LIVE MARKETS-Closing snapshot: A big bounce on both sides of the pond

* STOXX 600 up 0.9%, FTSE 100 up 1%

* Bayer slides 2.1% after $2 bln award in Roundup trial

* Greggs jumps to record high on upbeat outlook; up 15.4%

* Italy banks fall after Salvini says Rome could break fiscal rules

* Wall Street jumps after heavy selloff

* Trump defends China trade battle, vows deal will happen

May 14 - 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

CLOSING SNAPSHOT: A BIG BOUNCE ON BOTH SIDES OF THE POND (1543 GMT)

European stocks have staged a substantial recovery bounce today, with the STOXX 600 closing

up 0.9% - its biggest one-day gain in nearly six weeks. It doesn't change the fact this has been

a bruising month for the index - down 4% since the start of May and its first monthly drop this

year.

The usual trade-sensitive suspects are leading the charge today: luxury stocks Kering and

LVMH, and chipmakers STMicro, AMS, and Siltronic are among the top-performing.

Wall Street indices are also rallying strongly, with the S&P 500 up 0.9% and the Nasdaq up

1%.

The outperformance of Europe relative to the U.S. since this renewed trade tit-for-tat

started has been an interesting trend investors and traders are watching. They reckon it's

partly down to stretched valuations in the U.S. and already weak positioning in Europe.

It's been a pretty active day on the corporate front too, with results from Greggs sending

the stock up 15.4%, and sources telling Reuters UniCredit is advancing towards a bid for

Commerzbank, sending the German bank's shares surging up 5% while UniCredit tumbled 2.4%.

(Helen Reid)

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RISKS FOR EUROPEAN CREDIT FROM TRADE WAR ESCALATION (1441 GMT)

BAML credit strategists' base case - bravely, perhaps - remains for the U.S. and China to

get a trade deal through.

However, they add, "The risk is that both sides procrastinate for too long, putting the euro

zone growth rebound in jeopardy."

Credit could be particularly sensitive and the market is currently mis-pricing the risks,

they argue.

"Euro credit spreads don't do a great job at rewarding investors when looking at the U.S.-EU

trade deficit by sector," write BAML credit strategists. "Outside of autos, we think investors

should be careful in the industrial, consumer and transport sectors at present: spreads look

tight here relative to the corresponding U.S.-EU trade deficit."

The U.S. dollar will also be a key factor to watch. It was last year when a sharp

appreciation of the dollar knocked emerging markets, in turn driving European retail investors

to prefer U.S. Treasuries over European credit.

"We think any meaningful appreciation over the weeks ahead would be a bearish signal for

European spreads," write the strategists.

As you can see below, Euro high-yield credit spreads jumped in concert with EM FX volatility

last year:

(Helen Reid)

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"OUR SUPER-DEFENSIVE POSITIONING IS EXACTLY WHERE WE WANT TO BE" (1417 GMT)

That's the latest view from Christopher Potts, Kepler Cheuvreux's top strategist, and it

ties with BAML's monthly survey showing that a record number of fund managers have hedged

themselves against sharp stock market falls in the coming months.

You can find the BAML survey here and below is more from Potts.

"Those who wanted to believe that a Sino-American trade deal was assured and that the growth

of world output and trade was reviving have been guilty of wishful thinking... It is difficult

for us to envisage a rapid, amicable conclusion to the current Sino-American standoff," he says.

"We assume that more drama will be required before a meaningful agreement can be forged.

Failure is entirely possible, in the form of postponement of talks sine die. In this context we

do not have a good reason to change our assumptions about market behaviour," he adds.

Implications for equities? For now a retracement to around the 2,650 area on the S&P 500

and to the 3,200-3,250 area of the Euro STOXX 50 seem to Potts the most

plausible scenario.

(Danilo Masoni)

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BANK REVERSAL (1317 GMT)

Gains in European banks have mostly fizzled out and it seems the move can be linked to a few

headlines that have just reminded investors how the rate-sensitive sector remains vulnerable to

volatile politics (ahead of the EU elections later this month) and central bank action to

counter any trade war damage to the economy.

The first one comes from fiscally-stretched Italy, where Deputy Prime Minister Matteo

Salvini said Rome is ready to break European Union budget rules if necessary to spur jobs.

His remarks hit Italy's BTP government bonds. That in turn weighed on the country's banks,

which are big holders of sovereign debt, sending them to their lowest since February 25 (see

first chart below).

"Volumes on BTPs spiked on Salvini remarks," says a trader.

Meanwhile, German yields extended their drop, and so did those on U.S. treasuries - a move

usually tends to weigh on banks, whose lending business benefits from higher interest rates.

