LIVE MARKETS-Closing snapshot: bye, bye Xmas rally?

Dec (Shanghai: 600875.SS - news) 5 - 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

CLOSING SNAPSHOT: BYE (Shanghai: 603861.SS - news) , BYE XMAS RALLY? (1739 GMT)

Worries over a global economic slowdown and trade jitters kept markets under pressure today,

sending the pan-European STOXX 600 index down 1.2 percent to its lowest level in around 2 weeks.

All major European indexes declined, making a Xmas rally (December is traditionally a good

month for stocks) a somewhat more remote prospect.

Remember when on Monday investors were hoping that the trade truce between China and the US

would mark the start of a happy ending to a turbulent 2018?

That being said, December is just beginning.

First (Other OTC: FSTC - news) thing will be to see what Wall Street will do when it reopens tomorrow following

today's closure in honour of former president George H.W. Bush.

Will flattening yield curves still raise the spectre of a recession?

Anyhow, here's your closing snapshot for the day:

(Danilo Masoni)

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MOST CONTRARIAN TRADE FOR 2019? A 2018 VALUE TRAP! (1619 GMT)

Out of its "9 trades for 2019", BofA Merrill Lynch names going long in SX7E (Euro zone

banks) "the most contrarian bull trade. Well, quite.

Euro zone banks are down 26.5 percent year-to-date and very much unloved to say the

least.

Looking at how many investors got burnt betting on a 2018 banking rebound when things were

actually looking good (Remember #euroboom headlines?), buying euro zone banks now that growth is

clearly slowing down seems counterintuitive to say the least.

With (Other OTC: WWTH - news) riots in France, a populist government in Italy, Merkel losing her mojo and Brexit

still in the equation, political risk seems to be doing just all right as we enter 2019.

Other risks looming over the sector include an ever-growing list of money laundering and

compliance scandals, disruption by fintech, tensions in the Italian banking sector and

rock-bottom interest rates compressing revenues.

One key to understand the contrarian trade is that BofA sees a "V-shaped trajectory for

credit and equity prices next year" combined with an ECB rate hike in December.

Anyhow if you're feeling optimistic about European banks in 2019, here's a look at what they

did since the financial crisis.

(Julien Ponthus)

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ITALY? "I THINK THINGS WILL WORK OUT OKAY" (1334 GMT)

Italian stocks have turned positive with banks rallying as government bonds are getting a

nice boost on hopes that the government could cut its 2019 budget plans.

And it seems that despite the ongoing uncertainty, investors are getting more confident that

some sort of compromise with European authorities could be found after the EU Commission

rejected Rome's budget plans, starting a disciplinary procedure.

Here's what Bob Michele, Head of Global Fixed Income, Currency and Commodities at JPMorgan (LSE: JPIU.L - news)

Asset Management, told us when he we asked him: what about Italy?

"Such a difficult question (...) I actually think things will work out okay. And I take the

ECB at its word, which is if they can see a little willingness of the Italian government to look

at deficit spending and try to control it, then they can solve the problems in the bond market.

They can provide the liquidity and backstop the market and it's not a big issue for them."

"You need both of those things to get comfortable holding Italian debt because you need some

level of fiscal austerity and budget control," he added.

And indeed it seems that remarks this morning from cabinet undersecretary Giancarlo

Giorgetti, which are fuelling a rally of Italian govvies, go in the right direction. He said

Rome will revise its budget plans by next week and could cut nearly 4 billion euros from a

promised relaxation of pension rules.

(Danilo Masoni and Saikat Chatterjee)

****

THE BULL AIN'T DEAD TILL THE FAT COW SINGS (1035 GMT)

Most strategists might believe that the bull ain't dead till the fat cow sings, but with

Wall Street losing over 3 percent in just a session, the silent doubts that were creeping up

about 2019 are getting more vocal.

Take UBS Global Wealth Management. Mark Haefele, Chief Investment Officer still believes

that "the economic outlook is positive and supports our tactical overweight to global equities".

But, there's a but:

"Given the risks, we also recommend countercyclical positions, including a long in the

10-year Treasury bond".

To those who are concerned about the 2-10-year yield curve inverting, which it hasn't yet,

Haefele stresses that "the lag from initial inversion to the start of the recession was over 24

months in the last two cycles, which makes it a flawed crystal ball."

