LIVE MARKETS-Closing snapshot: a choppy day before Brexit vote

* European shares end higher after choppy day

* Germany avoids technical recession

* Italian banks hit by NPL jitters

* UK PM's May faces defeat in parliament over Brexit plan

Jan 15 - 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: A CHOPPY DAY BEFORE BREXIT VOTE (1657 GMT)

European shares managed to close in positive territory, finding support in signs of more

stimulus in China, although the session was choppy, illustrating the lack of conviction ahead of

the likely parliamentary rejection of Theresa May's Brexit plan and following poor economic data

from Germany and an earnings miss from top Wall Street bank JP Morgan.

Italian banks also featured on the watch list today, suffering heavy losses on reports the

ECB is piling fresh pressure on lenders to speed up the sale of soured debt. A positive open on

Wall Street helped European shares recover from the session lows, sending the STOXX 600 up 0.3

percent at the provisional close.

Here's your closing snapshot:

(Danilo Masoni)

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VALUATION SPREADS: LIKE A COILED SPRING (1540 GMT)

Valuation spreads - the difference between the most expensive and cheapest stocks in the

market - jumped at the end of last year across regions, scuppering value investors' hopes.

"The widening of spreads acted as a headwind for value investors in the quarter because it

implies that market participants are willing to continue to pay for expensive names and were not

rewarding cheap stocks," they wrote in a note.

In Europe, spreads are approaching levels last seen during the sovereign debt crisis. But,

Man Group (LSE: EMG.L - news) strategists argue, there could yet be scope for cheaper stocks to rally back.

Historically the spread has acted like a coiled spring, they say:

"When the spread snaps back, it can do so at a very fast pace, and value stocks can then

come into favour very quickly."

Value investors will certainly be hoping so...

(Helen Reid)

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ANOTHER BREXIT HEADACHE FOR INVESTORS (1529 GMT)

Investors betting that internationally exposed blue-chip stocks on London's FTSE 100 would

get a boost from a weaker sterling amid all the Brexit uncertainty may be nursing a headache

into tonight's vote.

Sterling and the FTSE 100, whose constituents make the bulk of their revenue in U.S

dollars, have traded in tandem for the past month, with the positive correlation hitting its

highest this week since late February 2016.

The pound hit its highest in two months on Monday amid growing expectations that the UK's

divorce from Europe would be delayed. It has rallied 3.5 percent against the U.S. dollar since

Dec (Shanghai: 600875.SS - news) . 12 from its lowest since April 2017.

In turn, the FTSE 100 has jumped 7 percent since hitting multi-year lows on Dec. 27 as

global issues have boosted European equities - hopes that the Fed may not lift interest rates as

quickly as expected and for an end to the prolonged row between Washington and Beijing.

Such a pronounced positive correlation is historically rare - over the past 20 years, it's

only happened on seven occasions.

Whether it lasts beyond the very British problem of the Brexit vote is not clear.

(Josephine Mason and Helen Reid)

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DON'T WORRY, IT'S ONLY SECULAR STAGNATION...(1358 GMT)

There are many ways to look at the macro picture right now with the German technical

recession out of the way.

Glass half full: Very few economists actually expect a recession, either in the U.S. or in

the euro zone in 2019.

Glass half empty: There's undisputed evidence of economic growth slowing down in the US,

China and Europe.

Here's a selection of how top strategists picture the economy:

Carmignac's Didier Saint-Georges takes the view that "the global economic slowdown has

become both synchronised and unquestionable".

BlackRock’s global chief investment strategist Richard Turnill says he sees "global growth

slowing in 2019, and the U.S. economy entering a late-cycle phase" but views "the risk of a

recession this year as low".

BAML's chief investment strategist Michael Hartnett finds in the bank's January survey that

the diagnosis of fund managers "is secular stagnation, not a recession", which still implies

lower growth and profit expectations.

So at the end of the day, it's obvious why there's no clear narrative on the table. Bulls

and bears need to fight it out on their favourite battle ground: the trading floor.

"The current U.S. stock market remains in a stalemate in terms of the sustainability of the

existing risk-on mood, with bullish and bearish players waging a heated offensive and defensive

battle and the US stock market should therefore remain in a struggle over the next few days,"

writes Nomura.

