LIVE MARKETS-Closing snapshot: back to normal after Draghi shock

* STOXX 600 flat * Hopes of trade deal, dovish Fed limiting losses * Saga sinks as tour operator warns on Brexit * Colruyt has worst day ever after warning June 19 - 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: thyagaraju.adinarayan.thomsonreuters.com@reuters.net CLOSING SNAPSHOT: BACK TO NORMAL AFTER DRAGHI SHOCK (1619 GMT) It's been the calm after the storm today in European stocks, with the main regional index closing flat after yesterday's stimulus-fuelled surge. Banks bounced back impressively, up 1.4% after a lacklustre response to Draghi's stimulus speech yesterday. 1&1 Drillisch, the German telco newcomer which benefited from the 5G auction last week, jumped another 9.5% to the top of the STOXX, while Colruyt has had its worst day ever, dropping 15.5% after the Belgian food retailer warned of a deterioration in the economic climate in France and Belgium. Rio Tinto fell 4.7% after cutting its 2019 iron ore shipment forecast due to operational problems particularly in the Greater Brockman hub in the Pilbara region of Australia. Marks & Spencer took a hit, down 4.6%, after Tesco announced it would launch an upmarket convenience store under the "Tesco finest" banner. Britain's CYBG is up 6.2% as investors cheered the bank's pledge to cut costs and find synergies with Virgin Money. Airlines, however, had a torrid day with easyJet down 3.7%, Air France down 3.6%, and British Airways owner IAG down 3.2% after HSBC analysts said they expect many will follow Lufthansa's lead in warning on profits. And elswhere in travel, Saga sank after it warned of continued pain in its tour business. (Helen Reid) ***** BANKS CONSPICUOUSLY UNMOVED BY DRAGHI COMMENTS (1556 GMT) Amid all the drama on stocks yesterday with the pan-European STOXX 600 hitting six-week highs, one sector was conspicuously lagging the rest of the market after ECB governor Mario Draghi said the central bank would need to ease policy again through new rate cuts or asset purchases if inflation doesn't pick up: banks. The banking sector, one of the most exposed to central bank policy, was "stuck rigid" yesterday, says Edmund Shing, global head of equity & derivatives strategy at BNP Paribas. "Investors weren't interested in buying it." The sector rose 1.5% yesterday, while the broader STOXX 600 benchmark stormed more than 2% higher. It's playing a bit of catch-up today, up 1.8%. But Shing pins the lack of reaction onto the market interpreting the comments as a signal that the ECB will embark on further QE, rather than tiering deposit rates, which would be considered a bigger and more direct step to mitigate the impact of lower-for-longer interest rates on euro-zone banks. Many economists and rates experts reckon the central bank would be unlikely to take the plunge of exempting banks from part of the charge for their idle cash, unless it has to cut interest rates again. Some board members played down the possibility over the past month or so. Still, Shing expects the ECB to take another look at a radical measure like a tiering depo scheme, which would be taking a page from the Bank of Japan's playbook. "After TLTROs helped Italian banks, this will be a sign they're willing to help other banks in the Netherlands and France and countries where banks hold larger levels of deposits at the ECB," he says. Banks spend about 8 billion euros ($8.97 billion) a year to deposit surplus cash at the ECB, a fraction of their excess reserves of about 2 trillion euro and total lending of about 25 trillion euros, says Giles Gale, head of European rates strategy at NatWest Markets. Still Shing reckons it would mark a "sea change" for the sector. "You could have prices and vols going up, so we'd recommend buying upside calls and buy vols," he says. "It's not massive, but a benefit is a benefit," he says. Of course, what the troubled sector really needs is higher interest rates. "The sector needs higher rates/bond yields/inflation/growth to outperform and this is not happening in the next 1-2 years," says Societe Generale's global head of flow strategy Kokou Agbo-Bloua. (Josephine Mason and Helen Reid) ***** VALUE: NOT DEAD, JUST RESTING (1317 GMT) Value's underperformance is well-trodden territory for investors by now. But the reasons behind it - and whether they're transient or more fundamental - are still hotly debated. Bernstein analysts, who recently U-turned on their March decision to recommend Value, tease out some potential reasons behind its disastrous performance. The question "is value dead?" comes up frequently in their meetings with portfolio managers, they say. "It lies at the centre of the key tactical dilemma facing investors of whether to pay up to buy a defence against the slowdown or to buy 'cheap' assets that are positively correlated