OFFICIAL CORRECTION TERRITORY" (0650 GMT)

Sometimes you just have to call a spade a spade, and that's what Rabobank analysts did in

their morning note.

"Here we are in official correction territory", they wrote, pointing out that with

Thursday's drops, the benchmark S&P 500 and the Dow industrials have fallen more than 10 percent

from Jan. 26 record highs.

(Julien Ponthus)

*****

BAML'S BULL & BEAR INDICATOR STILL SAYS SELL (0635 GMT)

Bank of America Merrill-Lynch's indicator of market sentiment is down from 8.6 to 8.5 but

that, according to its analysts, remains in "excess bullish" territory and still signals a

"sell".

The indicator had jumped of market sentiment jumped from 7.9 to 8.6 on Jan 30, driven up by

record inflows to equities and bullish hedge fund risk appetite.

(Julien Ponthus)

*****

MORNING CALL: EUROPE TO OPEN IN THE RED AFTER NEW WALL STREET SELL-OFF (0615 GMT)

Good morning and welcome to Live Markets.

European bourses are expected to open in the red this morning after Wall Street's fresh new

sell-off. The bottom of the slide remains elusive but this current trend sure seems to be

threatening to throw the market's bull run off course.

Spreadbetters are calling the DAX 23 points lower, the CAC 40 down 8 points, and the FTSE

down 40 points.

Considering that U.S. stocks plunged around 4 percent on Thursday, this looks, so far, like

a limited reaction from our side of the pond. .

(Julien Ponthus)

*****

(Reporting by Danilo Masoni, Helen Reid, Kit Rees and Julien Ponthus)