LIVE MARKETS-Britain's leadership contest: Love Island?

* STOXX turns negative, last down 0.1% * Lufthansa tumbles 11% after profit warning * EasyJet, Ryanair, Air France, fall 4% to 6% * Travel & leisure sector falls 1.5% June 17 - Welcome to the home for real-time coverage of European equity markets brought to you by Reuters stocks reporters and anchored today by Helen Reid. Reach her on Messenger to share your thoughts on market moves: helen.reid.thomsonreuters.com@reuters.net BRITAIN'S LEADERSHIP CONTEST: LOVE ISLAND? (1220 GMT) Five of the six men battling it out to win the Conservative party leadership - and become Prime Minister of the UK - participated in a live TV debate yesterday. The race to become PM has been acrimonious and passionate, with former foreign secretary Boris Johnson, the leader in the polls so far, dividing opinions. "The gossip, backbiting, infidelity and stories of drug-taking would frankly not seem out of place on a reality TV show," writes Bluebay Chief Investment Officer Mark Dowding. It resembles UK TV series Love Island, he says, "with the main differences being that there isn't much love to be found in Westminster and this version isn't as easy on the eye". The premise of Love Island is that a group of attractive 20-something contestants, living in isolation on the island of Mallorca, must couple up with one another, and survive public popularity votes, in order to avoid elimination. Dowding sees Johnson as the most likely to succeed and become PM, and sees a 50% probability of a general election thereafter. "...a Labour coalition, a second referendum and a decision to remain, are also still very much on the cards," he adds. So UK politics are still clear as mud, then. Here's a picture of contender Michael Gove practising his charms: (Helen Reid) ***** ARE INVESTORS FINALLY WARMING TO EUROPE? (1147 GMT) Are wealthy investors slowly changing their tune on European equities after shunning the region for the past year? A survey of 41 of its top clients by Morgan Stanley suggests so with 43% saying that Europe is their preferred region for equities over the next 12 months, followed by U.S. (34%), emerging markets (11%), Japan (9%) and UK (3%). We're not yet seeing that warming in the data - BAML's recent fund flow marked 64th week of outflows from European equities in the last 66 weeks. But, it does come after fund managers in the BAML survey last month dropped shorting European stocks as their most crowded trade, suggesting a slow shift may be happening. The region is also seen having the greatest chance of an upside economic surprise, MS says, with almost a third of respondents expecting a better-than-expected performance, compared with just 15% a year ago. The results also show investors are taking on lower levels of risk at the moment compared with last year's poll, although equities remain the most popular asset class. But, there is a caveat to this optimism about Europe! Avoid European financials: investors have "given up" on the sector with 40% of the respondents showing no interest in the sector given the high uncertainty levels, it says. Within the asset class, commodities saw a big drop in interest with only 3% preferring the sector with cyclicals and tech topping the list. Crude prices have fallen by a fifth in the last 1 year. Responses on other hot topics: * Only 15% see a chance of US-China trade tensions to continue escalating * 63% expect the UK to exit the EU in the next 12 months * 41% see the next U.S. recession in 2021 * Fed interest rates: 41% see 50 bps cut in the next 12 months (Thyagaraju Adinarayan) ***** MELT-UP OR MELTDOWN? (1026 GMT) Although Credit Suisse strategists are of the view that global stocks will rise about 6% by year-end (which would take the MSCI global index to a fresh all-time high) from current levels, they think the index will have trouble rising until investors see: * clarity on the trade war * a rise in Chinese money supply * a non-inverted U.S. yield curve * confirmation that earnings revision are turning higher That's a long wish list, isn't it? Yet, they say: "On balance, we think there is more risk of a 'melt-up' than a meltdown, and find that we are more positive than most of the clients we meet." Global equities tend to make strong gains following a positive turn in earnings momentum, the bank says, adding that earnings revisions seem to have troughed. (see chart below) They advise investors play risk! But how? Credit Suisse points to three areas: European non-financial cyclicals, the more cycle-sensitive regions (mainly global emerging markets and Japan), and growth stocks. (Thyagaraju Adinarayan) ***** IT'S BEEN SLIM PICKINGS FOR EUROPEAN EXCHANGES (0937 GMT) We hear it anecdotally all the time: volumes are thin, trading is muted... but with the figures to prove it, the picture is quite impressive. Monthly European equity cash volumes have fallen by nearly a quarter - 23% - from June 2018 to May 2019, Mike Werner, analyst at UBS, says. The start to this year has been the worst for European exchanges since 2014, he calculates, and things could still get worse. Based on previous historical declines, Werner forecasts volumes could see another 10-15% decline before reaching a turning point in late 2019. "BME and Euronext, which generated more than one-third of revenues from cash trading commissions in 2018, are most exposed to the cash equity volume down cycle," writes Werner. Interestingly he finds a strong positive correlation between European equity fund flows and cash equity volume growth: meaning as long as investors keep cutting their exposure to Europe, volumes are likely to stay depressed. (Helen