with bond yield and inflation," they note. Particularly after yesterday's Sintra surprise and ahead of more likely super-dovish comments from the Fed, this question is key. Of the potential structural pressures making Value a losing battle in a long-term way, Bernstein offers the following: * Technology might have created semi-permanent winner and loser firms and destroyed "moats" around industries * Continual rotation into passive funds is inherently pro-momentum (that's because investors typically buy an ETF on the basis that what has happened recently continues to happen!) * Low interest rates and bond yields have warped the usual stock valuation metrics and stacked the odds in favour of higher-valued (often Growth) stocks - furthermore, "most important growth assets are intangible", they argue, throwing the relevance of book value and earnings measures into question Ultimately, though, they see a chance for Value to rise again and say the reasons why it's been depressed may be more particular: a slow and faltering post-financial crisis recovery with stimulus warping valuations, and (more recently) a run of terrible macro data. "The link between the performance of value and bond yields and inflation remains very tight," Bernstein notes, adding that value might need higher interest rates in order to be reborn from the ashes. "When bond yields rise (whenever that may be) we think that value can recover in a sustained way, albeit maybe with an amended definition taking account of intangibles." One key question not covered in the Bernstein note is whether Value is in fact pining for the Norwegian fjords, like the parrot in the Monty Python sketch... "not dead, just resting". (Helen Reid) ***** END OF THE LOVE-IN FOR BERKELEY GROUP? (1112 GMT) The feel-good factors - mainly better-than-expected results and its dividend policy - that boosted Berkeley Group's shares at the open evaporated pretty quickly as lingering worries about the troubled sector returned. The stock is now down 1.3%, reversing the 5% rally in early deals and dragging its rivals with it. Some of the positive surprise was already baked in as the company often beats its own estimates, Chris Millington, equity analyst at Numis Securities, says. But the other reason is that the market's expectations for FY earnings may finally be crashing back down to reality .... or rather to levels more inline with the company's own guidance, leaving the stock looking a little pricey compared with its peers. The company has outlined its expectations for lower earnings previously, "but the market doesn't seem to believe it," says Robin Hardy, analyst at Shore Capital. "There's a permanent love-in for this stock," he says even though Redrow shares, for instance, are trading at around 7 times its earnings compared with Berkeley at more than 10 times. Millington agrees. "If this was outside the housebuilder sector, this would look screamingly cheap," he says. "You've got a company with £1 billion of cash on the balance sheet, returning 6% a year and trading at under 10 times with an amazing asset base." "But given it sits in housebuilders where I can see PE ratios of sub-6 and dividend yields of 12%, Berkeley does look expensive relative to the others." And then there's the general malaise across the sector to digest as uncertainty over Brexit continues to knock prices and curb buyers' appetite for new homes. The chart below highlights the big gap in valuations between Berkeley and its peers: (Josephine Mason) ***** WHATEVER IT TAKES 2.0? (1048 GMT) Was the market right in taking ECB President Mario Draghi's words at face value yesterday? As Silvia Dall'Angelo, economist at Hermes Investment Management, points out, Draghi only had three months left until his term expires and he won't be able to get any commitment from his successor that they will continue in the same vein. "I'm a bit surprised by the reaction in equity markets... I'm not really sure we can take [Draghi's] promises at face value," she said in an interview yesterday. The impact of QE on financial markets, and inflation expectations in particular, has faded over time - the "law of diminishing returns", as she puts it - and thus a new round of cuts or stimulus would likely be less powerful than previous rounds. As you can see below, Draghi's words alone did give a significant boost to long-run inflation expectations which had just recently hit a record low. But in terms of supporting the economy, many investors are less than certain stimulus will deliver a sufficient impact. "Given the weak data across Europe, political and financial difficulties involved in implementing stimulus and likelihood of this being part of a global shift towards easier policy we are retaining our underweight positioning to European Equities in the short term," says Edward Park, deputy