Last but not least, another Trump tweet hinting at the idea of the Federal Reserve matching

China's stimulus measures doesn't look to have helped either. Here's the tweet:

Euro zone banks have also briefly turned negative, down as much as 0.15 percent -

having risen as much as 1.2 percent earlier.

(Danilo Masoni)

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FIGHT OR FLIGHT? BAML REMAINS CAUTIOUS ON AUTOS (1240 GMT)

Auto stocks are somewhat staging a comeback this morning (+0.9%) after tanking for the last

few sessions on U.S.-China trade fight that prolonged longer than expected, as the world's two

biggest economies failed to strike a trade deal last week.

Bank of America Merrill Lynch analysts say they remain relatively cautious on their European

automotive coverage.

"Very cautious" commentaries on Q2 volumes by Continental, Hella and Schaeffler are dashing

hopes for a strong V-shaped recovery in China, BAML adds, saying consumers still wait for a

potential stimulus programme, which might even disappoint and be delayed.

May 18 is a key date to watch out for: That's when U.S. President Donald Trump is expected

to comment on potential for import tariffs for autos and autos parts.

Typically, Europe's carmakers are considered particularly vulnerable to Trump's

protectionism and German economy, which is heavily exposed to autos, could be hit hard.

Link to a neat story with graphics on Europe's exposure to U.S. from today: https://reut.rs/2WC17Il

Meanwhile, the bank's May global fund manager survey shows "short EU equities" is no longer

the most crowded trade, it's moved down one level to second, replaced by long U.S. tech.

The survey also shows investors are removing underweights in Eurozone & banks, while trade

war is seen as the number 1 tail risk.

(Thyagaraju Adinarayan)

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REASONS FOR A RESILIENT EUROPE WHILE WALL ST WOBBLES (1135 GMT)

European stocks have been dancing to their own tune recently - staging strong recovery

bounces like today's, outperforming the U.S. and generally moving out of step with the bigger

Wall Street market.

It's left many scratching their heads as to why Europe is seemingly less sensitive to a

resurgence of trade tensions - but the answer may instead be down to fundamentals of market

valuation and investor positioning.

"It has been striking over recent days, but I believe it reflects a rising fear that the

U.S. valuation premium is progressively harder and harder to justify if the U.S. goes down the

trade antagonistic route," says Chris Bailey, Europe strategist at Raymond James.

Wall Street has also had further to fall after S&P500 and Nasdaq hit record highs

just a few weeks ago.

"Some of the divergence will simply be down to ownership," says a trader. "The driving force

of institutional selling is lessened in Europe as they have neutral or underweight holdings

already."

Interestingly with regards to this picture of a perennially beaten-down Europe, fund

managers say "short European equities" is no longer the most crowded trade. Instead, it's an old

favourite: U.S. tech, according to BAML's latest survey released this morning.

This slight improvement in sentiment on Europe is reflected in some fund managers' thoughts.

Morgan Stanley Wealth Management's chief investment officer Lisa Shalett says: "To our clients,

the U.S. stock market is not very interesting, and we have moved to international stock markets

exposure - Japan and Europe - as we find value there and a much lower P/E ratio."

Below you can see the evolution of trades fund managers have picked as "most crowded":

(Helen Reid and Thyagaraju Adinarayan)

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EUROPE: PLEASE BEAR WITH US (1059 GMT)

Dear readers, you may have noticed we've not published an update to the blog for a while.

We're grappling with a data and news outage this morning which we hope will be fixed soon.

Please bear with us if we're a little slower than usual and do get in touch if you have any

insights on the market you'd like to share with us. We accept postcards, smoke signals, pigeons

and all the usual emails.

(Josephine Mason)

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OPENING SNAPSHOT: EUROPE DEFIES WALL STREET (0730 GMT)

It's a remarkable comeback after the bloodbath on Wall Street last night that European

shares are staging a healthy bounce back this morning even as worries deepen about the damage to

the global economy from an protracted U.S.-China trade spat.

STOXX 600 is up 0.6% and sectors that got whacked yesterday tech and cars are up this

morning.

Stocks hit 2-month lows yesterday after Beijing retaliated just as U.S. equities opened, so

part of the reaction is already baked in, but there really aren't any headlines overnight that

would justify the size of these gains or explain the apparent renewed confidence in risky

assets.

Even Bayer, which was down 8% in early deals, is faring relatively well after the latest bad

news from the weedkiller trials in the U.S. Its shares are down 2.7% at the bottom of the DAX.

Among the top performers, German minerals miner K+S has risen more than 6% on the back of a

significant rise in Q1 core profit. K+S and Lanxess, whose results beat expectations, are

boosting the STOXX chemicals index, which is up 1.1%.

