LIVE MARKETS-ECB round-up: Lower for longer, or ever?

* Euro zone stocks hit highest since July 25 after ECB rate cut, restarts QE * STOXXE benchmark now up 0.6% * Euro zone banks fall 0.3% as tiering euphoria fades * Morrison up on results, AB Inbev gains on unit IPO plan * European stocks also boosted briefly by positive report on U.S.-China trade 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: rm://danilo.masoni.thomsonreuters.com@reuters.net ECB ROUND-UP: LOWER FOR LONGER, OR EVER? (1527 GMT) Lots of action in euro-zone banks today after the ECB statement with moves ranging from +1.7% to -2.4% as investors digested the details of the stimulus package that included a 10 bps rate cut, restart of QE and a tiering deposit rate to mitigate negative impact from lower rates. But all of this turned out to be priced in and well in-line with expectations. Investors have finally made up their mind and banks are now at exactly the levels they were trading at before the ECB announcement. Jeroen Blokland, a senior portfolio manager at Robeco, says more QE would mean flatter curves leading to lesser profitability even with tiering in place. Morgan Stanley shares similar views: some marginal positives in the ECB statement but they are far from a panacea for banks' profitability. "A 10bp cut, even with a tiering mechanism, combined with open-ended forward rate guidance (i.e. contingent on inflation), in our view extends uncertainty of how low rates can actually go and corresponding earnings implications," the bank's analysts write in a note. Bond-proxy sectors were the pick of the day after ECB with utilities and telecom outperforming as investors sought to safe-havens amid a lack of details on QE and doubts on whether the policy action was enough to prop up the ailing euro-zone economy. "The lack of an immediate big bang monetary stimulus vs market expectations (i.e.“only” a 10bp cut and "only" QE EUR 20bn pm) means more limited odds of a turnaround in the EZ economic and inflation outlook," says Petr Krpata, chief EMEA FX and IR strategist at ING. European stocks, which were down slightly after the ECB, briefly jumped on report that Trump advisers were considering an interim deal to delay tariffs on Chinese imports, but clawed back most of those gains after a White House official denied the report. The choppy trade in banking stocks: (Thyagaraju Adinarayan) ***** WHY ITALIAN BANKS ARE OUTPERFORMING: IT'S THE SPREAD BABY! (1514 GMT) Italian banks are once again moving out of synch compared to their European peers which are having a rollercoaster session as the market digests measures to help the sector to limit the damage from negative interest rates. Italian banks are now up 1%, while the euro-zone bank index is down 0.2%, having fallen as much as 2.6% earlier in the day. The outperformance can be traced to the surge in Italian government bond prices, which has further compressed the yield spread with the German equivalent to a May 2018 low. Italian banks have big holdings of sovereign bonds and their gains support capital. "Italian bonds continue to do well. They are supported not only by the QE, which is open ended, but also by the recent political envelopments," says Giuseppe Sersale, fund manager at Anthilia in Milan. In the chart you can see the bond yield spread between Italian and German government bonds. (Danilo Masoni) ***** ECB: THUMBS DOWN FROM BANKS (1326 GMT) Markets are giving a positive response to the package of measures the ECB has unveiled today but banks have taken a turn to the downside, falling as much as 2.6% on the day. With measures to ease the pain of sub-zero interest rates already baked-in, investors have turned their attention to lower for longer interest rates. "The introduction of tiering effectively lowers the charges that banks pay on some of their excess cash, to help the banking system. It also signals to the market that rates will likely remain low for an extended period," said David Zahn, Head of European Fixed Income at Franklin Templeton. At today's meeting, the ECB eased the terms of its cheap loan scheme to banks and introduced a tiered deposit rate to help banks, as it promised an indefinite supply of fresh asset purchases and cut interest rates deeper into negative territory. "A lot has been priced in by banks. Measures are broadly in line with expectations," says Ricardo Garcia, Chief Economist Eurozone at UBS Global Wealth Management in Zurich. "We have now to see what is included in asset purchases because the less asset classes are included the shorter the program will be and the better for banks," he added. Selling pressure on euro zone banks has eased a bit with their index last down 0.5%. (Danilo Masoni) ***** TRUMP LUVVVVS DRAGHI! (1250 GMT) It didn't take U.S. President Trump long to respond to the ECB's kitchen sink of stimulus measures along with its expected rate cut, hailing the central bank for acting quickly and criticising the Fed. The U.S. central bank will meet next Wednesday, so it can't do much before then. Still it's prompted traders to speculate again if Trump will want to offer Draghi the Fed governorship when "Super Mario" leaves the ECB later this year. (Josephine Mason) ***** QUESTIONS FOR MARIO (1227 GMT) Mario Draghi will hold one of this last briefings as chief of the ECB at 1230 GMT and there are several questions