LIVE MARKETS-Credit risk cratering in Europe after Draghi

* STOXX hits May 7 high as Draghi comments, trade talk progress fuel broad-based buying * Trade-sensitive tech miners lead sectoral gains * Utilities highest in 4 years * Siltronic tumbles 8% after profit warning * Ambu drops 14% after cutting growth, margin, free cash flow outlook June 18 - 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 CREDIT RISK CRATERING IN EUROPE AFTER DRAGHI (1548 GMT) If you want another indication of how Draghi's comments are being interpreted as a signal that the ECB may unleash a bout of buying across financial markets, check out the cost of insuring European debt against default. The Markit iTraxx Europe credit default swaps index, which is used as a broad hedge against investment grade credit risk and often used to bet on changes in credit risk, has fallen to 56 basis points this afternoon from just above 60 yesterday. That's the lowest since mid-April and reflects the overall easing in concerns about defaults in the era for cheap money. (Josephine Mason and Sujata Rao) ***** SHOW ME THE MONEY, SAY MILLENIALS (1508 GMT) Think millenials care more about ethical investing than the older generation? Think again. A survey of 3,000 people aged 23-35 in the UK, France, Germany, United States, Hong Kong and Australia shows that long-term returns on capital, low fees and transparency trump ethics, with 53% of millenials rating them as their key consideration when it comes to making investments. The second most important criteria is transparency of the firm's investment strategy, while less than a third rated ethical issues as a factor. The poll carried out by Calastone, the UK-based global funds transaction network, undermines the idea that environmental, social and governance (ESG) causes are at the forefront of the younger generation's thinking. Here's a snapshot from Calastone summarising its survey's findings: For the full report, click on: https://www2.calastone.com/millennialsresearch (Josephine Mason) ***** WHEN IT RAINS IT POURS (1442 GMT) No, we are not talking about the weather in London. It's the market sensitive headlines today. First it was Draghi's dovish tone and now we are hearing some progress in the prolonged U.S.-China trade spat. These headlines have brought excitement back to markets and boy what a move! The pan-European STOXX 600 has now risen 2.1% from day's low and every sector is in positive territory. (see chart below) London's back to April 25 highs while Frankfurt and Paris are close to wiping out May's losses. The latest move up was after news that China's President Xi Jinping held a phone call with his U.S. counterpart Donald Trump. Earlier today, Trump said he would meet with Xi at the G20 summit later this month, and that trade talks between the two countries were set to restart ahead of time. The sudden focus on trade prompted investors to buy stocks in trade-sensitive European sectors: autos, tech and miners. Defensives were the outperformers most of the day, but the China-U.S. headlines reversed the trends with cyclicals making sizeable gains late afternoon. (Thyagaraju Adinarayan) ***** AS UK LEADERSHIP CONTEST HEATS UP, STERLING TRADERS QUAKE (1326 GMT) The next phase of Britain's Conservative leadership contest - and the race to be PM - is under way today with a dizzying amount of horse-trading reportedly going on behind the scenes as the five candidates behind former foreign secretary Boris Johnson race to consolidate support ahead of the next ballot with results expected around 1700 GMT. Candidates who don't get more than 33 votes of the 313 Conservative lawmakers will be eliminated, and if all candidates have more than 32 votes, the one with the fewest will be out of the race. Sterling hit a five-month low against the euro today as investors priced in a higher likelihood Johnson, who has advocated a no-deal exit from the EU, will become Prime Minister. Investors are clearly concerned about a sudden move in the pound around the time the delayed Brexit is set to happen - on Oct. 31. Implied volatility in the sterling-euro exchange rate - a gauge of expected price swings in the currency - is now higher four months out (Oct. 18) than three months out by the biggest margin since 2009. The spread is higher than it was in 2016, as you can see below, and suggests traders are preparing for a difficult countdown to EU exit. That said, implied volatility in sterling remains