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LIVE MARKETS-Europe: worst 2-day decline since 2016

* European stocks sell off again * STOXX 600 -1.9%, FTSE 100 down 2.2% * Miners, autos, chips, luxury stocks top fallers * HSBC ousts CEO after just 18 months in role * Some 96% of STOXX 600 constituents in red Welcome to the home for real-time coverage of European equity markets brought to you by Reuters stocks reporters and anchored today by Thyagaraju Adinarayan. Reach him on Messenger to share your thoughts on market moves: rm://thyagaraju.adinarayan.thomsonreuters.com@reuters.net EUROPE: WORST 2-DAY DECLINE SINCE 2016 (1200 GMT) The cost of Trump's tweets on trade with China in recent months have been costly with trillions being wiped off - we saw one major rout in May and now again in August. Nearly 4.5%, or half-a-trillion dollars, has been wiped off European stocks' values in the last two days, the biggest two-day decline since June 24 & 27 -- the massive two-day sell-off right after Britain voted to leave the EU. (see chart below) Coincidentally, in both cases it was a Friday and a Monday, and Craig Erlam, analyst at Oanda, says "time has not been a healer over the weekend". The magnitude of the sell-off today: 96% of the STOXX 600 names in red. "...investors were potentially ignoring the continued deterioration in fundamentals, as well as other risks including trade," Morgan Stanley's Michael Wilson writes in a note. European earnings are nearly on track to contract for the second straight quarter, marking a corporate recession, and the outlook seems to be worsening amid accelerating EPS downgrades. (Thyagaraju Adinarayan) ***** THE 5%: STAYING AFLOAT IN A SEA OF RED (1114 GMT) Only around 5% of companies in Europe are managing to stay afloat this morning as investors rush to price in the sudden escalation of trade tensions between the world's two biggest economies, dumping risky assets quite indiscriminately. Among the tiny minority is German gases supplier Linde which has shot up to the top of the STOXX after beating earnings estimates. Also gaining are Spanish banks led by Sabadell, following their recent underperformance, and Takeaway.com which is underpinned by merger news. Beyond the company specific drivers, there are some utility, real estate and telecom stocks that are doing relatively well (Iberdrola, Unibail and KPN) and which are likely benefiting from their defensive qualities - an asset in times of political and economic uncertainty. Defensive stocks in Europe started to outperform cyclicals back in March 2018 when Trump first threatened higher steel tariffs, raising the spectre of a long trade war with its inevitable repercussions on economic growth. With a trade deal looking unlikely any time soon and the economy not looking in great shape, that trend may continue. "Stay more defensively oriented in your portfolios until the slowdown is properly priced," writes Michael Wilson from Morgan Stanley in this weekend's Sunday Start strategy note. (Danilo Masoni) ***** WEAK POUND SHREDS FUNDS' LONDON STOCK EXPOSURE (0933 GMT) The weakening pound amid worries about Brexit are driving Britain's share of international investment funds to new lows, according to a survey of 250 international funds with $450 billion in total assets under management conducted by Copley Fund Research. The UK's portion of global equity funds has dropped to 7.87%, surpassing lows immediately after the Brexit referendum in 2016, according to the data as of July 31. Britain's slice of global funds has fallen from a peak of 11.5% in 2011, when Copley started the survey. The chart with Copley Research data below shows the allocation of international funds into UK stocks has fallen steadily since late last year, tracking the drop in sterling. While London attracts a bigger share of international funds than any other European exchange, allocations have been increasing to Switzerland, Germany and the Netherlands, with Dutch holdings hitting a record high, according to the data as of July 31. The drop is largely due to the drop in sterling, which has punished domestically focused companies' share prices. JP Morgan's UK domestic plays index that tracks about 30 UK stocks that make all or most of their revenue at home has underperformed the FTSE 100 by 9% since late 2016 when the index launched, while a basket of UK-listed companies making their money abroad has outperformed the London blue chip index. Investors are also shunning the London-listed stocks as worries about a disorderly Brexit have deepened. "We're seeing a marked shift out of Britain and into mainland Europe by international fund managers," says Steven Holden, CEO of Copley Fund Research in Auckland, New Zealand. "The weakening pound is certainly the major contributor to the decline in UK stock allocations, but it reflects caution over Brexit from an equity perspective too." Among the hardest hit by the shift out of UK equities are financial stocks, such as HSBC Holdings and Barclays, along with telecoms giant Vodafone, the report says. Faring better are consumer staples businesses that tend to outperform in a recession, particularly those with a good proportion of customers outside of the UK, including Unilever, Diageo and Reckitt Benckiser. (Josephine Mason) ***** BITCOIN: A SAFE HAVEN? (0848 GMT) They aren't one, given their mysterious jumps and slumps, but they tend to behave like one sometimes. In recent stock market sell-offs, mostly during worsening U.S.