that will need answering. Marchel Alexandrovich, senior European economist at Jefferies, lists what the monetary policy decision statement does not mention: * how generous the tiering system is, * the precise mix of assets the new QE programme will contain (no indication that the corporate bond purchase programme will expand to include bank debt), * whether the ECB raised the issuer limit on its sovereign bond purchases "Those will be the questions for Draghi in the Q&A, with the exact details likely to be published after he finishes speaking. From here on out, these technical details will be key in terms of judging the overall generosity of the ECB's offering," he says. "Still, so far, the headlines point to the ECB not holding back, with Draghi getting his way one last time." (Josephine Mason) ***** CHANGES IN ECB STATEMENT (1217 GMT) Euro zone bond yields have tumbled, the euro weakened and stock markets rallied after the ECB cut interest rates and said it would resume asset purchases to boost the stuttering economy. Here's the ECB statement just released which shows some big changes from the last one in July: (Josephine Mason and Ritvik Carvalho) ***** MIXED REACTION TO ECB (1310 GMT) ECB's Draghi has delivered it ... sort of. A 10 bps rate cut, new round of bond purchases and tiered deposit rates were the highlights of today's ECB monetary policy statement. That triggered a jump in euro-zone stocks and banking indexes, but those gains in banks were short-lived. Gains are fading after a knee-jerk reaction in banking stocks as they had already risen 10% in the last week or so as bond yields had risen in anticipation of those stimulus measures, including the tiering. The devil's in the detail. "The nominally open-ended nature of the QE program is better than expected. But the purchase volumes are still relatively low, and it will take about a year before excess liquidity is back at its prior peak," says Arne Petimezas, an analyst at AFS in Amsterdam. "And we still don't know about the composition of QE purchases or any changes to the program's modalities: the capital key and the issue/issuer limit in particular. So a bit better than expected compared to expectations, which have come down in the last weeks. But the devil is in the details." (Thyagaraju Adinarayan and Danilo Masoni) ***** COUNTDOWN TO ECB (0910 GMT) Countdown to the results of the ECB monetary policy meeting is on and ING has put together a handy summary of what the central bank may do and how the market may react. Also see: ECB to turn stimulus taps back on to prop up ailing economy LIVE MARKETS-ECB actions to help European equities beat U.S.? LIVE MARKETS-ECB equity buying: what's the buzz LIVE MARKETS-What more could the ECB do for banks? (Josephine Mason and Danilo Masoni) ***** POSTCARD FROM NY:'VERY UNDERWEIGHT' ON EUROPEAN BANKS (0837 GMT) While banks were staging one of their strongest rallies in many years this week, Barclays travelled to New York for its global financials conference. It may not be a surprise but the gathering provided more evidence of how investors are bearish on European banks. "Investors overwhelmingly say they expect European financials to underperform the market over the next 12m with 53% expecting that vs. 24% expecting outperformance, which is very consistent with positioning, with almost 69% being either very or modestly underweight the sector a similar proportion to the 66% we saw last year," say analysts at the UK bank. So what would make investors more positive? "To increase their weighting in European banks, 57% need to see higher European interest rates," analysts led by Chris Manners say. The ECB is widely expected later today to cut its deposit rate deeper into negative territory. (Danilo Masoni) ***** RECIPE FOR SUCCESS: DON'T GO TOO BIG OR TOO SMALL (0821 GMT) The FTSE 250 midcap index, which has a mix of both international and domestic flavour, has been a clear winner in London in the last 2-months amid the Brexit crisis. As the sterling was jumping around on Brexit headlines over the last few weeks, export-heavy FTSE 100 benefitted every time the pound fell sharply and lost those gains when pound recovered, while the domestically focused small caps lost out on worries about domestic economy in case of a no-deal Brexit. Getting the mix right is important and that's been the recipe for the midcap index's success, which has risen 7.5% in the last one-month and is now trading near 1-year highs. That's while the blue chip and small-cap indexes are at 1-month highs. The chart below shows how the FTSE 100 and the FTSE small cap indexes are underperforming the midcaps: (Thyagaraju Adinarayan) ***** EUROPE AT NEW 6-WEEK HIGH, ROTATION TRADE LOSES STEAM (0731 GMT) European shares have opened at a fresh six-week high ahead of the ECB meeting expected to unveil a comprehensive stimulus package to prop up the region's ailing economy, while upbeat tone from the trade war front is also helping. The pan-regional STOXX 600 index has hit its highest since July 29 and is now up 0.2%, while euro zone stocks are up 0.3% and Britain's FTSE is rising 0.2%. Investors look to have turned more cautious in chasing the strong rotation into value stocks that has shaped price action this week with banks - one of the main beneficiaries of the move - trading slightly in the red. In single stocks, Morrison