LIVE MARKETS-Closing snapshot: Europe at two-month low

* STOXX 600 ends down 1.2 pct as China retaliates

* Trade-sensitive car stocks lead market lower; DAX down 1.5 pct

* Oil stocks outperform as Middle East tensions lift crude prices

* China to slap tariffs on U.S. goods despite Trump warning

May 13 - Welcome to the home for real-time coverage of European equity markets brought to

you by Reuters stocks reporters and anchored today by Josephine Mason. Reach her on Messenger to

share your thoughts on market moves: rm://josephine.mason.thomsonreuters.com@reuters.net

CLOSING SNAPSHOT: EUROPE AT TWO-MONTH LOW (1601 GMT)

China responded with its own tariff plan and stocks suffered globally as

investors fear the new escalation could hurt economic growth.

In Europe the STOXX 600 ended at a two-month low, down 1.2 percent on the day and

on track for its worst month since the December sell-off, down 4.8 percent so far. the export

oriented and auto-heavy DAX was badly hit, down 1.5 percent.

"Make no mistake this is a serious escalation and we have a trade war on our hands again.

The breakdown last week has not proved temporary and it seems China is prepared to go toe-to-toe

with the US on this," says Neil Wilson at Markets.com.

"Ultimately though we should assume that after this spat we should see the parties come

around to talks again. Quite whether they can ever achieve a meaningful deal is another matter –

talks could extend into 2020 with no result," he adds.

For more on when any trade compromise is expected to be reached, check out this post here:

Meanwhile, euro zone volatility also spiked higher but stayed just below the January

peak hit last week. Here's your closing snapshot:

(Danilo Masoni)

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DO YOU STILL THINK INVESTORS ARE UNDERWEIGHT EQUITIES? (1528 GMT)

A common belief that has accompanied the year is that the early 2019 bounce has lacked fund

inflows and that the thin investor positioning could eventually play in favour of further gains

once sources of uncertainty cleared up.

But now that trade war fears have abruptly taken centre stage again, reducing visibility and

hammering global stock markets, there's even a research from JP Morgan that appears to challenge

this narrative.

"Our analysis suggests that neither institutional nor retail investors are currently

underinvested in equities. In fact, we find that the opposite appears to be true," says JPM

analyst Nikolaos Panigirtzoglou an team in a note.

Among the indicators they cite is the implied equity allocation by non-bank investors

globally.

"This (see chart below) shows that non-bank investors globally, which invest in both bonds

and equities, have a current allocation to equities that is close to the OW territory seen

previously during the first three quarters of last year," they say.

"In other words, the equity market rises over the previous four months have made real money

investors overweight in equities again, likely reducing the appetite by these investors to

actively buy equities from here. Therefore, a previous important support for equity markets at

the end of last year is now becoming a headwind," they argue.

(Danilo Masoni)

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IPOS: THE FIRST DAY IS THE BEST (EXCEPT FOR UBER) (1358 GMT)

This year's IPO boom has grabbed quite a few column inches, not least because of the

scintillating first-day returns some lucky investors have reaped. A note by Jason Draho at UBS

Wealth Management highlights these extraordinary times.

For instance, average first-day returns on IPOs are running at 25.5% (longer-term averages

are around 18%), he estimates. Because such amazing first-day returns create an incentive for

investors to participate in forthcoming IPOs, the "IPO market is likely to stay hot at least

through the summer," he reckons.

This year is also the first since 2000 when an IPO rose more than 100% on its first day --

vegan burger-maker Beyond Meat.

Can the sizzling IPO run can sustain itself? Depends. U.S.-China trade tensions could cool

the market, for one. Shares in newly IPO'd companies also need to hold up. So the ill-fated

listings by Uber and Lyft -- the latter has already lost a third of its market value -- may be a

bad omen. Companies will also need to show how they plan to translate sales into earnings.

IPOs clearly offer a great risk-reward if you are lucky enough to get an allocation. But if

you sell quickly and pocket the first-day return (assuming there is one, unlike Uber) you might

be even better off -- according to Draho, most companies produce negative absolute returns in

the five years after their IPOs.

(Sujata Rao)

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NOT TRAVEL AND ARRIVE, BUT "TRAVEL AND REVERSE" (1244 GMT)

Which do you want first, the good news or the bad news?

The bloodbath on European markets right now speaks for itself: China's retaliation against

the U.S. hiking tariffs further has knocked the trade-sensitive DAX and autos stocks spiralling.

