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LIVE MARKETS-Europe hits reverse: no Brexit or trade breakthroughs in sight

* European shares fall after positive start, volatility picks up * STOXX 600 down 0.9% as Brexit, trade worries deepen; FTSE down 0.2% * German industrial output rises unexpectedly in August * LSE drops after HKEX ditches takeover bid * Futures point to weaker Wall Street open Welcome to the home for real-time coverage of European equity markets brought to you by Reuters stocks reporters and anchored today by Josephine Mason. Reach her on Messenger to share your thoughts on market moves: rm://josephine.mason.thomsonreuters.com@reuters.net EUROPE HITS REVERSE: NO BREXIT OR TRADE BREAKTHROUGHS IN SIGHT (1139 GMT) The Brexit angst may be supporting the FTSE thanks to its depressing effect on the pound but the picture elsewhere in Europe isn't looking good and major indexes have now gone unequivocally into reverse to trade down sharply near session lows. Downbeat noise from the Sino-U.S. trade talks is another dampener. No surprise then that the export-driven DAX is being hit hard, down 1.3% at one point, and the slump coming despite industrial production in Europe's No.1 economy unexpectedly rose in August, providing a rare positive economic surprise. "The dynamic is worsening, as China has become more assertive and declared some areas of limit in terms of trade talks. We continue to believe that this week's trade talks in Washington are unlikely to yield any breakthroughs," say analysts at Brown Brothers Harriman. Their expectations on Brexit are likewise very low. "On the Brexit front... UK Prime Minister Johnson told Chancellor Merkel that a deal is 'essentially impossible' if the EU insists Northern Ireland stays in the customs unions. Nothing has changed here and nobody is expecting a breakthrough this week," they say. This chart shows how initial gains in the Euro STOXX 50 futures that followed the positive German macro surprise progressively fizzled out. (Danilo Masoni) ***** THUMBS DOWN FOR EUROPEAN BANKS (1120 GMT) It's a big thumbs down for European banks among attendees at an investor conference today. Almost 40% of delegates at Bloomberg's investor conference in London polled on Tuesday reckon the worst is still to come for the battered sector, while 45% of those surveyed (about 200 in the room) says the toxic combination of Brexit and the economic slowdown in Germany, Europe's top economy, spells more trouble for the industry. Only 16% say the sector is undervalued. Guess how many went for the option 'I have confidence in their business model'? Zero. Ouch! (Joice Alves and Josephine Mason) ***** FTSE: BREXIT ANGST TO THE RESCUE (1043 GMT) Well one thing is for sure, the reason's behind the FTSE's outperformance versus its European peers this morning can't be pinged on Hong Kong's bourse dropped $39 billion approach for the LSE. Rather, in a familiar trade since the 2016 referendum, Brexit angst is putting pressure on the pound and through that, propping up British blue chips with strong exposure to foreign currencies. With a limited 0.2% retreat, the FTSE is comfortably doing better than its smaller UK peer FTSE MID 250, itself down 0.8%, or the Eurozone's benchmark STOXXE falling about 1%. There's a double whammy going on. First, "the UK index has been supported by losses in the British pound following a warning from the Institute for Fiscal Studies (IFS) that a No-Deal Brexit would push UK debt to its highest level since the 1960s", noted Jasper Lawler, Head of Research LCG. Then there's clearly a feeling that negotiations could fall apart quite quickly. "The language from Downing Street is getting more hostile towards Europe," wrote Fiona Cincotta from Cityindex. Granted, our own headlines don't seem to convey much optimism from the UK government: UPDATE 2-Brexit deal is essentially impossible ever - Downing Street source (Julien Ponthus) ***** HK PROTESTS A "POWERFUL DRAG" ON EUROPEAN LUXURY (1035 GMT) Europe's luxury goods sector has had a tough summer with protests in Hong Kong hurting Asia sales and Bank of America Merrill Lynch analysts believe that'd be a "powerful" drag on their third quarter and potentially fourth-qaurter results as the political demonstrations continue. BAML analysts say Asia ex-Japan sales of luxury goods point to a 5.8% drop in August -- the sharpest on record. While, U.S. and European demand remains stable, the drop in the luxury sector's key Asian market is