LIVE MARKETS-EU spreads pressure: ECB will come to the rescue

* European indexes well in the red

* Crude futures rebound

* Wall Street just slitghly positive Welcome to the home for real-time coverage of European equity markets brought to you by Reuters stocks reporters. You can share your thoughts with Thyagaraju Adinarayan (thyagaraju.adinarayan@thomsonreuters.com), Joice Alves (joice.alves@thomsonreuters.com) and Julien Ponthus (julien.ponthus@thomsonreuters.com) in London and Stefano Rebaudo (stefano.rebaudo@thomsonreuters.com) in Milan.

EU SPREADS PRESSURE: ECB WILL COME TO THE RESCUE (1441 GMT)

Spreads between treasury bond yields of Europe's peripheral countries and Germany's, a key gauge for the valuation of listed banks, will be under pressure in the coming weeks as the European Union seeks to finalise a deal about a rescue package to protect the economy from the blow of the coronavirus outbreak.

But the ECB is widely expected to step in to prevent interest rates of the continent's weakest countries from spiking, a scenario that could raise doubts about the sustainability of their public debts.

Bottom line the ECB is expected to "protect the transmission of monetary policy through a signal that PEPP (Pandemic Emergency Purchase Program) will be expanded next week leading to 250 billion euro top-up in June," Morgan Stanley says in a research note.

Investors worry because of the many uncertainties regarding the rescue plan.

"The impact of the recovery fund depends on its size, funding and use and none of these was agreed," Morgan Stanley analyst says.

The ECB gave a signal, liked in peripheral countries, on Wednesday when it announced it would let banks post collateral that was downgraded to junk during the coronavirus outbreak.

The European Union struck a deal on a joint financial fund of up to 2 trillion euros to help recover from the pandemic but delayed a decision on the details of the program.

(Stefano Rebaudo)

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EQUITY KEEPS HOLDING, BUT OUTFLOWS ARE BACK (1140 GMT)

Equity is still up 20% since its March lows and is keeping its cool despite crude futures fell below zero for the first time in history and a batch of pretty scary data on the state of the economy. But caution is mandatory because outflows from the stock market are back.

U.S. and euro government bonds this week had inflows of $1.7 billion and $300 million respectively, U.S. and Euro high yield credit funds had $2.3 billion and $400 million; while equities saw outflows of $7.3 billion, Barclays highlights in its Equity Strategy Market Review.

What keeps the equity market afloat are central banks and government rescue plans and Covid-19 data, which show how the spreading of the virus continues to stabilise globally.

Barclays' view is that "aggressive and coordinated response by central banks and governments should limit the permanent hit to the economy and avoid a painful credit crisis," making a rebound of the economy easier in the second half.

A recovery in China is propping up sentiment in the equity market too.

(Stefano Rebaudo)

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AIRLINES SEE MORE TROUBLES AHEAD WHEN LOCKDOWNS ARE LIFTED (0918)

More bad news for airlines: Profits and probably sales are seen at very low levels even once the lockdowns are lifted, due to possible changes in rules and consumer habits.

Morgan Stanley, which downgraded the sector to 'cautious' from 'in-line', sees more risks of its bear case scenario becoming reality. This means that demand for air travel will be back to 2019 levels by 2023.

"Travel bans and social distancing measures could linger for longer", the bank says, citing the slow rate of improvement in China traffic for the past month.

In its base case scenario, the industry will be back to 2019 levels by 2022, though for the same level of earnings we will have to wait up to 2023/24.

While some airlines are already resorting to state rescue plans, the European Commission is working on a set of rules for the safe reopening of air travel, including social distancing in airports and planes.

Lufthansa, whose shares are sliding by 6%, reported a first quarter operating loss of 1.2 billion euro and aims to finalise a rescue package worth up to 10 billion euro by next week. The Italian government is expected to take full control of non-listed Alitalia in June.

In terms of liquidity, Air France-KLM and Lufthansa have more pressing needs, while easyJet has until year end and Ryanair and Wizz have more than 12 months, Morgan Stanley says.

(Stefano Rebaudo)

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OPENING SNAPSHOT: GERMAN BANKS AND SIGNIFY (0748)

European bourses have opened well in negative territory after EZ leaders agreed yesterday to build a trillion euro emergency fund, but left divisive details until the summer and as fears of a lasting hit from the coronavirus keep the market in a risk-off mood.

The pan-European index is down 1.2% with both the auto and the banking sectors leading the losses.

It didn't help lenders the fact that credit agency S&P cut Commerzbank's rating by a notch and lowered its outlook for Deutsche Bank to negative from stable.

Another German company struggling today is Lufthansa, down 7.4%, which reported a first quarter operating loss of 1.2 billion euro and aims to finalise a rescue package worth up to 10 billion euro by next week.

On a bright note, shares in Signify jumped 9.3% after Q1 results, putting the lighting company as the top gainer among the STOXX 600 companies.

(Joice Alves)

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ON THE RADAR: COMMERZBANK, DEUTSCHE BANK, NESTLE, SANOFI (0648)

European bourses are set to open lower as concerns about the economic impact of the coronavirus outbreak keep the market in a risk-off mood.

Wall Street and Asia came under renewed selling pressure overnight after pinning hopes on a medical treatment for Covid-19 which is still not available.

In the corporate front, the credit agency S&P cut Commerzbank's rating by a notch and lowered its outlook for Deutsche Bank to negative from stable, as it expects earnings and asset quality to weaken significantly.

Food and pharmaceutical remain strong. Higher demand in France made Casino's first quarter sales accelerate. Nestle posted better than expected sales on customer stockpiles. Sanofi's good first quarter results were supported by demand for its medicines to treat pain and fever.

On another positive note, Saab Q1 profit topped forecast, but it dropped 2020.

Meantime, Canada gets Biomerieux formula for free to produce virus-testing chemicals. and AstraZeneca's Lynparza meets secondary goal in prostate cancer study.

More state support for airlines: Lufthansa, which reported a first quarter operating loss of 1.2 billion euro, aims to finalise a rescue package worth up to 10 billion euro by next week. The Italian government is expected to take full control of Alitalia in June.

Mediaset goes on with its plans to create a pan-European TV champion by raising its stake in ProSiebenSat.1 to 24.2% from 20.1%.

Vinci sees deeper revenue drops in the months ahead. Signifiy posted a 39% fall in net profit. Swatch Group sales at its own stores in China are up in April, CEO Nick Hayek told Blick newspaper. More fresh corporate headlines: Eni lowers output, capex targets on coronavirus as Q1 profits slide Pearson Q1 revenue falls 5% after COVID-19 closes schools, exam centres Burberry to maintain employee pay through coronavirus crisis

(Stefano Rebaudo)

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MORNING CALL: WORRIES ON THE PANDEMIC CONTINUE TO WEIGH (0535)

Futures on European bourses are well in the red this morning with investors still concerned about the economic impact of the pandemic as a final deal on an EU stimulus package will have to wait until summer.

After having already priced in a tumble in business activity across the world, investors hope for a medical treatment of Covid-19 and worry about lack of solutions at hand.

The European Union agreed on a joint financial fund of up to 2 trillion euros to help recover from the pandemic but delayed a decision on the details of the program.

(Stefano Rebaudo)

(Reporting by Thyagaraju Adinarayan, Joice Alves, Stefano Rebaudo and Julien Ponthus)