Rather than equity markets slackening their pace in a "travel and arrive" mode after a

rip-roaring start to the year, Morgan Stanley's European equity strategist Graham Secker reckons

it may be a case of "travel and reverse" with valuations having reached levels where stocks are

vulnerable to further flare-ups in an ongoing trade war.

"The risk-reward profile for European equities was already moderating before the recent

re-emergence of trade tensions," he writes. Trade war rearing its head once more only

accentuates the pressures on the market.

So where in all this is the good news?

Well, European company earnings have been impressive, and analysts' sentiment has brightened

accordingly. Earnings revisions, having been negative for eight months straight, are nearly back

at neutral.

Goldman Sachs strategists detail the surprises: technology beat expectations both in terms

of sales and earnings, oil & gas companies delivered strong free cash flow but disappointed on

earnings, while healthcare gave investors a positive earnings surprise.

(Helen Reid)

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A REASON TO BE CONFIDENT DESPITE THE TWITTER (AHEM, TRADE) WARS (1211 GMT)

Resurging trade uncertainty has buoyed the bears and promptly the U.S. yield curve has

inverted again with the R-word (recession) back among worries facing the world's No.1 economy.

The lack of visibility however has not deterred JPMorgan from affirming their recent call in

favour of the so-called value end of the stock market, based on expectations that a compromise

over trade is still the most probable outcome.

"Both sides stand to suffer from the adverse trade fallout, with sensitivity increasing into

the upcoming U.S. elections and 70-year anniversary of the formation of People’s Republic of

China. In a sense, the more markets suffer near term, the more are they likely to bounce, as key

actors are forced to deescalate," strategists at the U.S. bank led by Mislav Matejka say.

"Overall, while we were of the view that, seasonally, the market was likely to experience a

pullback, for a period of some weeks, and magnitude of perhaps mid-to-high single digits, and

while we accept that trade is a wild card, we believe that the fundamental backdrop doesn’t

warrant sustained selling," they add.

"The weakness should be used as a good opportunity for a rotation into Value style," they

conclude.

Among the reasons to be confident are EPS revisions, which are inflecting higher in all key

regions, and are back in positive territory in the U.S., as the chart below shows.

Meanwhile Trump has already tweeted several times today on trade, but it doesn't look he

moved markets at all this time. In the snapshot his last one.

(Danilo Masoni)

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CHASING YIELD IN EUROPE (1107 GMT)

European corporate earnings growth is stagnating and now juicy dividends, one of Europe's

main attractions for some asset managers, may also be for the chop.

SocGen's global equity strategy chief Charles de Boissezon and team expect dividends among

euro-zone blue chips to deteriorate and zero earnings growth this year.

As this chart shows, after a brief rise next year, they see dividends falling steadily over

the next decade.

As a result, the team has reduced its risk-weighted targets for 2019 dividend futures

and the following two years and recommends investors unwind long positions in 2020

contracts and lock in profits for 2021 if they get close to the 120 level.

(They're currently at 117).

Adding to their downbeat note, dividend futures have also lagged the headline equity indices

- the euroSTOXX 50 is up 14% from December lows, while the 2020 dividend futures are up 8 points

over the same time period.

Still with German bond yields in negative territory, the dividend yield of 3.69% for the

blue-chip euro-zone index may still look pretty tasty for some.

"At a time when bonds are yielding zero or thereabout, corporates would still attract

punters on lower dividend yields," says the note.

Below shows the euro-zone blue-chip dividend futures:

(Josephine Mason)

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WHAT'S UP THIS WEEK?

With trade winds buffeting world markets and Moody's warning of a tariff-related U.S.

recession ringing in our ears, here's another ominous development -- the inversion of the U.S.

Treasury bond curve for the second time in a week.

Three-month yields now stand some three basis points above 10-year rates. If sustained, this

would be a sure-fire recession signal.

It's unclear if the warning system still functions; after all, bond markets have been

distorted by a near-decade of money-printing. Time will tell, but the key U.S. data point to

watch for this week is the April retail sales print.

In China, expect industrial output, retail sales and house prices, though these figures have

been rendered less meaningful by President Trump's recent move to hike tariffs on another $200

billion worth of Chinese goods.

Other issues grabbing attention this week?

Italy for one, where coalition bickering continues to push up borrowing costs.