Which one of them are you betting on?

(Julien Ponthus)

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POSTCARD FROM CHINA: FDI EXODUS EXACERBATED BY TRADE WAR (1333 GMT)

Companies have slowly been shifting production away from China, diversifying their foreign

direct investments as the country's comparative advantage of low production costs wanes, and the

trade war is likely speeding up this process.

Rising labour income, higher environmental standards and an increasingly competitive

domestic landscape have made China relatively less attractive for foreign companies, UBS

economists note, and China itself has encouraged its companies to move up the global value chain

as it faces pushback from trading partners riled by its large market share.

"Trade war was not the trigger, but it adds to the incentive for diversification," write UBS

economists. So where will foreign companies go instead of China, going forward?

Taiwan (Taiwan OTC: 6549.TWO - news) , Japan, and Korea's attractiveness has increased in recent years relative to China,

the foreign direct investment (FDI) data suggest (see below) and the three are also indicated as

the top relocation destinations in the recent China CFO survey, UBS (LSE: 0QNR.L - news) highlights.

But ultimately, the biggest impact may be felt in ASEAN economies such as Vietnam and

Malaysia.

"In the medium term, since the North Asia economies are facing similar structural

challenges as China does, we expect the FDIs diverted from China to them would eventually, at

least partly, be channelled to the south," UBS writes.

(Helen Reid)

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PYRRHIC VICTORY OR DEFEAT? HOW TO INTERPRET THE BREXIT VOTE (1240 GMT)

With British PM Theresa May expected to suffer a defeat when lawmakers take part in a

historic vote on her draft Brexit deal this evening, the acid test for investors is the scale of

a loss and what it means for the protracted attempt to strike an exit agreement.

Avoiding a crushing defeat could give her the chance to ask Brussels for more concessions

before attempting to get the plan through parliament in another vote.

But a humiliating outcome could pressure her to delay Britain's scheduled March 29 departure

from the EU and may open up other options, from a second referendum to leaving with no deal.

"As long as the margin is not greater than about 150, we think the deal will remain alive,"

wrote UBS strategist John Wraith yesterday.

But many analysts are more cautious, using 100 as a gauge for what they would consider a

victory - albeit a Pyrrhic one - that could boost sterling and domestic stocks.

"A number above 100 MPs (BSE: MPSLTD.BO - news) would set an extremely high bar to get a modified version of the

deal approved in the next 2-3 weeks," said ING analysts in a note this morning.

Chris Beauchamp, chief market analyst at IG (Frankfurt: A0EARV - news) , agrees below 100 would be positive for May as

she may be in a position to twist rebels' arms and potentially get it through a second vote.

So far, 115 MPs have indicated they will oppose the deal, including 34 of May's 317 own

lawmakers.

Rabobank's base case is a loss of significantly more than 80, making an extension of Article

50 beyond March 29 distinctly possible. That would be welcomed by the market as it would

postpone an outcome - and with it the uncertainty - which is preferable to the current turmoil.

"We could be in the slightly counterintuitive situation in which a historically large defeat

for the government could in the short term be risk positive," Rabobank said in a note.

"However, in the longer term an extension of Article 50 could be construed as making a

slow-moving car crash even slower."

It's not clear if sterling can sustain gains after hitting two-month highs yesterday on

growing expectations of a delay to Brexit. Some reckon that is priced in for now, leaving the

pound vulnerable to a sell-off.

"The most positive outcome for GBP is a second referendum, likely bringing EUR/GBP to or

below 0.85," said ING analysts.

But they caution: "For now, the lack of short-term risk premium priced into GBP and the

potential disappointment if Article 50 isn't extended immediately may translate into weaker GBP

this week."

BAML's January fund manager survey found sterling is seen as the most undervalued ever:

(Josephine Mason, Danilo Masoni and Helen Reid)

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ITALIAN BANKS: NPL WORRIES ARE BACK! (1151 GMT)

The recent turmoil over Italy's public spending plans had put the thorny issue of how to

tackle soured debt on the back burner for a while, but now that Rome has compromised over its

2019 budget, it seems that euro zone regulators are piling fresh pressure on lenders to offload

so-called non performing loans (NPLs) from their balance sheet.