Reid) ***** OPENING SNAPSHOT: LUFTHANSA NOSEDIVES, DRAGGING AIRLINES DOWN (0724 GMT) Airlines are front and centre this morning with Lufthansa down 11.9% after its profit warning, and the travel & leisure sector the worst-performing, down 0.8% as the warning on intense competition drags down peers Ryanair, easyJet, Air France, IAG, and Wizz Air too. Deutsche Bank is getting a boost from an FT report the ailing lender plans to create a 50 billion euro bad bank. Shares in the bank are up 4.1%. Auto stocks are the best-performing, with Fiat Chrysler and Renault topping their respective indices after an Italian newspaper report the two car companies may look to reboot merger talks. (Helen Reid) ***** WHAT'S ON THE RADAR: A RELIEF RALLY, LUFTHANSA HITS TURBULENCE, H&M BEATS (0647 GMT) European markets took their cue from Asia on Monday, with futures for the main stock markets rising 0.1 to 0.2% after Hong Kong assets recovered overnight. All eyes were on the U.S. Federal Reserve whose policy decision on Wednesday will be keenly watched, with significant pressure on the central bank to cut rates. Lufthansa surprised the market with a profit warning, sending its shares down 7% in pre-market trading. It blamed intense price competition in Europe, and falling Eurowings revenue, for its cut to 2019’s profit outlook. The warning puts airlines’ plight in a highly competitive, over-supplied European market front and centre once more. The warning could hit other airline stocks, traders say. H&M, the world’s second-biggest fashion retailer, was expected to gain 2-3% in early deals after traders said it beat sales expectations. Kier’s plans to cut 1,200 jobs and suspend full-year 2019 and 2020 dividends were set to drive shares in the ailing UK construction firm to new record lows after the stock fell 35% on Friday. Traders saw highly-shorted Kier falling between 5% and 20%. UK defence contractor Babcock was seen rising 3-5% after it said it received a merger proposal from Serco in January, but rejected it after consideration. The announcement confirmed a report in the Sunday Times. The fallout from fund manager Neil Woodford gating an unlisted fund continued with an FT report that the CEO of retail fund platform Hargreaves Lansdown is to waive his bonus of as much as 2.1 million pounds over the firm's links with Neil Woodford's suspended fund. Deutsche Bank shares gained 1-2% in pre-market, meanwhile, after the Financial Times reported the ailing bank is to set up a 50 billion euro bad bank. (Helen Reid) ***** FUTURES RISE, EYES ON LUFTHANSA, KIER, BABCOCK (0621 GMT) Futures have opened higher, as expected, as a recovery in Hong Kong and Asian assets spreads to Europe. All eyes are on the Fed this week, but in the meantime British construction group Kier has made more headlines this morning with 1,200 job cuts and suspending its dividend for full years 2019 and 2020. The announcement could move Kier shares after they tumbled 35.5% on Friday. Lufthansa is falling 5.7% in after its profit warning. Babcock shares could rise after the defence contractor confirmed a Sunday Times report that it received a merger proposal in January from Serco Group, considered it and rejected it. Kier says to cut 1,200 jobs, suspends dividend RBS says Saudi bank merger boosts its core capital Serco made two bids to merge with Babcock - report France plans to scrap 1 bln euros of tax breaks for companies (Helen Reid) ***** LUFTHANSA WARNS ON PROFIT, LONDON-SHANGHAI STOCK CONNECT LAUNCHES (0548 GMT) The biggest company news so far this morning is Lufthansa's profit warning, sending its shares down 3.6% in pre-market trading. The airline lowered its profit outlook for full-year 2019 on Sunday, citing intense competition from low-cost rivals over prices in Europe. The warning heightens focus on the airlines sector suffering from fierce competition, Brexit uncertainty and a weaker macroeconomic outlook in Europe. Deutsche Bank shares are rising in pre-market, meanwhile, after the Financial Times reported the ailing bank is to set up a 50 billion euro bad bank. And the Woodford fallout continues: the CEO of retail fund platform Hargreaves Lansdown is to waive his bonus of as much as 2.1 million pounds over the firm's links with Neil Woodford's suspended fund, the FT reports. Companies listed in the UK will be able to sell shares in China on Monday with the launch of a long-awaited London-Shanghai Stock Connect project. Here are your early headlines: ABN Amro CEO Van Dijkhuizen to quit when terms ends in April Deutsche Bank to set up 50 bln euro bad bank -FT Hargreaves Lansdown CEO to forgo bonus over Woodford fund fallout - FT Boeing crisis, trade tensions cast pall over air show Long-awaited London-Shanghai share listing project goes live Novozymes Strategy Update For The Three-Year Period 2020-2022 (Helen Reid) ***** EUROPEAN STOCKS TO EDGE UP AS INVESTORS AWAIT CRUCIAL FED DECISION (0527 GMT) European stocks are set to rise slightly this morning in a recovery move after Broadcom's profit warning sent tremors through the market on Friday. Asian stocks inched higher overnight, with a rebound in the Hong Kong market helping the mood, though investors remained cautious ahead of a closely-watched Federal Reserve meeting. The Fed is expected to leave borrowing costs unchanged at its policy meeting on Wednesday, resisting pressure by President Donald Trump to cut rates. Financial spreadbetters at IG expect London's FTSE to open 23 points higher at 7,369, Frankfurt's DAX to open 20 points up at 12,116, and Paris' CAC to open 5 points higher at 5,372. (Helen Reid) ***** (Reporting by Helen Reid, Danilo Masoni, Josephine Mason and Thyagaraju Adinarayan)