low by recent standards, suggesting investors are reluctant to take big positions on the currency moving much one way or the other before there is clarity around Brexit. "What stress there is in the market is focused on the period between mid-September and mid-October," writes BNY Mellon's chief currency strategist Simon Derrick. (Helen Reid and Tommy Wilkes) ***** CENTRAL BANKS TO THE RESCUE! BUT THEN WHAT? (1235 GMT) ECB President Mario Draghi's comments on easing monetary policy are the clearest indication yet that the central bank will cut interest rates and relaunch its asset purchase programme if inflation remains low in an effort to boost the sluggish euro zone economy. The news has fuelled buying across European financial markets, continuing a trend of late that has lifted both safe-haven bonds and riskier assets like equities. The pan-European STOXX 600 has just hit its highest since May 7 and is up 1.32%, set for its best day since mid-February. Investors are now bracing for the Fed policy decision due tomorrow - while the U.S. central bank isn't expected to move, the market is pricing in interest rate cuts later in the summer to maintain growth in the world's No. 1 economy in the face of headwinds from Washington's protracted and damaging trade war with China. "How long this cycle lasts depends on central banks and what they can do to keep it going. Everyone is relying on cheap money," says Unigestion's head of cross asset solutions Jerome Teiletche. But with so much riding on central banks' efforts to keep the era of cheap money a-rolling and investors positioning for rate cuts, some are starting to wonder what happens once central banks have delivered the goods. Teiletche reckons equities have another six months to run higher, but then what? "The risk is once this is priced in, what is the market going to do?" he asked, at a briefing this morning. While being diversified has not been a popular strategy during the 10-year stock market bull run, the boutique asset manager says the vast array of uncertainties that could derail markets means now's the time to spread your exposure out across many asset classes. Speaking on the sidelines of the briefing, Teiletche said he likes growth assets such as equities for the next 6 months, but also safe-haven assets like U.S. Treasuries and Japanese yen. (Josephine Mason) ***** AFTER DRAGHI-FUELLED RALLY, STILL TROUBLE AHEAD FOR ITALIAN ASSETS (1150 GMT) Italy's FTSE MIB is up 1.7% at a month high as the Draghi-fuelled rally sweeping European stocks shows no signs of slowing. Europe's utilities index has hit a four-year high and is set for its biggest one-day gain in 15 months, as investors rush to buy the defensive sector that benefits from lower rates for longer. Accordingly, Enel and Italgas are leading the charge in Italy, up 4% and 3.5%. Bank stocks, meanwhile, are notable by their absence, despite a rally in Italian sovereign bonds. "Despite concerns about the 'doom loop' of European banks' exposure to their sovereign bonds, the rally in bonds has done little for bank shares," notes Bannockburn Global Forex analyst Marc Chandler. One reason for that is the damage lower rates does to banks' margins. Another is the difficult few months ahead for Italy, with negative consequences for growth. "Over the coming six months policy uncertainty will rise and remain elevated, before declining again," reckons GS economist Silvia Ardagna. "An increase in policy uncertainty back to end-2018 levels could slow real GDP growth by up to 0.5 percentage points over the subsequent year," she calculates. Italy has until July 8 to propose a credible fiscal plan to avoid European finance ministers ratifying the European Commission's recommendation to initiate the Excessive Deficit Procedure. Even if that hurdle is cleared, a 2020 budget still needs to be drafted, which could spark new conflict with the EU. Italy's main stock index has already had a rollercoaster year, as you can see below: (Helen Reid) ***** DOVISH DRAGHI DRIVES STOCKS SHARPLY HIGHER (0841 GMT) It looked set to be a pretty downbeat day for European stocks, but that was before ECB President Mario Draghi decided to step in: his comments have sent the STOXX 600 up 0.7%, while Italy's FTSE MIB has jumped 1% as the fall in Italian government bond yields lifts bank stocks. In a speech at Sintra, Portugal, Draghi said the ECB will need to ease policy again, possibly through new rate cuts or asset