LIVE MARKETS-Closing snapshot: European stocks march on, FTSE shines

* STOXX up 0.4%, FTSE 100 +0.8% * Sterling slides after BoE's Carney flags trade, Brexit uncertainty * Dialight drops 32%, Funding Circle falls 26% * U.S. threatens tariffs on $4 billion of additional EU goods * US stocks open flat July 2 - 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: rm://helen.reid.thomsonreuters.com@reuters.net CLOSING SNAPSHOT: EUROPEAN STOCKS MARCH ON, FTSE SHINES (1553 GMT) European stocks marched higher, keeping up a bit of their tempo from yesterday when they strongly rallied on U.S.-China trade reprieve. The pan-European STOXX 600 closed up 0.4% despite Washington's tariff threat on additional EU products worth $4 billion. For now the new tariffs are "fairly unimportant and tiny," said Keith Temperton at Tavira Securities. He says the focus still remains on the U.S. and China. Britain's FTSE 100 index sharply rallied in the afternoon after sterling's sell-off as Bank of England Governor Mark Carney hinted at further easing, citing the potential impact of Brexit and U.S.-China trade spat. Utilites topped indices today, suggesting investors are back in defensive mode, unlike yesterday's risk-on rally. (Thyagaraju Adinarayan) ***** GERMANY GOING GREENER: WHAT'S IN STORE FOR STOCKS? (1517 GMT) While Brexit is dominating investor debate over poltical risk in Europe, there has been a shift in the German political landscape that could affect markets: the rise of the Green party in polls. UBS has taken a look at the possible implications. "Federal elections are only scheduled for autumn 2021, but snap elections remain a possibility. If current polls are any guide, the current grand coalition no longer has a majority, and participation of the Greens in a new government seems an increasing possibility," a team of economists and analysts at the Swiss bank say. In detail, they see possible impacts for the following sectors/stocks: * Autos: "We would expect the Green party to accelerate efforts to build charging infrastructure for electric cars, alongside the promotion of even more renewable power in the electricity mix.... While legacy jobs would be lost faster in such a scenario, causing more short-term pain for carmakers and suppliers, a Green policy could do more for the long-term survival of the German auto industry than the current government" * Utilities: "a rising Green party could present opportunities for utility stocks as well as risks. Broadly, we believe that coal policy should remain within the wider framework of the coal commission report, while a focus on other areas of decarbonisation could mean upsides for renewable developers" * Rheinmetall: "We think the market may have fears about the impact on the German defence industry from potential Green party participation in a new German government. We are less concerned... the Green party appears to be in favour of a modern German army... Rheinmetall's gearing into the German army is exactly targeting the area of modernisation" Germany's Greens hit record highs in two opinion polls last month. (Danilo Masoni) ***** FTSE 100 RALLIES ON CARNEY'S DOVISH COMMENTS (1454 GMT) Britain's blue-chip stocks index jumps 0.8% to over 10-month high reacting to a sharp sell-off in sterling (-0.4%) after dovish comments by Bank of England's Mark Carney. Carney flagged downside risks from global trade tensions and highlighted the need for fiscal stimulus if there was a material trade shock. "...in some jurisdictions the impact of uncertainty may warrant a near-term policy response as insurance." It seems to have painted a mixed picture among traders as they also point out to his comments on rate hikes if Brexit was smooth. The comments: And, the reaction: (Thyagaraju Adinarayan) ***** TELCOS: DATA MAY BE BOOMING BUT PRICING ISN'T (1254 GMT) Trading just above record low levels relative to the market, telecoms are one of the most neglected sectors in Europe, and Morgan Stanley argues that even though regulatory & technology headwinds have faded, data price deflation is now a big risk. "Data price deflation is the greatest headwind for Euro Telcos... Only the PC memory market has greater deflation," say analysts at the U.S. bank led by Emmet Kelly. They calculate that with volumes growing by 45% year to date, implied unit deflation (euro per Gb) is down 33% with that being the main driver for negative top-line growth of European mobile service revenues (MSR) and weak share performances. Kelly & team highlight that most European mobile players are pursuing the same commercial strategy, namely "More for More". "This involves selling/pushing extra Gb to subscribers for a higher monthly fee. However, European MSR growth figures suggest the fruits of this strategy are akin to 'More for Less'". Clearly this will be something to watch during the upcoming reporting season. Morgan Stanley says competition, new entrants, 5G and promotional discounts make the outlook for data pricing still not encouraging. (Danilo Masoni) ***** LEARNINGS FROM THE H2O & WOODFORD SAGA (1218 GMT) First GAM, then Woodford and now H2O! What's in common? Illiquid bond holdings. Bank of America Merrill Lynch analysts say the core issue in holding non-rated bonds is the "duration mismatch" between the daily liquidity of a fund and the liquidity of the underlying assets. An issue seen in Woodford's case. Bank of England Governor Mark Carney recently said investment funds that include illiquid assets but allow investors to take out their money whenever