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LIVE MARKETS-Depressed sentiment should support market despite trade fears

March 5 (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

DEPRESSED SENTIMENT SHOULD SUPPORT MARKET DESPITE TARIFF FEARS (1324 GMT)

A strong earnings outlook and very 'oversold' sentiment should support markets higher,

Bernstein quantitative strategists say, despite Trump's tariffs announcement delivering extra

volatility to the market last week.

Bernstein's composite sentiment indicator is now at -0.8 - showing "extreme levels of risk

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aversion" and a very oversold market (see below).

"The latest shock hitting the markets - Trump's tariffs announcement - shatters any

complacency that may have existed that 'Trump risk' has gone away, and introduces renewed

uncertainty into the global geopolitical arena," write quantitative strategist Alla Harmsworth

and team.

But "the global economy is growing, the earnings outlook is robust and sentiment is

depressed - and these forces can support the equity market going forward."

European stocks today certainly seem to be taking the tariffs in their stride - but U.S.

stock futures are pointing to a negative open.

(Helen Reid)

*****

PULLING OUT TOO EARLY CAN BE COSTLY (1258 GMT)

With (Other OTC: WWTH - news) nervousness about the end of the bull cycle growing, one school of thought would be to

choose a 'better safe than sorry' approach and pull out of the stock market while there is still

time - but Bank of America Merrill Lynch analysts warn against that.

"Of course no one wants to be caught still holding risk assets when markets turn south like

in late 2000 or 2008, but the evidence is that exiting early can be even costlier," they argue.

The bank says its previous research shows that "exiting six months early costs on average

14% while being six months late costs 10%".

Evidence shows that the last years of cycle are often very rewarding as "equity markets

frequently rally when central banks are tightening policy, as growth and EPS tend to be good

too".

"Our US equity strategy team has calculated that equities return on average 49% in the last

two years of a bull market and 23% in the last year", it also said.

Taking the current market environment into account, the bank sticks to its advice of buying

the dip.

"Investors should not cut their equity exposure early unless very confident that the end of

the cycle is nigh. We suspect the end of the cycle is still some way off and we are therefore

happy to continue to run our equity exposure, accepting that it will likely be a bumpier ride

than in 2017."

Here's their chart of how the S&P 500 performed during the last years of a bull market:

(Julien Ponthus)

*****

IRISH STOCKS TAKE A BEATING (1156 GMT)

Irish stocks are among the biggest STOXX fallers, with the benchmark ISEQ down more

than Italy's main index. Dublin seems to be catching up with falls in European markets at the

end of last week -- the Irish Exchange was closed for half of Thursday and all of Friday because

of the bad weather.

Shares (Berlin: DI6.BE - news) in AIB Group, Kerry Group (Other OTC: KRYAF - news) and Bank of Ireland (EUREX: 1269463.EX - news) are all down

between 1.2 to 4.1 percent. The benchmark index is down 1.1 percent, having hit a one-year low

earlier in the session.

David McNamara, an economist at Davy, says the volatility may also be down to the broader

market uncertainty caused by the Italian election.

Furthermore, traders may be sifting through the implications of UK PM Theresa May's Brexit

speech on Friday.

"I think there was quite a bit of digestion over the weekend and arguing about Ireland (Other OTC: IRLD - news) 's

posturing on the Brexit talks and negotiations," said Mike van Dulken, head of research at

Accendo Markets.

The latest Irish macroeconomic data won't be helping.

A PMI survey showed Irish services growth slowed to a three-month low in February, while in

another survey, Irish consumer sentiment fell back from a 17-year high.

Here's a chart showing the one-year low the ISEQ hit earlier on:

(Kit Rees)

*****

MOST AND LEAST CROWDED STOCKS IN EUROPE (1114 GMT)

UBS (LSE: 0QNR.L - news) has crunched the numbers to find global active managers' most and least preferred stocks

across Europe. No surprises - tech stocks feature prominently among the most crowded trades,

while some European banks and consumer goods companies are getting the cold shoulder from

investors.

The top five biggest underweights in Europe include HSBC, Santander,

Nestle (Swiss: NESN.VX - news) , and AB InBev (Brussels: ABIT.BR - news) . Shell (LSE: RDSB.L - news) is also up there and BP is in the

top ten, suggesting investors remain uncertain about oil majors.

