LIVE MARKETS-"Defensives choices make sense"

* European stocks inches up

* Wall Street posts slight gains

* Morgan Stanley (Xetra: 885836 - news) delivers 40 pct profit surge

LONDON, April 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 Kit Rees. Reach her on

Messenger to share your thoughts on market moves: kit.rees.thomsonreuters.com@reuters.net

"DEFENSIVE CHOICES MAKE SENSE" (1441 GMT)

Global stocks may be moderately higher today with a strong U.S. earnings outlook providing

comfort after a turbulent start of the year. Lingering worries over possible trade wars, macro

risks and a regulatory crackdown on big tech make some investors like Saxo Bank rather vigilant.

"Caution is critical in such an environment and portfolio diversification and defensive

choices therefore make sense" says Peter Garnry, Head of Equity Strategy at the Danish bank, who

remains negative on equities.

"We recommend investors to be overweight defensive sectors such as health care and consumer

staples, as well as interest rate-sensitive sectors including utilities and telecoms as rate

expectations could take a hit in Q2 while markets digest the changing landscape,” he adds.

(Danilo Masoni)

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FAR FROM THE MADDING CROWD: LEAST POPULAR TRADES (1252 GMT)

Want to avoid the crowds? After tech again made it to the top of BAML's "most crowded"

trades list in its April survey, you may be wondering which are the least-liked

areas of the stock market, and whether they're worth a shot.

Morningstar Investment Management's CIO of EMEA, Dan Kemp, offers his picks:

- FTSE 100: sentiment has turned negative for the multinationals as sterling surges, but

this could be a contrarian opportunity as earnings are improving. "Speculation and volatility

are a valuation-driven investor's friends," writes Kemp.

- Energy stocks in Europe, which Kemp reckons are "unloved" and tainted by volatility as

investors exercise caution over oil prices. He warns to avoid turbo-charging exposure to oil,

however, taking care not to add these to a portfolio with emerging market equities for example.

- Russian equities: Kemp highlights improvement in earnings, cash flows and dividends as

reasons to dive in despite the heightened anxiety around sanctions risk

- European telecoms: while they're a troubled sector with fundamentals looking pretty dire,

Kemp says it has a small correlation to others, making it a good diversification opportunity

- U.S. Treasuries: amid changing inflation expectations, Kemp seeks protection against a

"1970s style setback" by holding lower-duration U.S. Treasuries as well as inflation-protected

bond

Here's a reminder of how various global assets have performed this year (note Bitcoin's

dramatic fall from grace):

(Helen Reid)

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BEWARE, AUTOS AND ITALIAN SHARES, "PEAK GROWTH" IS COMING TO GET YOU! (1230 GMT)

The Italian stock market and the European automobile sector have had a

stellar start of the year, outperforming the broader market but guess what: it probably won't

last.

The Milan bourse and car makers are some of the few market segments which have sailed

through the slowing down of Euro zone growth unscathed but there is little reason for that to

continue, according to Sebastian Raedler, head of European equity strategy at Deutsche Bank (IOB: 0H7D.IL - news) .

Raedler told us at the beginning of 2018 that the STOXX 600 was bound to decline during the

first half of the year as the "accelerating growth momentum", also known as "#Euroboom", faded

away towards a performance more in line with GDP forecasts.

And it did: IHS Markit (Stuttgart: A1139A - news) 's Final Composite Purchasing Managers' Index, seen as a good overall

growth indicator for the euro zone, rose to 58.8 in January but quickly fell to 55.2 in March,

which set European shares on a downward path, Raedler argued.

Those who believe, like Raedler, that there is a strong correlation between the trend of

PMIs and that of the stock markets, saw their bets rewarded with the notable exception of the

bourse of Milan, but the analyst thinks prices will normalize.

The FTMIB index is up 8.5 percent year-to-date while the EURO STOXX managed only

0.3 percent. Italy's performance baffles many investors given the "messy" outcome of the March

general elections and its overweight in banking stocks, which as a sector, underperformed this

year.

"It's looks like an overshoot and we are happy to underweight Italy relative to Europe",

Raedler said today, adding that the same would likely happen to auto shares, which as a most

cyclical sector, should be caught back by the narrative switching from "#Euroboom" to "Peak

growth".

Talking of which, there is only two months between these two headlines:

Euro zone businesses began year in best shape for over a decade (February 5)

Euro zone economy came off the boil in March but still simmering (April 5)

You can see below how the downward trend set by Euro area PMIs and how the FTMIB and the

automobile sector outperformed the STOXX 50:

(Julien Ponthus)

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"EUROPEAN OIL SERVICES AT A TURNING POINT" (1112 GMT)

Morgan Stanley says the upcoming earnings updates from European oil services companies could

be catalyst for the battered sector and more broadly believes that evidence of its recovery will

be one of the key themes to focus on.

"We see European Oil Services at a turning point, with the trading environment largely

moving away from stock performances driven by quarterly margin and balance sheet beats/misses vs

consensus," analysts at the U.S. bank led by Robert Pulleyn say in a note.