Italy also may be gearing up to challenge EU fiscal rules -- again -- with additional

spending, plus the state could be on the hook for a costly bailout of troubled lender Carige.

Rome will test investor appetite on Tuesday when it auctions bonds worth 6.75 billion euros --

let's see if investors step up.

Another market that bears are watching is oil -- despite growth gloom, Brent futures are

approaching $72 a barrel.

That's because tighter supply may offset weaker demand -- sanctions on Iran and Venezuela

have slashed their exports and a fall in the number of U.S. rigs implies output will slip there

as well. Brent is up 30% this year and could well see more gains.

To read about world market themes:

(Sujata Rao)

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TRADE WAR? "WE SUSPECT A DEAL IS CONCLUDED IN Q3" (1024 GMT)

The U.S. tariff increase on $200 billion worth of Chinese imports has come into force but

markets aren't exactly falling off a cliff as investors still hope that a sort of deal will be

reached further down the road, maybe even next month.

Trump himself (and Chinese Vice Premier Liu He) has said he will would press on with more

talks...

Hence, the recent euphoria is not giving way to any form of panic selling - as some had

started to fear last week when investors suddenly woke up to the prospect that there was no deal

around the corner. The STOXX 600 is down just 0.5% this morning.

So, what are people saying about the timing for the sides to reach a compromise?

"The re-opening of the U.S.-China trade war has come as a surprise. We suspect a deal is

concluded in 3Q19, but until then investors look set to play-it-safe," says ING head of foreign

exchange strategy Chris Turner.

For Goldman, Beijing and Washington should make it in 2019.

"Our baseline expectation is that the U.S. and China will strike a deal later this year,"

say strategists at the U.S. bank led by Jan Hatzius.

"We think this would come in the form of a gradual, staggered reduction in tariffs on a

last-in, first-out schedule."

All eyes are now on the Chinese government which has said it would never surrender, though

it stopped short on announcing how Beijing would hit back.

The chief editor of China's Global Times believes China is preparing its response very

carefully.

(Danilo Masoni)

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OPENING SNAPSHOT: DOUR MOOD SPREADS TO EUROPE (0732 GMT)

Unable to shake off the generally dour mood across Asian markets overnight amid growing

concerns about a prolonged stand-off between Washington and Beijing over trade talks, European

stocks are under pressure at the open.

STOXX 600 is down 0.3%, with Frankfurt down 0.4% and lagging its peers as cars and

tech stocks - some of the hardest hit during the year-long row - under pressure and Thyssenkrupp

handing back some of Friday's record gains. Europe's trade-sensitive car index is

leading the charge lower, down 1.5%.

Daimler is the second biggest faller on the DAX 30, giving up earlier gains, as investors

digest a Reuters report China's BAIC Group is seeking to buy a stake of up to 5% in the German

carmaker.

BAIC signalled its interest in buying a Daimler stake as far back as 2015, and has redoubled

its efforts after Li Shufu, chairman of rival Chinese carmaker Zhejiang Geely Holding Group

built a 9.69 percent stake in Stuttgart-based Daimler in early 2018.

EssilorLuxottica's shares are rallying 4.5% after its feuding partners announced a truce to

end a boardroom dispute over the group's leadership.

The tone across Europe is clearly defensive with the utilities and food & beverage indices

ekeing out small gains. London's FTSE 100 is bucking the trend, boosted by oil & gas and

Centrica, which is rising almost 2% after its results.

(Josephine Mason)

*****

EUROPE RESILIENT AGAIN (0656 GMT)

European stocks are proving pretty resilient to the cautious tone that's swept Asian markets

overnight as a stand-off between Washington and Beijing over a truce to end their protracted row

keeps investors firmly on the sidelines.

The Eurostoxx 50 is up 0.1%, with Paris futures up as much as 0.3 percent. There might be

some residual buying left over from Friday after Wall Street's strong close, which might soon

peter out as U.S. stock futures are indicating a weaker open.

In corporate news, Daimler's catching most of the attention after Reuters reported China's

BAIC Group is seeking to buy a stake of up to 5% in Daimler. BAIC has started acquiring Daimler

shares on the open market, one source said. Shares are up 1.1% in pre-market.

Norway's given the green light for Euronext to take a majority stake in Oslo Bors, ending a

five-month battle between Euronext and Nasdaq for ownership of the Norwegian stock market

operator, while Fresenius has approached potential suitors about the sale of its blood

transfusion business as the German healthcare group considers divesting non-core businesses.

