LIVE MARKETS-Closing snapshot: STOXX posts best weekly streak since 2014

* European shares end lower

* STOXX posts eight-week winning streak

* Milan stocks suffer as League, 5-Star publish govt agenda

May 18 (Reuters) - Welcome to the home for real-time coverage of European equity markets

brought to you by Reuters stocks reporters and anchored today by Danilo Masoni. Reach him on

Messenger to share your thoughts on market moves: danilo.masoni.thomsonreuters.com@reuters.net

CLOSING SNAPSHOT: STOXX POSTS BEST WEEKLY STREAK SINCE 2014 (1545 GMT)

Sure, there's been some profit-taking today but European shares just posted their eighth

straight weeks of gains, despite worries over Italy.

Here's your closing snapshot:

(Julien Ponthus)

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FRANCE VS GERMANY: HERE'S A REALITY-CHECK FOR MACRON BELIEVERS (1509 GMT)

The victory of Emmanuel Macron and his pro-business agenda at the French presidential

election last year led many investors to bet on a Gallic recovery (see A long shot "Macron

trade"?) like Germany experienced after the reforms of chancellor Gerhard Schröder

at the beginning of the century.

Reading through BNP Paribas (LSE: 0HB5.L - news) ' newly released "French economy pocket atlas", one is struck by

just how wide the gap between the two countries has become in the last decade.

Here are four charts from BNP (Paris: FR0000131104 - news) 's research team, which might come as a reality check for those

hoping for a quick-fix for the Euro zone's second economy:

(Julien Ponthus)

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ITALY: NO SURPRISES THERE (1501 GMT)

Italian assets are getting pummelled today, but Justin Onuekwusi, multi-asset fund manager

at Legal & General Investment Management, is sanguine.

"We believe we are moving into a new political paradigm ... and we think that Italy is

really not an exception to that, so it doesn't really surprise us. I think you are going to

continue to have political risk built into the Italian stock market," said Onuekwusi.

"Because we invest broadly across Europe, we're not hugely concerned about our European

positions which we still think look attractive, particularly versus the U.S. from a valuation

perspective," Onuekwusi added. They are overweight European equities.

Among European sectors, he was particularly positive on utilities, which he says look very

attractive on a valuation basis and also because they tend to offer protection on the downside

if volatility picks up.

(Kit Rees)

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STRONG DOLLAR A BOOST FOR EUROPEAN EQUITIES (1432 GMT)

That's what Deutsche Bank (IOB: 0H7D.IL - news) reckons, pointing to the dollar's level as a key thing to keep

watch on in their week-ahead note. If the EUR/USD falls below 1.10 over the coming months, it

would push up the STOXX 600 fair value to 415 by early Q3 - or 8 percent upside from here, DB

analysts say.

While Citi's analysts don't think the current sharp rally in the dollar is sustainable, they

reckon it could deliver a benefit to the UK as well, with the stock market dominated by

dollar-earning companies.

In the past a strong greenback has, however, been a negative for commodity sectors, though

they say this relationship has loosened recently. They recommend a tilt towards other cyclical

sectors if global growth stays strong.

You can see below how the STOXX and the dollar index have moved more or less in step:

(Helen Reid)

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WHY EUROPEAN SHARES CAN RELAX ABOUT BOND YIELDS (AND THE U.S. CAN'T) (1358 GMT)

The U.S. three-month treasury bill yield reaching 1.9 percent, or the average dividend yield

of the S&P 500, made quite a lot of noise this week, with American shares looking less and less

appealing in comparison to risk-free bonds. (See:)

But on the other side of the Atlantic (Shanghai: 600558.SS - news) the story couldn't be more different, Unicredit (EUREX: DE000A163206.EX - news)

strategists point out.

Investors who buy three-month German Bubills actually lose money (about 0.5 pct) while STOXX

shares offer a 3.5 percent dividend yield, quite a lot more generous than their peers on Wall

Street.

The gap (Frankfurt: 863533 - news) between the two markets is quite striking, as you can see below:

On top of that, the STOXX dividend yield is still slightly above even high-yield bonds,

although they are catching up.