they like were "built on a lie" and could pose a big risk to the financial sector. Should these assets be banned? "We do not expect an outright ban on illiquid assets in UCITS (Undertaking for the Collective Investment in Transferable Securities) funds," BAML adds. How to avoid another crisis? BAML says firms could potentially: * increase cash holdings to meet redemptions * disclose liquidity of underlying assets * frequency of gating (limits portion of fund's assets that can be redeemed in a given period) if redemptions accelerate * stress testing to ensure the fund can adapt to redemption scenarios * holding period to better match the liquidity of the underlying asset (Thyagaraju Adinarayan) ***** SPIRITS STABLE DESPITE U.S. TARIFF THREAT (1123 GMT) Spirits aren't exactly running high in European markets today, but stocks are holding on to their gains with the STOXX 600 edging up 0.2% and the food & beverage sector among top gainers despite the latest tariff threat from the U.S.. The U.S. threatened to slap tariffs on $4 billion worth of additional EU goods that include olives, Italian cheese and Scotch whisky, escalating a long-running transatlantic dispute over Boeing and Airbus subsidies. This is a further blow after the U.S. threat of tariffs on $21 billion worth of EU goods in April. Tariffs on Scotch whisky, in addition to the previously announced levies on cognac, would be a negative for spirits stocks. But Europe's Pernod Ricard and Diageo, which have the biggest exposure to the U.S., are rising slightly, in-line with the market, while Airbus shares are down just 0.9%. "EU tariffs are just a comment, not any actuality," Keith Temperton at Tavira Securities says. "So for now it's fairly unimportant and tiny anyway," Temperton says, adding the additional tariffs would be "a drop in the ocean." Whisky makes up 15% of Diageo's U.S. spirits business or 3.5% of overall group sales and 40% of Pernod's U.S. business or 8% of group sales, according to Credit Suisse analysts. (Thyagaraju Adinarayan) ***** EUROPE AND THE "JAPANIFICATION" TRADE (0939 GMT) It's a now-familiar argument: with inflation expectations stubbornly refusing to budge and the central bank vowing to use all means necessary - including further QE - to support the economy, Europe is looking increasingly like it's headed the way of Japan which is still fighting to boost inflation after an asset bubble burst in the late 80s-early 90s caused a prolonged slump. "The similarity in the performance of banks' shares has been uncanny," note Goldman Sachs strategists in a deep dive into "Japanification". Their conclusion? It's not a fait accompli. Investors in European stocks can draw courage from the fact: * Return on equity has been significantly higher than in Japan * European companies have greater exposure to the rest of the world (around 50% of sales come from outside Europe) * Europe's economic performance was not as bad as Japan's in the decade post the early-90s crisis - amazingly, nominal GDP growth in Japan has averaged zero in the period since 1993 * European stocks have a higher total cash yield (dividend yield plus buybacks) * Demographics are more favourable for European companies - the overall global population they sell to is, on the whole, flat rather than shrinking So, what to buy in this climate? Exporters are still a better pick than domestic stocks, GS reckons. Defensives, too, have beaten the market in Japan since the 1990s with consumer staples and healthcare the strongest. They don't see a strong case to be long Europe vs Japan, but they recommend companies with "good cash distribution with the potential to grow" and say they like European oil stocks for that reason. (Helen Reid) ***** AUTO WARNINGS? (0824 GMT) It's a quiet session in Europe this morning in terms of price moves, so let's turn the focus to the upcoming earnings season and the export-oriented auto industry, where it seems investors have positioned themselves for possible profit warnings. Europe's autos sector index has fallen to trade at its lowest level in more than 6 years relative to the broader market, even though it is up 11% so far in 2019. Jefferies analysts say profit warnings seem widely expected after a weak Q1, but nevertheless the second-quarter results may be more nuanced. "Shares are largely anticipating profit warnings. However, we expect most OEMs will continue to argue better H2 conditions to justify current targets, particularly easing raw materials and FX, more stable production schedules post China de-stock and easier comps," they say. In more detail on single stocks, they add: "More than FCA, Renault may need positive corporate news flow to offset profit weakness. Risk to GM guidance supports more Ford outperformance. VW, PSA, and BMW look safe, with the first two not reliant on a strong H2. CF [cash flow] could disappoint at Daimler and VW." Results from Daimler, Peugeot and Ford in the U.S. are due on July 24, VW on July 25, Renault on July 26 and Fiat Chrysler on July 31, while both BMW and GM report on Aug 1. (Danilo Masoni) ***** OPENING SNAPSHOT: FALTERING STOCKS AND SOME SHARP DROPS (0723 GMT) No surprises that enthusiasm among European investors is drying up somewhat today, with the trade-sensitive DAX barely managing to stay in positive territory and the STOXX 600 up just 0.2% after the latest tariff threat from the U.S. in a long-running aircraft subsidy dispute. The reaction in Airbus shares has been pretty muted, with the stock down 1% at the open but now only