Eyes still on Thyssenkrupp after its decision on Friday to spin off its elevators business

sent shares soaring - the company said it will still seek partners for its steel operations

after abandoning a European merger with India's Tata Steel.

Results flow has slowed this morning, although German and UK utilities E.ON and Centrica are

on the slate.

E.ON delivered better than expected Q1 EBIT, sending its shares up 1 percent in early trade,

although one dealer said a slowdown in the retail business as a negative.

Britain's largest energy supplier Centrica said it is facing a challenging trading

environment due to a national price cap on energy bills, warmer-than-normal weather and falling

UK natural gas prices.

Metro Bank is back in focus after a series of reports over the weekend - the FT said the

troubled lender is exploring the sale of loans hit by its accounting error while the Telegraph

says an influential City advisory group has hit the bank with an alert over bonuses for its top

execs.

Big moves seen in FTSE mid and small-caps: shares in polymer maker Victrex are seen falling

5 percent after half-year results, with the company saying it will be "challenging" to achieve

year-on-year growth in the second half while Dignity reported a worse-than-expected slump in

profits due to a drop in funerals.

(Josephine Mason)

ON THE RADAR: DAIMLER, NOVARTIS AND EURONEXT (0613 GMT)

It's a bit of a mixed bag with the Eurostoxx 50 fluctuating between positive and negative

territory, with Paris showing decent gains and Frankfurt under pressure, amid overall caution

over the U.S.-China trade talks.

In corporate news, there's a flurry of dealmaking news to kick off the week - the biggest is

probably a Reuters report that China's BAIC Group is seeking to buy a stake of up to 5% in

Daimler. BAIC has started acquiring Daimler shares on the open market, one source said.

Norway will allow Euronext to take a majority stake in Oslo Bors, the country's finance

ministry said on Monday, ending a five-month battle between Euronext and Nasdaq for ownership of

the Norwegian stock market operator.

And Fresenius has approached potential suitors about the sale of its blood transfusion

business as the German healthcare group considers divesting non-core businesses.

Elsewhere in pharma, Novartis' Sandoz division has been named along with 19 others in a U.S.

lawsuit alleging they inflated drug prices and stifled competition for generic drugs, state

prosecutors said.

The Swiss drugmaker has also issued a voluntary nationwide U.S. recall of its

ninth-best-selling medicine, Promacta, in its 12.5 milligram for oral suspension form, due to

potential peanut contamination. Promacta had $1.2 billion in sales in 2018.

Eyes still on Thyssenkrupp after its decision to spin off its elevators business - the

company will still seek partners for its steel operations after abandoning a European merger

with India's Tata Steel, Chief Executive Guido Kerkhoff said.

In earnings, German energy firm E.ON has reported Q1 EBIT declined 8% to 1.67 billion euros,

beating the 1.64 billion average forecast in a Reuters poll.

Metro Bank may get a lift after confirming its plan to raise about 350 million pounds ($455

million) of equity capital to support its growth is well advanced.

Here are some of the key headlines so far this morning:

Germany's Thyssenkrupp to seek new steel partners, CEO tells paper

Bayer hires law firm to investigate Monsanto stakeholder file issue

EXCLUSIVE-China's BAIC seeks to buy 5 percent Daimler stake -sources

EssilorLuxottica's feuding partners on verge of peace deal -Les Echos

Britain's Stobart to name new chairman this week - Sky News

Britain's Metro Bank says well advanced in equity raising plan

EXCLUSIVE-Novartis pitches discounts on pricey gene therapy for deadly muscle

LVMH pairs up with Rihanna for new fashion brand

EU regulators to investigate Telia's $957 mln bid for Bonnier

Fresenius talking to potential suitors about sale of blood transfusion business - sources

Retailer Carrefour's Atacadao arm to book provisions on Brazilian tax dispute

(Josephine Mason)

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EUROPE SEEN MAKING TENTATIVE GAINS BUT FOR HOW LONG?

Spreadbetters are calling European stocks higher with some hangover from Friday's strong

close on Wall Street providing a little lift, but given how cautious trading has been overnight

and with U.S.-China trade talks in stalemate, there might not be much momentum behind it to keep

it going.

IG Markets expects London's FTSE to open 18 points higher at 7,221, Frankfurt's DAX to open

31 points higher at 12,091, and Paris' CAC to open 21 points higher at 5,348.

(Josephine Mason)

*****

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