"Rather, we see the emerging theme for the sector in 2018 as the belief in end market

recovery, evidenced by management outlook comments and/or rising backlogs, with book-to-bill

ratios >1x," they add.

That being said, they recommend that investors position positively on TechnipFMC,

Tenaris (Amsterdam: TS6.AS - news) , CGG (Euronext: 32269095.NX - news) and Aker Solutions (Stockholm: AKSOO.ST - news) before they release their

numbers. For Subsea 7 and TGS they suggest a negative positioning.

In this chart you can see how most oil services stocks have underperformed the broader oil &

gas index over the last 12 months.

(Danilo Masoni)

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STOXX HITS THE BRAKES AS AUTOS SECTOR FALLS (1051 GMT)

After a positive start European shares have fallen back, with the STOXX 600 now flat having

hit a fresh day low.

The main driver for the move was an outlook cut from tyre maker Continental AG (IOB: 0LQ1.IL - news) ,

which blamed exchange rate effects, something that may have a broader relevance as the earnings

season gets under way in Europe. Strength in the euro is seen as a big headwind for euro zone

earnings, which are growing at a much lower rate than in the U.S.

In local currency terms, Q1 earnings growth for the MSCI EMU index is seen at 2.7 percent,

while MSCI US earnings are seen up 19.5 percent.

The Continental warning hit peers Pirelli and Michelin (Paris: FR0000121261 - news) , and dragged the

autos sector down more than 1 percent to lead sectoral losers in the region, as you can see in

the snapshot.

(Danilo Masoni)

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UK RETAIL NOT THE PRETTIEST OF PLACES RIGHT NOW (1001 GMT)

In another sign of the UK high street's struggles, property firm Hammerson (Frankfurt: 876140 - news) has

pulled out of a bid for smaller peer Intu Properties (LSE: INTU.L - news) , while last week Klepierre (EUREX: CL6.EX - news)

abandoned its approach for Hammerson.

Hammerson's shares are up 2.4 percent while Intu (Swiss: OXIGTU.SW - news) is down 3.5 percent. Analysts at Liberum

think that Hammerson made the right decision.

"Hammerson, on a standalone basis, should be in a stronger position to allocate capital to

its faster growing markets, such as premium outlets," Liberum analysts say in a note.

"Through limiting the scale of its UK exposure it should also reduce the probability its

prime shopping centres will see some eventual value erosion as a result of structural headwind,"

Liberum adds.

So it's not looking like a great vote of confidence for the UK at the moment, at a time when

investor sentiment is fragile due to Brexit uncertainty while bricks-and-mortar retailers

struggle with the popularity of online shopping.

But there are some signs of hope, according to Laith Khalaf, senior analyst at Hargreaves

Lansdown, who points to inflation cooling (see the latest figures released this morning) and

some easing on margins thanks to the exchange rate.

"Some of the headwinds are easing for the retail sector and the industries that depend on

it, but there is still a lot of bad news out there as the fallout continues," Khalaf says.

(Kit Rees)

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STRONG PROFITS BUT MEASLY PAYOUTS FROM EURO ZONE COMPANIES (0935 GMT)

One of the reasons Euro zone stocks have been underperforming the U.S. could be relatively

smaller payouts to shareholders.

Corporates in the euro zone have seen rising profitability, but the way that extra cash is

used has been very different in the region compared with the U.S., indicating a lingering

caution in the region. Profits distributed through dividends or buybacks are at their lowest

share of GDP since the launch of the euro, according to Credit Suisse (IOB: 0QP5.IL - news) metrics.

"Shareholders of euro area firms are not receiving cashflows proportionate to those their

firms are generating," note CS strategists at Credit Suisse. "Instead strong profits are being

used to invest, build cash balances and pay down debt."

Corporate leverage is plunging despite a strengthening in investment. This phenomenon, while

increasing companies' resilience, makes them potentially more attractive for holders of euro

area corporate credit than for shareholders who yearn for companies to deliver more cash to

them.

It's one aspect of this European earnings season that will be very closely watched by

investors hoping to see bigger payouts.

(Helen Reid)

*****

EUROPEAN BOURSES EDGE UP AS Q1 EARNINGS COME IN (0720 GMT)

Shares (Berlin: DI6.BE - news) are slightly up across the continent and sectors as a large batch of first-quarter

corporate results is keeping investors on a risk-on mode.

(Julien Ponthus)

*****

WHAT WE'RE WATCHING AHEAD OF THE EUROPEAN OPEN (0643 GMT)

European stocks futures are up very slightly, pointing to another positive session for

European equities as the focus turns from trade and geopolitics to the first quarter earnings

season.

A number of big, consumer-facing stocks have given updates today, notably Danone (LSE: 0KFX.L - news) which

traders are marking 2-3 percent higher after the food group beat Q1 sales forecasts on the back

of strong demand for baby formula products in China. Likewise Remy Cointreau reported higher

sales thanks to Chinese demand for premium cognac.