"The fact that, in Europe, dividend yields are even above corporate-bond yields (across all

credit asset classes, ranging from IG (Frankfurt: A0EARV - news) and subordinated/hybrids to HY) underpins the still higher

relative attractiveness of equity over credit," Unicredit argues.

The bank however also has a word of caution to add: "With (Other OTC: WWTH - news) economic-sentiment indicators

raising warning signs of a potential slowdown ahead, the relative attractiveness of equity over

credit may also decline from a risk-adjusted perspective".

(Julien Ponthus)

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IT'S BUYBACK SEASON, YAY! (1321 GMT)

The earnings season is just behind us and in the world's biggest financial market - the U.S.

- equity investors have another reason to stay upbeat: companies using the money they saved on

tax to buy back their own stock.

The good news is that buybacks are expected to reach a record of $650 billion this year and

it looks that's helping draw inflows.

Here's a snippet from EPFR Global Research Director Cameron Brandt's weekly note: "US Equity

Funds headed into the second half on May on the back of their biggest weekly inflow since

mid-March, buoyed by an eye-catching first quarter earnings season, still solid economic growth

and the accelerating pace of corporate share buybacks".

And he adds: "According to research by EPFR sister company TrimTabs 'U.S. companies have

rolled out $6 billion a day in float shrink this year - $4.9 billion daily even without Apple (NasdaqGS: AAPL - news) 's

record buyback - which is slightly higher than the record average of $5.8 billion daily

in 2015.'"

And here's a chart showing the record buyback levels estimated for this year.

(Danilo Masoni)

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EARNINGS HAVE BEEN ... NOT SO STRONG (1225 GMT)

That is according to research from Bank of America Merrill Lynch, who found three very

interesting stats in a note titled 'Back to single-digit growth' on the European Q1 earnings

season (which is almost over now):

1) Only 46 percent of STOXX 600 companies beat on EPS - the worst since 2013

2) 40 percent beat on sales - the lowest in 2 years

3) STOXX 600 company sentiment ratio (the ratio of positive to negative words in

transcripts) fell the most since Q3 2011

So what does this all mean? Here's BofAML's takeaway:

"Although the FX headwinds are likely to fade in coming quarters, the Style Cycle moving

deeper into 'Slowdown' suggests Europe is still unlikely to see a strong upgrade cycle," they

say, adding that European investors should move to a late-cycle barbell of quality and energy

stocks.

(Kit Rees)

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MIDDAY SNAPSHOT: STOCKS LOSE STEAM (1142 GMT)

Halfway through what is playing out to be an exciting end to the week, European stocks are

back in negative territory after a brief foray higher.

Italy is still the worst performer, limping towards a weekly loss of 2.7 percent. Not its

worst week though - that was back at the beginning of March this year.

It follows that financials are the biggest weight on the STOXX, with Italian lenders

bringing up the rear.

Here's your midday snapshot:

(Kit Rees)

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HOW MUCH ITALIAN SPENDING COULD MARKETS HANDLE? (1102 GMT)

While spending sprees can be fun, they're not always a good idea.

Especially not when you have the highest debt in the euro zone after Greece.

UBS (LSE: 0QNR.L - news) strategists have taken a look at this and found that markets could stomach fiscal

spending of 1 percent of Italian GDP, but this would be the limit - anything more and Italy's

debt ratio would march higher.

So if Italy were to spend more than 1 percent of GDP, nominal growth rates would have to

rise to around 4 percent for debt metrics to improve, say UBS.

This could be a tricky feat, given that the Bank of Italy is forecasting 1.4 percent growth

this year for Italy and 1.2 percent for the following two years.

"The larger the fiscal package, the larger its likely impact on BTPs. This is because Italy

will have to tackle a higher debt ratio at the time of the next cyclical downturn (absent more

fiscal consolidation down the road)," say UBS strategists, referring to Italian benchmark BTP

bonds.

But hey, you never know what might happen... Here's our latest from Italy:

(Kit Rees)

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GREEDY OR FEARFUL? QUITE THE CONTRARY (1007 GMT)

What a difference a quarter makes... the extreme fear seen during the February sell-off has

vanished and so has the greed of last January's highs.

Despite all kinds of political risks, inflation fears, rising rates and oil price, markets

seen to be quite even-tempered, according to CNN's greed and fear index and BofAML's Bull and

Bear indicator.