And that's particularly worrisome for investors in Italian banks, which hold around one

quarter of Europe's more than 700 billion euro NPL pile and whose NPL ratio is the highest among

the region's top economies - at 7.7 percent.

Worries first resurfaced yesterday when Monte dei Paschi (Milan: BMPS.MI - news) said the European Central

Bank had told it to put aside more money to cover impaired loans by 2026, and are mounting today

on reports that all banks under ECB supervision will be given a target date to fully provision

for their bad debt.

"Despite the strong progress made in the last couple of years, the derisking process still

needed to be completed, in order to achieve a gross NPL ratio acceptable by the European

authorities (that we consider at 5 percent)," says Banca IMI analyst Manuela Meroni.

"We believe that an approach similar to that applied to MPS to the other European banks, if

confirmed by the other banks, may accelerate the NPL disposals of Italian banks, that we expect

to continue also in 2019," she adds.

In the chart below, courtesy of the European Banking Authority, you can see that the ratio

of non-performing exposures for Italian banks (7.7 percent) is the third highest in the EU after

Greece (39 percent) and Portugal (9.7 percent).

Among the major economies, Germany stands at 1.4 percent, the UK at 1.2 percent, France at

2.6 and Spain at 3.5.

Italy's banking index was last down 2.3 percent.

(Danilo Masoni)

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#PHEW: NO TECHNICAL RECESSION FOR GERMANY (0940 GMT)

Well that was close!

There was a bit of confusion for a few minutes at 0900 GMT when the German GDP figures were

released and it was not immediately clear whether a technical recession had been avoided in Q4.

The German Federal Statistics Office however quickly clarified that the economy probably

grew slightly in Q4 2018 after contracting in the third quarter.

#Phew, twitted Ludovic Subran, Global Head of Macroeconomic Research at Allianz (Swiss: ALV-EUR.SW - news) , cautioning

however that "2019 won’t be easy with a weak start" and that "trade talks and euro-zone momentum

will be essential".

While there definitely is some sense of relief that investors have been spared the

psychological blow of a recession in the Euro zone's powerhouse, the market reaction wasn't that

good with the DAX, still positive, but touching a session low.

And that's understandable because at the end of the day, growth is at its weakest in five

years and exposing how real the global slowdown is.

(Julien Ponthus)

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OPENING SNAPSHOT: RELIEF ALL ROUND EUROPE .... LONDON LAGS (0831 GMT)

European shares are staging a pretty impressive rally at the open, with euro-zone indices up

1 percent led by autos and tech stocks - yesterday's laggards after the weak Chinese trade data

and vulnerable to all things China - as investors cheer signs that Beijing is drawing up plans

to boost its cooling economy.

London's FTSE indices are underperforming the broader market - the midcaps, seen as a

barometer for Brexit, are flat - ahead of the crucial Parliamentary vote on the UK's divorce

with the European Union later this evening. There's still no sign of any change in stance, with

PM May expected to suffer a defeat.

Positive news from Peugeot (Other OTC: PUGOF - news) has lifted the French carmaker's shares to November highs and

aided the broader sector which has hit Dec. 5 levels.

(Helen Reid)

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WHAT'S ON THE RADAR: PERSIMMON (Frankfurt: 882058 - news) , BOOHOO, PROVIDENT FINANCIAL (Other OTC: FPLPF - news) , MILLICOM (0739 GMT)

Futures for euro zone and UK stock markets are up 0.7 to 1 percent as investors bet on fresh

stimulus measures from China which could support markets and soften the blow of a global trade

war.

China news going from a drag to a boost in the space of 24 hours highlights the importance

of the country to European markets, with many companies highly exposed.

With (Other OTC: WWTH - news) traders and investors on tenterhooks ahead of a crucial vote in the UK parliament over

Prime Minister May’s Brexit deal, there's also a lot of corporate news to digest including

updates from Swiss Re (LSE: 0QL6.L - news) , PSA Group, Lindt & Spruengli and Persimmon.