Interestingly tobacco stocks BAT and Imperial feature in the top five

biggest overweights, despite efforts to regulate tobacco. Of course tech stocks are up there

too: semiconductor machine maker ASML (Milan: ASML.MI - news) and IT sensors and software maker Hexagon

are crowded overweights, with online travel booking system Amadeus also in

the top ten.

Looking at the global stocks universe, the most popular are, perhaps unsurprisingly,

tech-dominated: Alibaba (Berlin: AHLA.BE - news) , Microsoft (Euronext: MSF.NX - news) , UnitedHealth Group (Swiss: UNH-USD.SW - news) , Visa (Xetra: A0NC7B - news) ,

and Alphabet (Xetra: ABEA.DE - news) .

Top five underweights globally are Apple (NasdaqGS: AAPL - news) , Exxon Mobil (Swiss: XOM-USD.SW - news) , Berkshire Hathaway (Sao Paolo: BERK34.SA - news)

, Johnson & Johnson (NYSE: JNJ - news) , and Toyota.

(Helen Reid)

*****

ITALIAN ELECTION RESULT: A BIG THREAT FOR EUROPE? (1043 GMT)

It looks like jitters over a political gridlock in Italy are confined to Italian stocks,

whereas Italian bonds look much more resilient and European shares are now comfortably moving in

positive territory. Does this mean investors see the election's results as something more

harmful for the domestic market than for the whole European economy and political integration?

Some fund managers and analysts appear to support this idea, especially after Germany's

Social Democrats backed a deal to form a coalition government with Merkel's conservatives, as

they remain confident in the region's economic recovery.

JCI Capital: "The result is certainly among the worst that the market could have expected,

even though the Brexit and Trump votes have taught us that political happenings can lead to

unexpected market reactions. European integration and the euro have not been a central part of

the election campaign and the eurosceptic tones have not been stressed a lot by parties such as

the 5-Star and the League, which in the past have insisted on the issues with much more

conviction... it is difficult to imagine that any of the results could have a systemic impact."

Amundi (Berlin: 350155.BE - news) : "With this outcome it is likely that the government will not be of help in the

process of strengthening the European project. On the other hand, in Germany, the SPD just

agreed to enter the new grand coalition government. So overall, we don't see a material increase

of political risk in Europe."

"In the short term, we expect some volatility in the markets, at least until the new

government will be formed and it will announce its economic and fiscal program. However, this

time, we believe, the economic recovery in Europe and worldwide is much more resilient than in

the past and the balance sheets of the companies are much stronger after many years of

restructuring programs," Amundi adds.

UniCredit (EUREX: DE000A163206.EX - news) : "The League has pledged to fight for more sovereignty and is opposed to a

more-integrated Europe. This would likely complicate Italy’s stance towards the EU and euro.

However, given the involvement of Forza Italia, it is currently very difficult to anticipate at

what level this is likely to happen. Surely, the good news out of Germany yesterday – the SPD's

approval of the coalition treaty – will certainly help boost European integration."

(Danilo Masoni)

*****

FRENCH BANKS GET A FOUR OF A KIND (1021 GMT)

Acknowledging "a wave of optimism post Q4 results", Jefferies now has a "buy" rating on

France's four listed banks, as the broker believes they are cheap and offer good growth

prospects.

"We now have a 'Buy' rating on all French banks, as we believe the economies of France (2%

GDP in 2017) and the South of Europe, mainly Italy, will continue to rebound along with a marked

increase in corporate loan demand at year-end and rebound in market activities," Jefferies

analysts wrote in a note today.

Here is how they rank them:

(Julien Ponthus)

*****

TRADE WAR = FED HIKES (0946 GMT)

That's the point Paul Krugman makes in his NYT column. With the U.S. being close to full

employment, the country can't just painlessly make up for the imports deterred by new tariffs,

and a spike in inflation is to be expected.

"What would happen instead is that the Fed would raise rates sharply to head off

inflationary pressures (especially because a 20 percent tariff would directly raise prices by

something like 3 percent)," the Nobel prize economist writes.

Two big side effects would be expected from this: stress on leveraged sectors and a rising

dollar.

Here's a link to his column: http://bit.ly/1HKJJ8M

(Julien Ponthus)

*****

OPENING SNAPSHOT: ITALIAN STOCKS HIT 6-MONTH LOW (0812 GMT)

Italian shares are this morning's big losers, against a broadly positive European backdrop.

Italy's benchmark index has hit a six-month low after weekend elections boosted the influence of

anti-establishment parties and further clouded prospects for structural reform.