is among the biggest gainers in Europe, up 4% after results. Britain's No. 4 grocer has reported its first fall in quarterly underlying sales since 2016, partly reflecting a tough comparison with last year when it was boosted by a hot summer, but it has pleased investors with a special dividend and a better-than-expected profit number. Its CEO said talk of the firm being a takeover target is "pure speculation". Shares in AB InBev are up 3.8% after the world's largest brewer said it is continuing exploring a listing of its Budweiser unit. People with knowledge of the matter said AB InBev aims to raise about $5 bln from a the deal. Here's your opening snapshot: (Danilo Masoni) ***** WHAT WE'RE WATCHING AT THE OPEN (0656 GMT) Euro zone stock index futures are rising for a seventh day in a row as investors gear up for a stimulus package from the ECB and with sentiment supported by optimism over Sino-US trade talks after Trump agreed to delay a tariff hike on $250 billion worth of Chinese imports. Futures on the Euro STOXX 50 and FTSE indexes are up 0.5% and 0.4% respectively. On the corporate front there is some more upbeat IPO news to digest one day after a shiny stock market debut in Amsterdam of Prosus, a Naspers spin-off that includes the e-commerce group's 31% stake in Chinese tech giant Tencent. AB InBev said it is continuing to explore an Hong Kong IPO of its Asia Pacific unit Budweiser, two months after saying it will not proceed with the planned listing. Its shares are seen up 1-2%. Meanwhile in Germany, software company TeamViewer set the price range for its Frankfurt listing, valuing it at up to 5.5 billion euros in one of Europe's largest IPOs this year. Shares in Rovio Entertainment are seen falling as much as 5% after the maker of Angry Birds games cut its 2019 sales and profit outlook, citing increasing investments and lower-than-expected revenue from brand licensing and older games. Shares in the London Stock Exchange are also likely to remain in focus after doubts on the merits of Hong Kong Exchanges and Clearing's $39 billion takeover approach sent shares in Hong Kong exchange falling more than 3%. In earnings, Morrisons reported its first fall in quarterly underlying sales since 2016, partly reflecting a tough comparison with last year when it was boosted by a hot summer. Shares in Britain's No. 4 grocer however are seen up 1-2% as profit beat expectations and the company proposed a special dividend. Volkswagen could fall with traders citing on reports in the German media saying that newer engines contain cheat devices. Other stock movers: BAT plans to cut 2,300 jobs by Jan 2020; Retailer John Lewis could not mitigate no-deal Brexit; ABB begins construction of new robotics factory in Shanghai; Britain's Co-op posts lower profit, flags Brexit risks (Danilo Masoni) ***** EUROPEAN FUTURES EXTEND WINNING STREAK (0623 GMT) European stock index futures are rising this morning with the Euro STOXX 50 up 0.5% and set for seven straight positive days as investors gear up for fresh ECB stimulus measures. In Asian hours it rose as much as 0.8% to its highest since July 25 but has reduced part of those gains now. Futures on other European benchmarks were also up, including the FTSE. On the corporate front it looks rather quiet. AB InBev could be one to watch after the company said it is continuing to explore an IPO in Hong Kong of its Asia Pacific unit, Budweiser Brewing Company APAC Ltd, two months after saying it will not proceed with the planned listing. The London Stock Exchange is also likely to remain in focus after investors' doubts on the merits of Hong Kong Exchanges and Clearing Ltd's $39 billion takeover approach sent shares in Hong Kong stock exchange falling more than 3%. Here is your early morning headlines round-up: AB InBev resumes exploring Budweiser listing two months after pulling out HSBC plans sale of French retail banking business - WSJ Hong Kong exchange shares fall after $39 bln LSE approach CME Group not looking to be spoiler on LSE deal, CEO says German software firm TeamViewer sets IPO price range at up to 5.5 bln euros Remy Cointreau picks Richemont's Vallat as new CEO Norwegian Air says bondholders look set to agree to new debt terms Vopak acquires 49% stake in Colombia's sole LNG import facility Bouygues to sell 13% stake in Alstom in share placement Britain looks to restore ship-building industry with new frigates ABB begins construction of new robotics factory in Shanghai (Danilo Masoni) ***** EUROPE SEEN OPENING HIGHER ON ECB DAY (0529 GMT) European shares are expected to open higher today ahead of the European Central Bank meeting where the central bank is expected to cut interest rates further into negative territory as part of a broader stimulus package to help prop up the region's ailing economy. The pan-regional STOXX 600 index climbed to its highest since July 30 yesterday and spreadbetters at IG see more gains ahead: London's FTSE is seen opening 37 points higher at 7,375, Frankfurt's DAX 77 points higher at 12,436, and Paris' CAC 32 points higher at 5,650. Over in Asia, stocks hit a six-week high on hopes for a thaw in U.S.-China trade frictions and expectations that the ECB would kick off another wave of monetary easing by global central banks. (Danilo Masoni) ***** (Reporting by Danilo Masoni, Josephine Mason and Thyagaraju Adinarayan)