That might, however, come to a disappointment for those who believe, like Gordon Gekko, that

"greed, for lack of a better word, is good".

(Julien Ponthus)

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ITALIAN GOVERNMENT PACT HITS STOCKS (0940 GMT)

5-Star and League have finally come to an accord and released details of their pact - and

it's sending Italian stocks, especially utilities and banks, tumbling down.

Italy's FTSE MIB is down 1.4 percent, with top fallers including UBI Banca (Amsterdam: UF8.AS - news) , Banco BPM, Poste

Italiane and Unicredit.

The Italian banks index is down 2.7 percent at its lowest since the start of

April. Below you can see the damage it's suffered since investors awoke to the political risk on

Wednesday.

Utilities are also taking a beating - with electrical utilities Enel (LSE: 0NRE.L - news) and A2A (EUREX: 928195.EX - news) down 2.2

percent and 1.7 percent.

While Goldman Sachs analysts have repeated their argument that "the market under-prices risk

in Italy", others are more sanguine.

Here's Mark Dowding, head of investment grade at BlueBay Asset Management, echoing several

investors' views that as long as Italy's membership of the EU is not jeopardised, everything

should be fine.

"Without a credible plan to call a referendum, there seems no clear path to an Italexit and

with underlying macro fundamentals improving we think that it would be a mistake to become too

bearish on developments coming from Rome," he writes in a note.

Despite watering down some of their most radical proposals, the accord promises to ramp up

spending, calls for billions of euros in tax cuts and a roll-back of pension reforms.

(Helen Reid)

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THE FALL OF CASH (0907 GMT)

Cash ain't what it used to be! The rise in U.S. government bond yields has made it less and

less appealing, BAML says today, announcing that allocation to the asset class has reached a

record low among its private clients.

Needless to say, 3 percent yields for 10-year treasury notes are taking the blame even if

the trend, as you can see below, began soon after the financial crisis reached its climax.

(Julien Ponthus)

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EUROPEAN STOCKS SHY BACK FROM THEIR HIGHS (0719 GMT)

European stocks are pulling back from yesterday's 3 1/2 month highs in early trading, but

it's nothing dramatic and still leaves the STOXX 600 on track for its eighth week of gains. The

FTSE 100 is also dipping slightly, having risen to a record closing level yesterday.

While Italy's FTSE MIB is holding flat, utilities are dragging on the index with Enel down

0.6 percent after Goldman took it off its "conviction list" on energy policy risks.

Some badly-received results are also driving the market down. Richemont is bottom of

the STOXX, down 7.7 percent after reporting a weaker than expected profit, while AstraZeneca (Swiss: AZN.SW - news)

is dragging the healthcare sector down, falling 2.6 percent after generic competition to

its cholesterol drug Crestor and higher costs hit its revenue.

Ubisoft meanwhile is leading the index, up 6.2 percent to a fresh record high after the

French game maker reported record profit margins driven by new releases including Far Cry and

Assassin's Creed Origins.

(Helen Reid)

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WHAT WE'RE WATCHING BEFORE THE OPEN (0653 GMT)

European shares are expected to open little changed at the end of a strong week that has put

the STOXX 600 on course for its eighth straight week of gains - its longest winning weekly

streak since at least March 2015.

Energy stocks have been a key driver for the gains as investors seek to take advantage from

the rising crude prices by lifting exposure to a sector which has positive cash flows. Stock

index futures are trading between a fall of 0.2 percent and a gain of 0.2 percent.

Earnings updates will continue to drive single stock moves, with Zurich-listed Richemont

seen falling around 3 percent after the luxury goods group posted a net profit that fell short

of expectations. In the UK focus on AstraZeneca (NYSE: AZN - news) as generic competition to cholesterol fighter

Crestor and higher costs hit the drug maker in the first quarter.

Eyes also on Italian state-controlled utility Enel after Goldman took the stock off its

Conviction List saying plans presented by M5S/Lega could be deflationary as they could lower

power bills by around 15 percent.

An exclusive Reuters report saying Dubai Aerospace Enterprise is in talks to buy a

near-record total of 400 jetliners from Airbus and Boeing (NYSE: BA - news) could add fuel to a rally in

aerodefence stocks which are among the biggest sectoral gainers in Europe so far this year.