Anyhow, at this stage, a U.S. recession does look improbable with, for instance, ING's

latest U.S. GDP forecast at 2.4 percent in 2019 and 2 percent in 2020.

CMC (BSE: CMC.BO - news) 's Michael Hewson also seemed to remain somewhat optimistic in his morning note, but

there also was a big but.

"This weakness strikes me as being overdone, particularly when you look at recent US data,

HOWEVER along with concerns about slowing global growth in China and Europe, along with rising

geopolitical risk in Europe as well as last night’s events in the UK parliament, it's perhaps

not surprising that investor nerves are a little frayed."

The BofA Merrill Lynch Research team takes the view that it might be worse before it gets

better. It sees the S&P 500 at 2,900 points at the end of 2019, so 200 points higher than today

but it's kind of a long and winding road.

At the moment, they are bearish stocks and long on volatility but they "expect to turn

tactically risk-on in late spring".

In the meantime, one must admit that there is little hope to be found in today's European

PMIs showing the economy is hitting the breaks.

Moody's lowering its outlook for non-financial EMEA corporates to stable from positive is

another sign of gloom.

"Essentially, we are seeing caution return after a strong 2018 for many companies," said

Moody's managing director Philipp Lotter.

Time (Frankfurt: A11312 - news) for a song?

(Julien Ponthus)

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OPENING SNAPSHOT: SEA OF RED AT THE OPEN (0839 GMT)

European shares are sharply lower in early deals, with all the major bourses down between

0.9 to 1.3 percent with heavyweight financials leading the falls, taking their lead from Wall

Street's losses overnight.

A warning from Schlumberger (IOB: 0CT7.IL - news) over U.S. revenues overnight is hurting Weir and Rotork (Frankfurt: RO41.F - news) in early

deals while Hargreaves is among the STOXX 600 fallers after a Morgan Stanley (Xetra: 885836 - news) downgrade.

Thomas Cook (Frankfurt: A0MR3W - news) is staging a small rebound from the 60-percent drop in its shares over the past

week following its profit warning, but its bonds have hit a record low after Moody's downgraded

its rating deeper into junk status on Tuesday evening amid growing worries about the travel

operator's debts.

(Josephine Mason)

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WHAT'S ON THE RADAR: THOMAS COOK DOWNGRADE, RYANAIR, AND BREXIT CONTINGENCY PLANS (0744 GMT)

European stocks are set to sink after Wall Street took a pummelling with investors alarmed

by the inversion of part of the U.S. yield curve and signs the G20 trade war truce isn’t all it

was cracked up to be – just two of the many “Grinches” analysts say are stealing investors’

Christmas.

Stock futures for European benchmarks are down 0.9 to 1.1 percent.

German carmakers Daimler (IOB: 0NXX.IL - news) , Volkswagen (IOB: 0P6N.IL - news) , and BMW (EUREX: BMWE.EX - news) could move after the auto executives’ meeting

at the White House.

President Trump asked them to increase investments in the U.S., something the executives

said they planned to do but wouldn’t be able to if the administration went ahead with threatened

tariffs.

Outside trade-related moves, on the corporate front Shire (Xetra: S7E.DE - news) could get a boost after Takeda

shareholders approved the takeover of the London-listed pharma company. Shares (Berlin: DI6.BE - news) were indicating

up 4-5 percent, traders said.

Zurich Insurance (IOB: 0QP2.IL - news) sounded a confident note, saying it's set to meet its 2017-2019 targets

thanks to cost savings.

Thomas Cook shares, however, could sink further, having hit a 6-year low on Tuesday, after

Moody’s downgraded its rating on the company to B2 from B1, citing its leverage and saying the

tour operator’s weakened cash position – from 1.4 billion pounds in 2017 to 1 billion at the end

of fiscal 2018 – make it weaker.

More companies have begun contingency planning for a no-deal Brexit, and fashion retailer

Joules Group (LSE: JOUL.L - news) was the latest to announce its plan: creating a third-party distribution facility

located outside the EU and speeding up its 2019 spring-summer collection.

Shares in budget airline Ryanair could also be hit by Britain’s aviation authority saying it

would take action to force the company to pay compensation to customers affected by strikes this

summer.