Irish stocks are down, with the benchmark index falling 2.4 percent, after a string

of negative economic data.

Elsewhere European autos are feeling the pressure from Trump's proposed tariffs,

while a fall in Axa (Paris: FR0000120628 - news) 's shares is weighing on insurers after the company announced a $15

billion acquisition of reinsurer XL.

More broadly, gains for energy stocks and tech are buoying the market.

Here's your opening snapshot:

(Kit Rees)

*****

COMPANY NEWS HEADLINES: MORNING ROUND-UP (0741 GMT)

Insurer AXA agrees to buy XL Group (NYSE: XL - news) for around $15 bln

Siemens Healthineers' IPO smaller than expected

Amazon has French grocery market in its sights, French boss tells paper

BASF in talks to buy Bayer (IOB: 0P6S.IL - news) 's vegetable seeds business - sources

VW to pursue IPO plan for trucks division -Handelsblatt

Trump threatens to tax European auto imports

Airbus plans to move or cut 3,600 jobs - magazine

British energy regulator to limit back billing to 12 months

UK PM May calls on housebuilders to "do their duty", demanding more homes

Akzo Nobel (Amsterdam: AKZA.AS - news) nominates former Maersk CEO Andersen as chairman

Ryanair and Aer Lingus sign flight-connection deal -Sunday Times

Swiss bank Raiffeisen CEO says will not quit over predecessor probe

Car (HKSE: 0699-OL.HK - news) service Addison Lee sees profit ahead as expansion continues

Dialog expects to supply chips to Apple through 2020 - CEO in paper

Tesco (Frankfurt: 852647 - news) completes $5.5 bln takeover of Booker​

BRIEF-Trinity Mirror Says FY Revenue Fell 12.6 Pct T

MEDIA-Iberdrola (Amsterdam: ID6.AS - news) puts five engineering companies on sale - El Confidencial

BRIEF-Spectris Says Commencing Share Buyback

(Tom Pfeiffer)

*****

STOCK FUTURES TURN NEGATIVE (0728 GMT)

It looks like sentiment has taken a bit of a knock in Europe as stock futures fall into

negative territory. A combination of concerns over trade wars as well as a rise in support for

anti-establishment and far-right groups in Italy are likely to weigh on European share trading

this morning.

Here's your snapshot:

(Kit Rees)

*****

ITALY? "WE EXPECT INCREASED VOLATILITY" (0649 GMT)

Europe may open slightly up today as it recovers from a bad week but the Italian vote will

likely keep the Milan bourse under pressure with IG (Frankfurt: A0EARV - news) analyst Vincenzo Longo calling the FTSE MIB

index down more than 1 percent at the open today.

The vote is set to result in a hung Parliament with very uncertain government prospects, as

anti establishment parties M5S and Lega delivered a stronger than expected results.

Chief Investment Officer UBS WM Italy Matteo Ramenghi believes an alliance between M5S and

Lega looked unlikely, although warns of a volatile period ahead for Italian assets.

"We expect lengthy negotiations after these elections, which may lead to increased

volatility of Italian assets," he says.

"A broad grand coalition would be well received by markets as it could result in political

stability and fiscal discipline. Repeat elections could prolong uncertainty and weigh on Italian

assets. The Italian equity market has not priced in electoral uncertainty, but current yields on

government bonds suggest they have incorporate some political risk," he adds.

"An anti-establishment alliance of M5S and Lega, the worst case scenario for markets, looks

unlikely due to different programs," he also says.

(Danilo Masoni)

*****

Morning call: Europe set to recover despite Italy uncertainty (0624 GMT)

Good morning. European shares are expected to open higher today, as markets recover from a

sell-off last week when investors were spooked by worries over a global trade war.

Italian voters delivered a hung parliament on Sunday, flocking to anti-establishment and

far-right parties in record numbers and casting the euro zone's third-largest economy into a

political gridlock that could take months to clear.

That put the euro in choppy waters in Asian trading. The single currency however found

support after Germany's Social Democrat party decisively backed the renewal of an alliance with

Chancellor Angela Merkel's conservatives, allowing her to form a new government more than five

months since the country's inconclusive election.

Here your morning calls, courtesy of CMC (BSE: CMC.BO - news) .

FTSE100 is expected to open 33 points higher at 7,103

DAX is expected to open 37 points higher at 11,950

CAC40 is expected to open 16 points higher at 5,152

(Danilo Masoni)

*****

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