As tech has been especially in focus this year, investors might be heartened by numbers from

semiconductor equipment maker ASML (Milan: ASML.MI - news) , which has beaten expectations.

More broadly, this earnings season in Europe isn’t expected to be especially stellar with

earnings seen increasing 1.9 percent from the first quarter of 2017, which would be an increase

of just 0.8 percent stripping out the energy sector, according to Thomson Reuters I/B/E/S.

(Kit Rees)

*****

MORNING HEADLINE ROUNDUP: Q1 EARNINGS SEASON IN FULL SWING (0635 GMT)

AS you can see, the Q1 earnings season is now in full swing and dominating today's front

page:

Chinese baby food demand helps Danone Q1 sales beat forecasts

ASML posts 540 mln euros Q1 profit, announces first sales of new product

Vopak sees potential to "significantly" improve 2019 earnings

Remy Cointreau (Swiss: RCO.SW - news) keeps profit goal as China demand lifts Q4 sales

Channel tunnel group Getlink sees higher long-term profit as Brexit talks progress

Trump to boost exports of lethal drones to more U.S. allies-sources

Total (LSE: 524773.L - news) buys French electricity retailer Direct Energie (Stuttgart: 1485895.SG - news)

EXCLUSIVE-Imerys (LSE: 0NPX.L - news) selling 1 bln euro tiles business, buyout funds bidding -sources

Nissan, Ford, FCA lead European car sales decline

Rio Tinto (Hanover: CRA1.HA - news) flags changes to 2018 aluminium output after U.S. sanctions

Russia's Polymetal says Q1 revenue up 19 pct y/y

De La Rue (Other OTC: DELRF - news) will not appeal loss of UK 'Brexit' passport contract

(Julien Ponthus)

*****

EUROPEAN STOCKS FUTURES STEADY (0619 GMT)

After opening moderately higher, European stocks futures are now trading roughly flat to

very slightly higher as investors digest a flurry of company updates.

Here's your futures snapshot:

(Kit Rees)

*****

EUROPEAN EARNINGS: CONSUMER STOCKS IN FOCUS (0544 GMT)

As the Q1 earnings season gets underway, it looks like today is going to be a big day for

large, consumer-facing stocks with Danone and Heineken (LSE: 0O26.L - news) set to report, while semiconductor

equipment maker ASML --whose shares are up 17 percent year to date-- is also due to give an

update. The full list of European companies set to give updates today is below:

VOPA.AS Q1 2018 Koninklijke Vopak NV Earnings Release

DANO.PA Q1 2018 Danone SA Corporate Sales Release

BAR.BR Q1 2018 Barco NV Corporate Sales Release

EDDG_p.F Q4 2017 edding AG Earnings Release

TEMN.S Q1 2018 Temenos Group AG Earnings Release

MONY.L Q1 2018 Moneysupermarket.Com Group PLC Trading Statement Release

JUP.L Q1 2018 Jupiter Fund Management PLC Trading Statement Release

GETP.PA Q1 2018 Getlink Corporate Sales Release

BNZL.L Q1 2018 Bunzl (LSE: BNZL.L - news) plc Trading Statement Release

SGRO.L Q1 2018 SEGRO PLC Trading Statement Release

ASML.AS Q1 2018 ASML Holding NV Earnings Release

ELISA (LSE: 0I8Y.L - news) .HE Q1 2018 Elisa Oyj Earnings Release

RCOP.PA Q4 2018 Remy Cointreau SA Corporate Sales Release

HEMF.ST Q1 2018 Hemfosa Fastigheter AB Earnings Release

REL.L Q1 2018 Relx PLC Trading Statement Release

HEIN.AS Q1 2018 Heineken NV Trading Statement Release

AVANZ.ST Q1 2018 Avanza Bank Holding AB Earnings Release

RELN.AS Q1 2018 Relx PLC Trading Statement Release

ACCP.PA Q1 2018 Accor SA Corporate Sales Release

BLT.L Q3 2018 BHP Billiton PLC Operational Review

SOIT.PA Q4 2018 Soitec SA Corporate Sales Release

BTPP.PA Q1 2018 Affine RE SA Corporate Sales Release

GFCP.PA Q1 2018 Gecina SA Corporate Sales Release

(Kit Rees)

*****

MORNING CALL: EUROPEAN SHARES SEEN OPENING HIGHER (0523 GMT)

Good morning. European shares are seen rising at the open on Wednesday, according to

financial spreadbetters, building on yesterday's bounce as worries over trade and geopolitics

take a backseat and earnings come into focus.

Spreadbetters expected Britain's FTSE 100 to open 18 points higher, Germany's DAX to rise 21

points and France's CAC to gain 12 points.

It was a similar story overnight for Asian equities, which were broadly higher, though

Chinese indexes struggled even after China's central bank unexpectedly said on Tuesday it will

reduce the cash banks hold as reserves, boosting liquidity in the banking system.

(Kit Rees)

*****

(Reporting by Danilo Masoni, Helen Reid, Kit Rees and Julien Ponthus)