More bad news for retailers after Sweden's Clas Ohlson (LSE: 0GQE.L - news) said it would close its loss-making

stores in Britain and Germany. Its shares were seen opening 3-5 percent lower. A warning about

slower revenues in the United States from Schlumberger overnight may hurt Weir, traders said.

(Helen Reid)

*****

FUTURES DROP AS GRINCHES TAKE HOLD (0718 GMT)

Futures are down sharply across Europe's benchmarks, with the DAX falling the most - down

1.1 percent - as the market's worries about the yield curve and trade take hold.

(Helen Reid)

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HEADLINES TO WATCH: GERMAN AUTOS, SHIRE, ZURICH INSURANCE (0655 GMT)

For Europe, German carmakers' shares could move after their meeting with the White House,

during which Trump pressed the senior executives to expand their investments in the U.S. -

something which the carmakers said they planned to do, but would be unable to if the

administration imposed new tariffs.

Shire could get a boost after Takeda shareholders approved the takeover of the London-listed

pharma company.

Zurich Insurance sounded a confident note, saying it's set to meet its 2017-2019 targets

thanks to cost savings.

Takeda shareholders give nod for $59 bln Shire acquisition

White House presses German automakers to expand U.S. investments

Air France (Paris: FR0000031122 - news) strike leader defeated in boost for new CEO

Volkswagen may use Ford's U.S. plants to build cars, deepening alliance

Zurich Insurance says on track to meet 2019 targets

Roche's Tecentriq wins speedy U.S. review in small cell lung cancer

Italian PM says can change "a few little things" on budget

China's BAIC stock sinks on report Daimler may raise joint venture stake

HSBC China securities JV to quadruple China research coverage

Swedish retailer Clas Ohlson to close stores in UK, Germany

Nissan panel puts off selection of nominee to succeed Ghosn -source

UK car sales fell around 3 pct in November - preliminary data

(Helen Reid)

*****

"CHRISTMAS HAS BEEN STOLEN BY THE GRINCHES" (0642 GMT)

Though there's still a couple of weeks of trading to go until the Christmas lull, investors'

hopes of an early "Santa rally" have been pretty much dashed by the yield curve grabbing the

spotlight, as well as doubts over how "wonderful" and "warm" the Trump-Xi dinner last Saturday (Shenzhen: 002291.SZ - news)

really was.

"Christmas has been well and truly stolen by the Grinches," writes Rabobank's senior

strategist Michael Every, who counts five:

- President Trump, whose post-G20 tweet calling himself a "Tariff Man" hasn't comforted

nervy investors. A task force set up by Trump also wants to give the U.S. Postal Service the

right to hike rates for packages, a move that could hurt Amazon and other big online retailers

- Chinese President Xi, whose government has said comparatively little with officials

telling Reuters they were "waiting for the leaders to return" before publicising details

- Brexit: Prime Minister Theresa May suffered embarrassing defeats as her government was

found in contempt of parliament, and a group of Conservative lawmakers won a challenge to hand

more power to the Commons if her deal is voted down

- Europe: Macron's tug-of-war with the "gilets jaunes" may not be over as the movement

hasn't welcomed his U-turn on fuel taxes, demanding a full cancellation

- The yield curve: "We are in single digits on U.S. 2s-10s and at this rate could be in what

is traditional recession warning territory by the end of the week, let alone by Xmas," says

Every

(Helen Reid)

*****

SELLING TO CONTINUE AFTER WALL STREET SUFFERS SHARP FALLS (0623 GMT)

European stocks are set to fall further this morning after Wall Street lost more than 3

percent as the bond market sent anxiety-provoking signs about economic growth and investors

stayed nervy about global trade.

The spread between 2-year and 10-year Treasury yields is at its flattest level in more than

a decade, and edging closer to an inversion, seen as a signal of an impending recession.

Asian stocks slid across the board on Wednesday, dragged down by Wall Street's tumble as

sharp declines in long-term U.S. Treasury yields and resurgent trade concerns stoked investor

worries about global economic growth.

Financial spreadbetters IG (Frankfurt: A0EARV - news) expect London's FTSE to open 72 points lower at 6,951,

Frankfurt's DAX to open 150 points lower at 11,186 and Paris' CAC to open 59 points lower at

4,954.

(Helen Reid)

*****

(Reporting by Helen Reid, Danilo Masoni, Julien Ponthus)