purchases, if inflation doesn't pick up. That dented the euro, in turn boosting euro zone stocks, given how much exporting companies benefit from currency weakness. The rally quickly broadened out as investors cheered Draghi's signal of support. The ECB now could be getting ready to turn on the QE taps once more. It's almost a mirror image of his Sintra speech two years ago when he struck a hawkish tone, hinting at changes to the bank's stimulus programme, and the euro and bond yields shot up. Is this another "Whatever it takes" moment for Draghi? (Helen Reid) ***** OPENING SNAPSHOT: SEA OF RED AS SILTRONIC WARNING BITES, AMBU PLUNGES (0730 GMT) European stock indices are down 0.2 to 0.7% in early deals with tech, autos, and bank stocks dragging the market down as investors get nervous ahead of the Fed's decision, and a profit warning from chipmaker Siltronic provides the latest reminder of how much damage the U.S.-China trade war is causing. Unsurprisingly the tech sector is the worst-performing, down 1% in early deals as Siltronic falls 9.4%, dragging peers STMicro, AMS, ASML, and ASM International down between 2.2 and 3.6%. Infineon is falling 5.1% after a capital raise. Among the rare gainers, M&A is a driver. Norway's Evry is jumping 17% after the firm agreed to merge with Finland's Tieto, whose shares are up 3%. London-listed shares in South African insurer Old Mutual are up 3.1% after the company fired suspended CEO Peter Moyo following a conflict of interest related to an investment firm he founded. Meanwhile Danish medical equipment firm Ambu suffered after yet another profit warning: its shares are down 15.7%, bottom of the STOXX 600 and hitting their lowest since late August 2017. (Helen Reid) ***** WHAT'S ON THE RADAR: SILTRONIC PAIN, AIRBUS GAIN (0647 GMT) European stocks are expected to slide after Siltronic became the latest chipmaker to warn the U.S.-China trade war was denting its business, and as investors eye rising Middle East tensions, slipping crude prices and worrying economic indicators warily ahead of the U.S. Federal Reserve policy decision on Wednesday. German semiconductor wafer maker Siltronic’s profit warning comes hot on the heels of Broadcom’s last week. It douses any remaining hopes of a promised second-half recovery in the chip sector, with management saying the third quarter would likely see sales slide further after a Q2 “significantly below” the first quarter. Siltronic’s shares are down 10% in pre-market trading, with shareholder Wacker Chemie also down 1.8%. Traders see the warning hurting semiconductor stocks across the region. Shares in German chipmaker Infineon are down 3.8% in premarket trading after it launched a 1.5 billion euro capital increase to help fund its acquisition of Cypress Semiconductor. Outside the tech sector, Airbus shares are seen rising 0.5-1% after sources told Reuters that American Airlines Group is edging toward a deal with Airbus to buy up to 50 newly launched A321XLR extended-range narrow-body aircraft. Shares in German wind turbine maker Nordex are climbing 2.1% in pre-market trading after the company received a 300 MegaWatt order from Engie in the U.S.. Danish medical equipment firm Ambu is seen falling 2-5% after it cut its 2018/19 organic growth, margin, and free cash flow outlook. Sweden's oldest bank Swedbank said it had suspended the CEO and CFO of its Estonian business with immediate effect, after an investigation into compliance with money-laundering rules at the bank. The stock has already lost 33% in just 4 months over money-laundering concerns. In M&A news, Finnish IT services and consulting firm Tieto announced plans to merge with Norway's Evry. The deal terms value Evry at 35.48 Norwegian krone per share - a 15.4% premium to the stock's closing price. Dutch fund administration firm Intertrust is seen gaining 4-5%, traders said, after it acquired U.S. financial services technology firm Viteos for $300 million. Car stocks are expected to gain after European car sales notched up their first month of growth in nine, traders said. (Helen Reid) ***** EUROPEAN FUTURES SLIP AFTER SILTRONIC PROFIT WARNING (0620 GMT) Futures for the main European stock indices are down 0.1 to 0.2%, with just the FTSE 100 holding on to a 0.1% gain. An extended drop in crude prices on further fears of slowing economic growth is dousing investors' confidence, while rising tensions in the Middle East are also heightening nerves. The New York Federal