a worrying sign and this could be the key commentary to watch out for when they report results in the next few weeks. "Uncertainty around Q4 remains very high, in our view, although sector 2019 EPS are already down 2% since the beginning of the protests - at least partly reflecting downside risk," BAML anlaysts say. The share price drop in luxury names, notably, Moncler, Richemont, Gucci-owner Kering and Swatch shows the overhang from the ongoing protests in HK. (Thyagaraju Adinarayan) ***** EUROPEAN EQUITIES: HUMANS JUST DON'T GET IT (0955 GMT) Sometimes a simple quote tells everything you need to know about a story, so here you go: The quote comes from S&P's Indices Versus Active Funds Europe Scorecard and it's pretty self explanatory. It just seems that when it comes to stock picking, humans just don't get it and European equities area particularly good illustration of that. A silver lining might be that passive funds are cheaper and get better results. For investors, it amounts to the difference between making or losing money. "As markets improved in the first half of 2019, active managers were generally not able to make up for lost ground", the reports goes. "Among the 23 categories of active funds domiciled in Europe, all but three underperformed over the one-year period ending June 30, 2019", it added. (Julien Ponthus) ***** AUTOS: "NO MORE PROFIT WARNINGS, AN UNUSUAL FEELING" (0851 GMT) The UBS Q3 preview for the auto industry is somewhat comforting. The headline "No more profit warnings, an unusual feeling" provides a clear sense that investors in the trade-hit sector won't have to go through another rocky season. "Global sales & production expectations have settled in the minus 4-5% range y/y for 2019 and currently we see no reason for further downward revisions," analysts at the Swiss bank say. "We expect companies to deliver an in-line quarter and to confirm their FY guidance. This is probably not enough to fuel outperformance of the sector, but at least earnings momentum should be stable near term," they add. Autos are the fifth-worst performing sector in Europe so far in 2019, up 3.6%. (Danilo Masoni) ***** OPENING SNAPSHOT: FADING OPTIMISM (0737 GMT) That optimism around U.S.-China trade overnight? It seems to be fading a little in Europe. Major bourses are now edging lower after a slightly positive start, which given the mixed messages from Washington overnight is not really surprising - the United States has blacklisted eight Chinese tech companies and U.S. President Trump suggested a deal to end the trade dispute may not be quite yet in the offing. The pan European STOXX 600 is down 0.1%, but it's been and out of negative territory in the first 20 minutes of trade as the index struggles for direction. Germany's trade-sensitive DAX is underperforming, down 0.3%. In individual moves, LSE shares are the 2nd biggest faller on the STOXX 600, hitting their lowest since Sept. 11 after Hong Kong pulled out of its takeover bid for the exchange, while Germany biotech Qiagen has plunged 16.5% to three-year lows after its sales warning. UK recruiters are falling after Robert Walters and Page Group cautioned that Brexit and Hong Kong protests are hurting business. Hays is down 6%, Pagegroup is at its weakest since December 2016 and Robert Walters is at July 2017 lows. Tech stocks are leading the sectoral gains, with Ericsson and Nokia benefiting from an FT report that Washington has suggested offering credit to the Nordic telecom companies to help them compete with China's Huawei. (Josephine Mason) ***** AHEAD OF THE OPEN: LSE, EASYJET AND HONG KONG PROTESTS (0657 GMT) European stocks are expected to open higher this morning, drawing strength from gains overnight in Asia even as investors remain nervous about U.S.-China trade talks later this week. The major stock futures are up between 0.2% and 0.6% at one-week highs, with Spain leading the charge. An unexpected jump in German industrial output in August will also help the mood. On the corporate front, the major news overnight is Hong Kong Exchange's decision to ditch its unsolicited takeover bid for LSE. Shares in one of the world's oldest and largest stock exchanges could fall as much as 8% on the news as the company turns its attention to its deal with Refinitiv. One trader reckons the stocks could return to around 6,800 pence, where it was trading before Hong Kong's surprise offer, which would mark a 10% drop from last night's closing price. Plenty of earnings news