Swiss Re shares are seen falling 1 to 2 percent after the reinsurer said fires and typhoons

had pushed its fourth-quarter claims burden to $1.3 billion. Chocolate maker Lindt & Spruengli

is seen falling 1-2 percent after reporting on-target sales.

Persimmon is expected to gain 1-2 percent after the latest UK housebuilder to give an upbeat

outlook, forecasting 2018 pre-tax profits will be ahead of consensus, benefiting from low

interest rates and a competitive mortgage market. It follows Taylor Wimpey (LSE: TW.L - news) 's upbeat assessment

of 2019 last week.

After a profit warning by online fashion retailer Quiz last week, results from rival Boohoo

should comfort those investors banking on new online fashion brands: Boohoo raised its revenue

guidance as it reported robust Christmas sales, managing to navigate a tough trading

environment. Its shares are indicated up 5 to 7 percent.

Sub-prime lender Provident Financial is seen falling 15 percent after it issued a profit

warning, saying higher impairments at its credit card business Vanquis Bank would drive its

earnings for the year down to the lower end of market expectations.

In M&A news, shares in Swedish telecoms firm Millicom are expected to jump 7-10 percent

after wireless and cable operator Liberty Latin America approached it with an acquisition offer.

The bid could boost the telecoms sector where investors are hungry for consolidation.

(Helen Reid)

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FUTURES BOUNCE ON CHINA STIMULUS HOPES (0716 GMT)

Futures have opened strongly up across euro zone and UK indices this morning, pointing to a

robust start to trading after China signalled more stimulus to come. It's clear markets are

honing in on any tidbit of good news they can get, and some investors at least are willing to

"buy the dips" on days like today.

How long the bounce will last, though, is uncertain as the crucial parliamentary vote on

Prime Minister May's Brexit deal looms.

(Helen Reid)

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COMPANY NEWS ROUNDUP: SWISS RE, PSA GROUP, LINDT (0653 GMT)

With the parliamentary vote looming, traders and investors also have a lot of corporate news

to digest that could move share prices today: updates from Swiss Re, PSA Group, and Lindt &

Spruengli as well as an alliance between Volkswagen (IOB: 0P6N.IL - news) and Ford, and a U.S. investigation into drug

pricing.

Here are the headlines so far:

Fires, typhoons push Swiss Re's Q4 claims burden to $1.3 bln

PSA Group sales hit record on Opel purchase, emissions chaos

Chocolate maker Lindt & Spruengli posts 5.1 pct organic sales growth

Straumann says CEO Gadola to step down in 2020

Pernod Ricard (TLO: RI-U.TI - news) to meet activist Elliott ahead of earnings update -sources

Alaska officials probing BP oil, gas wells at Prudhoe Bay after spill

Volkswagen, Ford to announce automotive alliance

Global auto leaders urge Trump administration to end trade turmoil

U.S. lawmaker launches investigation into pharma drug pricing

UK car insurance premiums fall 6 percent in 2018 - survey

(Helen Reid)

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CHINA STIMULUS TO BUOY EUROPEAN SHARES (0629 GMT)

Signs of more soothing stimulus from China which could soften the blow of a global trade war

are set to push European stocks up today after they delivered a boost to Asian markets

overnight. On the home front European and UK traders will be on tenterhooks today ahead of a

crucial vote in the UK parliament on Prime Minister May's Brexit deal.

Asian stocks pulled ahead on Tuesday, led by a bounce in Chinese shares as Beijing signalled

more supportive measures to stabilise a slowing economy, while the British pound braced for a

showdown in parliament over the government's Brexit plan.

China will aim to achieve "a good start" in the first quarter for the economy, the state

planner said on Tuesday, signalling authorities could roll out more stimulus measures in the

near term to counter slowing growth.

China will strengthen monitoring of its economic situation and improve its "reserve" of

economic policies, the National Development and Reform Commission (NDRC) said in a statement.

Financial spreadbetters expect London's FTSE to open 45 points higher at 6,900, Frankfurt's

DAX to open 41 points higher at 10,928 and Paris' CAC to open 29 points higher at 4,792.

(Helen Reid)

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