Reserve said on Monday that its gauge of business growth in New York state posted a record fall this month to its weakest level in more than 2 1/2 years, suggesting an abrupt contraction in regional activity. Siltronic shares are down 10.3% in early trade after the chipmaker's profit warning (more in the previous blog), with shareholder Wacker Chemie also falling 1.8%. In the UK, equipment rental company Ashtead and Telecom Plus have reported results. Telecom Plus annual profit boosted by more customers Ashtead posts 17% rise in annual profit on Sunbelt growth (Helen Reid) ***** MORE TROUBLE IN CHIP-LAND: SILTRONIC WARNS (0555 GMT) Siltronic has become the latest chipmaker to warn U.S. restrictions on exports to China would hurt sales and profitability, saying it expects Q2 sales to be "significantly below" first-quarter levels with a further decline likely in the third quarter. That last bit is significant as chipmakers around the world had previously been guiding investors to a second-half recovery - and Siltronic's outlook on Q3 seems to make it clear they don't see things getting better very soon. "Current consensus has Q2 sales falling -12% from Q1 then rebounding +2% quarter-on-quarter from the Q2 trough, which isn’t going to happen," says one trader. The profit warning comes hot on the heels of U.S. chipmaker Broadcom's late last Thursday which knocked stock markets the following day. Chipmakers and tech more broadly will be in focus this morning. (Helen Reid) ***** MAKING HEADLINES: INFINEON CAPITAL RAISE, TIETO-EVRY MERGER, SWEDBANK, AIRBUS (0548 GMT) Shares in German chipmaker Infineon are down 3.8% in premarket trading after it launched a 1.5 billion euro capital increase to help fund its acquisition of Cypress Semiconductor. Also yesterday evening, Sweden's oldest bank Swedbank said it had suspended the CEO and CFO of its Estonian business with immediate effect, after an investigation into compliance with money-laundering rules at the bank. The stock, which has already lost 33% in just 4 months, could be bruised again by this today. In M&A news, Finnish IT services and consulting firm Tieto announced plans to merge with Norway's Evry. The deal terms value Evry at 35.48 Norwegian krone per share - a 15.4% premium to the stock's closing price. Dutch fund administration firm Intertrust acquired U.S. financial services technology firm Viteos for $300 million. Spanish utility Iberdrola announced plans to launch an Irish retail business, and invest more than 100 million euros in renewable energy and storage projects in Ireland and Northern Ireland by 2025. And Airbus won long-term lease placements for two new aircraft from Air Lease Corporation, with sources telling us leasing giant GECAS is also in talks to place an order for the newly launched Airbus A321XLR. Here's the news on our radar: Infineon launches 1.5 bln euro capital hike to help fund Cypress deal Iberdrola to launch Irish retail arm, invest $112 mln in renewables by 2025 Swedbank suspends CEO, CFO of Estonian unit Banks to include CO2 emission measures in shipping loan decisions Tieto And EVRY To Merge Intertrust Acquires Viteos For USD 330 Million Ipsen Initiates Share Buyback Program To Cover Its New Free Share Allocation Plan Dassault Systemes raises funds for healthcare software firm BioSerenity French drugmaker Sanofi, Google to use data tech for innovations Air Lease signs long-term lease placements for four Airbus jets GECAS close to ordering Airbus A321XLR -sources (Helen Reid) ***** EUROPEAN STOCKS SET FOR UNCERTAIN OPEN AS MIDDLE EAST TENSIONS, FED EYED (0529 GMT) European stocks are seen opening mixed this morning, with the DAX expected to fall while the FTSE 100 makes slight gains. Rising tensions in the Middle East - as the U.S. announces the deployment of about 1,000 more troops, citing concerns about a threat from Iran - could be making investors nervy, while anticipation ahead of the U.S. Federal Reserve's policy meeting is also holding them back from decisive action. Investor caution ahead of the Fed's interest rate meeting capped Asian stocks overnight while crude oil prices retreated as global growth worries overshadowed supply concerns stemming from recent Middle East tensions. Financial spreadbetters at IG expect London's FTSE to open 12 points higher at 7,369, Frankfurt's DAX to open 16 points down at 12,069, and Paris' CAC to open 3 points lower at 5,388. (Helen Reid) ***** (Reporting by Helen Reid)