trading down 0.4%. On the M&A front, Hexpol is up 3.7% as investors welcome its acquisition of U.S. rubber compounder Preferred Compounding. A couple of small-cap UK stocks are having a difficult morning, to put it generously. Dialight is tanking 40% after warning on profit and announcing its CEO will step down, while Funding Circle is down 10.6% after halving its revenue guidance. Among sectors the trade-proxy autos stocks are down 0.3%, while more defensive sectors such as healthcare are taking the lead, helped by a 5% gain in Galapagos shares after the drugmaker announced it would submit its drug filgotinib as a treatment for rheumatoid arthritis to the FDA this year. (Helen Reid) ***** WHAT'S ON THE RADAR: WHISKEY, PLANES, SME LENDING (0652 GMT) A threat from the U.S. to slap tariffs on $4 billion of additional EU goods, the latest move in an ongoing dispute over aircraft subsidies, will douse hopes that the global protectionist tone is softening, but hasn’t been enough to hold European stocks back today, with futures rising 0.2-0.3% across the region. The market reaction to the list of additional products that could be hit with tariffs – including olives, Italian cheese, and Scotch whiskey - will likely be contained and focused on those companies directly concerned. The world's biggest whiskey maker Diageo could fall 1%, traders say, along with France’s Pernod Ricard. Europe's biggest planemaker Airbus could also fall around 1% as the ratcheting up of tensions puts a further strain on ties as the EU and U.S. attempt to negotiate a trade deal. In the UK a couple of profit warnings among small-caps could dent stocks. Funding Circle shares are seen falling 10-15% after the small and medium-sized enterprise lending platform provider halved its 2019 revenue guidance, blaming reduced demand for loans in an “uncertain” economic environment. LED components maker Dialight is seen dropping 25-30% after it announced its CEO is stepping down, and warned on profit. (Helen Reid) ***** FUTURES EDGE UP AS RALLY LOSES SOME STEAM (0631 GMT) European stock futures are up 0.2-0.3% in early trading. It'll be a surprise to no-one that yesterday's strong rally is losing steam as optimism over U.S.-China trade gives way to new angst about the U.S. ramping up threats against European products. The extension of a U.S. tariff threat to products including olives, pasta, meat, cherries, and some types of whiskey is expected to hurt specific parts of the market. In particular, traders say Pernod Ricard and Diageo are seen falling 1% each after the threat which could hurt their whiskey brands. Pernod Ricard owns Jameson Irish whiskey, and Diageo is the world's biggest whiskey producer. "Both have been moonbound this year too," a trader points out. Airbus could also take a hit after the further tariff threats which are the latest move in a long-running dispute over aircraft subsidies. In other news, Deutsche Bank has discussed lowering its capital buffer with regulators, Bloomberg reported, citing sources. Here are a few more headlines: Fastjet CEO Nico Bezuidenhout to step down Plus500 revenue rises after dismal prior quarter Funding Circle halves revenue guidance for 2019 on reduced demand UK house prices rise weakly as Brexit weighs - Nationwide (Helen Reid) ***** OLIVES, WHISKEY, AND BUDGET DEFICIT TARGETS (0548 GMT) The threat of U.S. tariffs on European goods pours cold water on any budding hopes of a step back from protectionist rhetoric, and speaks to what some in the market believe: that even if trade relations between the U.S. and China cool, that could simply mean Trump's ire shifts towards Europe instead. The list of additional products that could be hit with tariffs includes olives, Italian cheese and Scotch whiskey. Speaking of Italy, a government source told Reuters last night after a cabinet meeting that the country's 2020 budget deficit target has been confirmed at 2.1% of gross domestic product - down from a previous goal of 2.4% - which could be good news for Italian assets hit by investor jitters as the European Commission threatens to launch disciplinary action against Rome. Here's your early sweep of headlines: WPP in exclusive talks to sell Kantar stake to Bain Capital British manager Woodford's flagship fund to remain suspended Italy confirms 2020 deficit target at 2.1% of GDP - govt source London Metal Exchange brands must show impact on environment - NGOs AB InBev Asia business launches up to $9.8 bln Hong Kong IPO - term sheet Banks readying 2.5 bln euro loan in TIM-Vodafone Italy tower deal - sources Europe's 5G delayed by trade war and security reviews, says Tele2 CEO (Helen Reid) ***** EUROPE SET FOR FURTHER GAINS, BUT NEW U.S. TARIFF THREAT COULD HURT (0530 GMT) European stocks are expected to extend their rally this morning after the Euro STOXX 50 hit a one-year high yesterday, but the party could be spoiled by the U.S. threatening tariffs on $4 billion of additional EU goods - the latest blow in a long-running dispute over aircraft subsidies. Asian shares wobbled, U.S. Treasury yields fell and gold rose as weak global manufacturing activity reinforced worries about slowing growth while uncertainties over the prospect of a Sino-U.S. trade deal also hurt sentiment. Financial spreadbetters expect London's FTSE to open 24 points higher at 7,521, Frankfurt's DAX to open 29 points higher at 12,551, and Paris' CAC to open 16 points higher at 5,584. (Helen Reid) ***** (Reporting by Helen Reid, Danilo Masoni, Josephine Mason and Thyagaraju Adinarayan)