to digest. British budget airline easyJet says full-year profit will come in at the upper end of expectations, with revenues boosted by pilot strikes at rivals British Airways and Ryanair. Its shares are seen higher, while Air France is expected to get a boost from its September traffic numbers. It's a mixed bag in corporate Germany - Wirecard is up 2% in premarket trading after the German payments firm raised its 2025 targets, while Qiagen shares are down as much as 13% after warning on its Q3 sales and losing its CEO. In M&A, Uniper shares are down more than 3% after Finnish utility Fortum said it will buy a majority stake in the German company. Major shareholder in Nordex Acciona has raised its stake above 30%, raising the chance that it will make a takeover offer for the German wind turbine maker. Nordex's shares are up 7%. A report that the U.S. government has suggested issuing credit to Nokia and Ericsson to help them compete with China's Huawei may give the Nordic telecoms companies a boost. In the latest sign that the Hong Kong protests are hurting business, British recruiters Pagegroup and Robert Walters warned about damage from Brexit and the protests in the former British colony. Their shares are seen falling sharply on the gloomy outlook. Elliott Capital has disclosed a 14.3% stake in FTSE midcap-listed retail savings bank OneSavings, the latest sign the activist investor continues to expand its footprint in Europe. (Josephine Mason and Joice Alves) ***** ON OUR RADAR: LSE, WIRECARD AND CHIPS (0557 GMT) Dealmaking and earnings are catching the headlines this morning. Hong Kong's bourse has scrapped its unsolicited $39 billion approach for the London Stock Exchange after failing to convince LSE management to back a move that could have transformed both global financial services giants. German payments firm Wirecard has increased its 2025 targets for transaction volume, revenue and EBITDA due to organic growth drivers and partnerships, boosting its shares by 2.2% in premarket trade at Lang & Schwarz. Some good news for chipmakers from Samsung Electronics which flagged slightly better-than-expected Q3 profit, helped by strong sales of its new Galaxy Note 10 smartphone series even as a slump in its memory chip business continued to weigh on earnings. In Germany, Qiagen has lost its CEO and warned Q3 preliminary sales will fall short of expectations. Here are some early headlines: Air France KLM's September passenger traffic rises from year ago Wirecard raises EBITDA, revenue and transaction targets for 2025 Game over: Hong Kong bourse pulls $39 bln play for London Stock Exchange Airbus sold 41 jets in September, targets record 4th-quarter deliveries Thyssenkrupp to cut admin jobs as part of restructuring - sources Germany's Aareal conducts strategic review following calls from investor Liqui-Box sells bag-in-box business to get green light for DS Smith deal Haulier Eddie Stobart's shareholder DBAY gets more time to make bid Martin Sorrell's S4 Capital to raise 100 mln pound for next wave of takeovers - Sky news Qiagen ceo leaves, warns on Q3 sales (Josephine Mason) ***** UNEXPLAINED OPTIMISM IN EUROPE (0520 GMT) Stock markets are displaying remarkable optimism in Asia this morning, with China trading higher after its week-long holiday, even after a soggy Wall Street close and even though the commentary around the U.S.-China trade talks isn't exactly overwhelmingly positive. Overnight Washington blacklisted eight Chinese tech companies, expanding its target list to include some of China's top artificial intelligence startups, punishing Beijing for its treatment of Muslim minorities and ratcheting up tensions ahead of high-level trade talks in the U.S. capitol this week. U.S. President Trump also said he hoped China found a humane and peaceful resolution to the ongoing political protests in Hong Kong, and warned the situation had the potential to hurt trade talks taking place later this week aimed at ending the protracted trade spat between the world's two largest economies. The bilateral talks are getting underway ahead of a scheduled increase in U.S. tariffs on $250 billion worth of Chinese goods, to 30% from 25% on Oct. 15. IG spreadbetters expect London's FTSE to open 17 points higher at 7,214, Frankfurt's DAX to open 26 points higher at 12,123, and Paris' CAC to open 9 points higher at 5,531. (Josephine Mason) ***** (Reporting by Danilo Masoni, Joice Alves, Josephine Mason, Julien Ponthus and Thyagaraju Adinarayan)