The UK's (surprisingly strong?) appetite for vegan sausage rolls continues to bolster

British baker Greggs. Its shares are rising 11.5% and hit a record high, after its upbeat

outlook.

(Thyagaraju Adinarayan)

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ON THE RADAR: BAYER, VODAFONE, VW, GREGGS, HELLOFRESH (0642 GMT)

European stocks are set to bounce back (futures +0.5%) tracking gains in U.S. stock futures.

Is Europe showing resilience? The STOXX 600 index fell 1.2% yesterday to fresh late

March lows, while Wall Street suffered massive losses with the S&P 500 down 2.4%.

Among corporate headlines, there's plenty in Germany to watch out for today.

Bayer shares are taking a beating this morning, last down 7% premarket, after a California

jury hit the company with a $2 bln award in the Roundup cancer trial. The share move is likely

to wipe off more than $4 billion from its market value.

Volkswagen is seen 2.7% higher as it resumes preparations for an IPO of its trucks unit

Traton.

Shares in Allianz are expected to rise 1.5% after the German insurer reported a small rise

in Q1 net profit, marginally ahead of expectations, and confirmed 2019 targets.

Breakfast time! British baker Greggs said it expects 2019 results materially higher than its

earlier expectations, as its vegan sausage rolls continue to be a big hit with consumers.

Traders expect shares to jump 5%.

Vodafone will be in focus after the telco giant slashed its dividend, reversing a pledge to

maintain the payout in the face of rising spectrum costs, tough competition in Spain and Italy

and a balance sheet soon to be hit by the acquisition of Liberty Global assets. Traders are

calling the shares 3-5% lower, matching yesterday's drop ahead of the news.

HelloFresh shares are seen sliding 7% after German ecommerce investor Rocket Internet sold

its stake in the German food group.

Some more headlines:

Vodafone cuts dividend to tackle debt burden

Thyssenkrupp's elevator unit and IPO candidate posts margin drop in Q2

VW shares up 2.7% in early trade on truck listing plans

Rocket Internet to sell HelloFresh stake

Greggs sees higher 2019 results on vegan sausage rolls demand

Nordex shares drop after loss widens in first quarter

(Thyagaraju Adinarayan)

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EYES ON BAYER, VW, PRYSMIAN (0554 GMT)

Apart from the U.S.-China trade war saga, we have some corporate headlines, mainly from

Germany, making a big splash this morning.

A California jury on Monday awarded more than $2 billion to a couple who claimed Bayer's

glyphosate-based Roundup weed killer caused their cancer, in the largest U.S. jury verdict to

date against the company in litigation over the chemical. Bayer's shares are down 6.6%

premarket.

Citi on Bayer: "near term sentiment is terrible."

Volkswagen said it will invest almost 1 billion euros in battery cell production at a

facility in western Germany and is seeking to simplify the group. VW also plans to resume

preparations for an IPO of its trucks unit Traton.

Germany's Merck said it expects a slight tailwind from FX supporting earnings growth this

year after reporting Q1 adjusted EBITDA below analyst estimates.

Italy's Prysmian says it can't rule out more faults at its WesternLink project after it

hiked provisions last month due to problems on the submarine connection.

Key headlines:

California jury hits Bayer with $2 bln award in Roundup cancer trial

Innogy's retail woes continue as Q1 profit drops 33%

Merck KGaA sees currencies supporting 2019 outlook

Volkswagen to make batteries in Germany, slim down

Ipsen hunting for more deals as sets targets for 2022

Prysmian can't rule out further problems at WesternLink

Roche pushes back Spark takeover again as regulatory review drags on

Allianz Q1 net profit rises, slightly beats estimates on lower claims

France's Vinci completes takeover of majority stake in Gatwick airport

(Thyagaraju Adinarayan)

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A RELIEF RALLY? (0526 GMT)

Europe's main stock indices could stage a comeback, tracking U.S. stock futures, after a

massive sell-off yesterday. S&P 500 futures are up 0.6% as of 0520 GMT.

Traders expect European shares to open slightly higher as Asia is off lows.

"This pullback from the lows is likely to see European markets open slightly higher this

morning, but it is unlikely to change the prospect of further volatility in the days ahead,"

says Michael Hewson at CMC Markets.

Global stocks took a beating on tariff war between world's two biggest economies. China

announced on Monday that it would impose higher tariffs on $60 billion of U.S. goods following

Washington's decision last week to hike its own levies on $200 billion in Chinese imports.

MSCI's gauge of stocks across the globe shed 1.90% on Monday, its biggest

one-day drop in more than five months as it touched a two-month low. Wall Street's main indexes

tumbled more than 2%.

(Thyagaraju Adinarayan)

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