chief investment officer at Brooks Macdonald. "We wouldn't call it a 'whatever it takes' moment," says Donough Kilmurray, managing director of investment strategy at Goldman Sachs Investment Strategy Group. "That was a much more severe crisis period and a much more significant intervention by Draghi." Today the baton passes to the Fed as central banks race to be the most dovish. (Helen Reid and Dhara Ranasinghe) ***** OPENING SNAPSHOT: SUBDUED START AHEAD OF FED (0726 GMT) European stocks are slightly lower with banks, mining and auto sectors making gains, while defensives such as consumer staples and utilities are in red. A build-up to Fed? After Draghi's dovish comments yesterday, hopes are running high for the Fed to follow suit later this evening. Chip stocks are rallying today pinning hopes on a potential China-U.S. trade deal. Siltronic is making a solid come back with 4% gains, a day after sliding 7% yesterday on its profit warning. British housebuilders are among top gainers today with Berkeley Group leading the pack after its annual profits comfortably beat estimates. Berkeley is rising 3.4% and is the top gainer on FTSE 100. Just East is off 4.5% and the biggest faller on the UK blue chip index after UBS downgraded the stock to "neutral". As expected, Saga shares are sliding 7%, hitting all-time lows after the company says its tour operations still being hurt by UK political uncertainties. Here's your opening snapshot: (Thyagaraju Adinarayan) ***** WHAT'S ON OUR RADAR: SAGA, BERKELEY, STEINHOFF, ADYEN (0656 GMT) It's a lull in continental Europe, but there is some action in the UK with corporate companies continuing blame Brexit and/or political uncertainties for poor results. What's the impact? Saga says its tour operations business is still being hit by political uncertainties, housebuilder Berkeley Group has reported a 21% drop in pretax profit and Whitbread's like-for-like revenue per available room in the UK fell 6% in Q1. Traders are calling Saga and Whitbread shares 2-3% lower, while Berkeley shares are called 2-5% higher as their results comfortably beat estimates. The Berkeley share move could be a positive read-across and provide some relief for the battered British housebuilding sector. Steinhoff International's Frankfurt-listed shares are seen falling as much as 10% after the South African retailer reported a 1.2 billion euro ($1.34 billion) loss for 2018, in a much-delayed earnings report, revealing the impact of an accounting fraud put at $7.27 billion. Dutch fintech firm Adyen seen 2% down after some pre-IPO investors placed shares at 670 euros -- a 3% discount to yesterday's closing price. UK headlines: UK housebuilder Berkeley annual profit slumps Brexit uncertainty hurts demand at Whitbread UK's Saga warns on hit to tour operations (Thyagaraju Adinarayan) ***** CALM AFTER THE STORM (0619 GMT) European stock futures indicate a flat open after a massive rally yesterday as investors are on the side-lines waiting to see if the Fed follows in the footsteps of the ECB. Meanwhile, for anyone still recovering from the Draghi shock, you're not alone: ECB policymakers were divided on Tuesday, with some feeling powerless, after Draghi hinted at new stimulus measures that had yet to be discussed by the ECB's Governing Council. Corporate news looks very light this morning but it would be interesting to watch if the trade-sensitive stocks continue to rally pinning hopes on a trade deal when Trump and China's Xi meet in G20. The Philadelphia Semiconductor index rose 4.4% overnight on hopes of a trade deal. A report that Deutsche Bank chief Christian Sewing is planning a major overhaul of top management, including replacing the finance chief, is making big headlines. Key headlines: EXCLUSIVE-Left in the dark, ECB policymakers divided on stimulus options Dish Network nearing $6 bln deal for T-Mobile-Sprint assets Scandal-hit Steinhoff posts narrow $1.3 bln loss in delayed 2018 results Qantas adds 10 Airbus jets to order, will take 36 A321XLRs (Thyagaraju Adinarayan) ***** EUROPEAN SHARES SEEN SLIGHTLY HIGHER (0528 GMT) European stocks are seen extending gains after a solid rally on Tuesday. All eyes are on Jerome Powell now as the market is keenly watching if he will follow the lead of his European counterpart Mario Draghi and open the door to future rate cuts at the policy meeting later in the day. The Fed is scheduled to release a statement at 1800 GMT on Wednesday, followed by a press conference by Powell shortly after. Financial spreadbetters IG expect London's FTSE to open 10 points higher at 7,453, Frankfurt's DAX to open 11 points up at 12,342, and Paris' CAC to open 4 points higher at 5,513. (Thyagaraju Adinarayan) ***** ($1 = 0.8934 euros) ($1 = 0.8914 euros) (Reporting by Danilo Masoni, Helen Reid, Josephine Mason and Thyagaraju Adinarayan)