(Danilo Masoni)

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MORE DEALMAKING TO DRIVE THE DAY WHILE ANALYSTS DIGEST ITALY DEVELOPMENTS (0645 GMT)

M&A just isn't stopping, with yet another payments deal with PayPal (TLO: PYPL-U.TI - news) buying Sweden's iZettle,

and some further dealmaking in the UK with Lloyds selling its Irish mortgage book to Barclays (LSE: BARC.L - news) .

Meanwhile the Italy developments are driving some brokers to express concern.

Goldman Sachs (NYSE: GS-PB - news) analysts say they're worried about the potential impact of Italy's new

government on utilities, removing Enel from their "conviction list".

While the parties' manifestos contain some positives, GS says the parties' plans, including

a push towards renewables, could have a deflationary impact on power prices, lowering power

bills by an estimated 15 percent.

More key headlines ahead of the open:

Lloyds sells Irish mortgage book to Barclays for 4 bln pounds

UK competition regulator seeks comment on Sainsbury (Amsterdam: SJ6.AS - news) 's/Asda deal

PayPal agrees to buy Sweden's iZettle in $2.2 bln deal

AstraZeneca hit by falling Crestor sales, higher costs

British retailer Dunelm appoints Laura Carr as CFO

Richemont says could do more M&A, net profit misses poll

Carpetright Says To Raise About 60 Mln Pounds Through Share-Issue

(Helen Reid)

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STOXX SET FOR EIGHTH STRAIGHT WEEK OF GAINS (0623 GMT)

European stock index futures have opened rather flat, reflecting a lack of conviction at the

end of a strong week which has put the pan-European STOXX 600 benchmark on course for

its eighth straight week of gains, as markets recover from a turbulent start of the year. That

would be the longest weekly winning streak in more than three years - at least.

(Danilo Masoni)

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EARLY MORNING HEADLINE ROUNDUP (0554 GMT)

Barclays activist urges trading shutdown at investment bank - sources

Ryanair COO says pilot staffing situation has stabilised

GSK bets on lift from new lung drugs ahead of Advair's last gasp

KKR to sell Finnish health group to CVC (Taiwan OTC: 4744.TWO - news) for 1.8 bln euros - FT

FDA names drugmakers potentially acting to delay cheap generics

UBS to double headcount in India - Economic Times

Mercedes (Xetra: 710000 - news) to restart Alabama SUV plant next week after parts shortage

Dubai Aerospace in talks to place huge order for 400 jets

Vivendi (LSE: 0IIF.L - news) threatens to call new AGM at Telecom Italia (Amsterdam: TI6.AS - news) to change board

Vivendi to review potential change in music unit's shareholding structure

Natixis (LSE: 0IHK.L - news) posts profit rise helped by asset management, insurance

Ubisoft posts record profit margins in 2017/2018, driven by new releases

Vallourec Q1 Net Loss Group Share Widens To ‍​170 Million Euros

BP in talks to take Conoco's UK field in swap deal - Bloomberg

China's AT&M (Shenzhen: 000969.SZ - news) seals takeover of German aerospace supplier Cotesa - Handelsblatt

Santander poised to apply for RBS (LSE: RBS.L - news) small business lending funds - Bloomberg

Bollore Group says transport, logistics drive Q1 revenues higher

SAP (Amsterdam: AP6.AS - news) 's CEO hints to investors more margin gains on the way

Italy's League wants to keep Monte dei Paschi (Milan: BMPS.MI - news) in public hands

(Danilo Masoni)

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MORNING CALL: EUROPEAN SHARES SEEN MIXED (0528 GMT)

European shares are set for an uncertain open today following a strong week with financial

spreadbetters expecting London's FTSE to open 14 points lower at 7,774, while Frankfurt's DAX is

seen opening 21 points higher at 13,136 and Paris' CAC to 1 point lower at 5,621.

Over in Asia, stocks were steady amid caution over developments in U.S.-China trade

negotiations, while the dollar perched near a five-month peak after the benchmark U.S. Treasury

yield hit its highest in seven years.

(Danilo Masoni)

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