-China trade relationship, Bitcoin has outperformed. (see chart below) With gold, yen and other safe-havens, bitcoin prices have surged (+7%) today and have been rallying since late last week after Trump slapped tariffs on final set of Chinese imports. "While the stock markets were under considerable pressure in recent days, Bitcoins remained stable and served as a kind of 'safe heaven' for investors," Patrick Hussy at sentiment analyses provider Sentix says. Whenever the VIX, the so-called fear gauge, pops higher, Bitcoin also jumps: (Thyagaraju Adinarayan) ***** QUICKLY REPRICING TRADE RISKS (0828 GMT) We're seeing another sea of red this morning and European benchmarks are struggling to find a floor. So what's the path ahead for markets? UBS believes the repricing of trade risks will be quick and that going forward data and speculation about trade negotiations will be crucial in setting the direction of travel. "The last two days confirms that the market will again quickly reprice escalation within equities," strategists at the Swiss bank write in a note. According to UBS, the escalation in May saw trade risks repricing in less than 2 weeks and in this case, markets will also likely price in some chances of full 25% tariffs as probabilities of escalation/deal shift. "The overlap of Brexit deadline timing and tariffs could be a big headwind for Europe, with DAX most sensitive to trade, particularly if FX intervention is used/threatened," they add. According to their estimates, 25% tariffs on $300 billion worth of Chinese imports into the U.S. could see a 75-basis-points hit to global growth over six quarters, in what would resemble "a mild global recession" with equities falling as much as 20%. Germany's DAX is now on track for its biggest two-day drop since June 2016, as you see in this chart. (Danilo Masoni) ***** OPENING SNAPSHOT: TRADE WAR BATTERS STOCKS AGAIN; MINERS HIT HARD (0715 GMT) We're running out of verbs to describe the sell-off in stocks. The pan-European STOXX 600 index has opened 1% down and as expected trade-sensitive miners, chips and luxury stocks are the biggest fallers. The STOXX basic resources index is off 3% today and has lost 14% in the last 9 days. The Chinese offshore yuan hitting record lows would make it expensive to buy dollar-denominated metals and the escalation of the spat between Washington and Beijing has fuelled worries about damage to demand from the world's top consumer of metals, knocking iron ore and base metal prices overnight. Luxury stocks are also getting battered this morning with Swiss watchmakers Richemont and Swatch sliding 3.5%. In summary, it's widespread sell-off: over 90% of the constituents in the STOXX 600 are trading in negative territory this morning. (Thyagaraju Adinarayan) ***** ON OUR RADAR: HSBC, FOOD DELIVERY, METRO, MINERS (0654 GMT) European stocks are set to open at more than two-month lows as escalating trade tensions between the world's largest economies deepen worries about global growth. In corporate news, HSBC CEO John Flint's ouster after just 18 months in the role is pulling their HK-listed shares 1.5% lower. With the offshore yuan hitting the lowest on record, UK miners are expected to slide 3%, according to traders, as it gets expensive to buy dollar-denominated metals. This follows the STOXX basic resources index's worst single-day performance since June 2016 on Friday. As expected, Takeaway.com has agreed the terms of an 8.3 billion pound ($10.1 billion) deal to buy British rival Just Eat to create the world's largest online food delivery firm outside China. Metro is seen falling 5% after Czech businessman Daniel Kretinsky's investment vehicle denied reports it was considering raising its takeover offer price for the German retailer. Evonik shares are seen sliding 1.5% after the German chemical maker said the U.S. Federal Trade Commission is seeking to block the planned acquisition of specialty peroxygen manufacturer PeroxyChem. British engineering firm Senior is the latest firm to be hit by Boeing's 737 MAX woes with first-half profits dropping 16%. Stock is seen down 1%. More headlines: KKR buyout at Axel Springer clears minimum acceptance threshold Swiss Re's ReAssure buys Quilter closed book pension unit for £425 million Takeaway.com agrees terms of $10 bln Just Eat take out British engineer Senior profit hit by 737 MAX cuts Czech investor Kretinsky: Report of improved Metro bid is wrong Fiat Chrysler CEO: We'll talk alliances, but we can go it alone (Thyagaraju Adinarayan) ***** FROM BAD TO WORSE (0706 GMT) There seems to be no respite in sight for European stocks on Monday despite coming off their worst weekly performance since late last year. Stock futures slump more than 1% with Germany's trade-sensitive DAX once again underperforming broader indices. Things are turning from bad to worse with fears of China's potential retaliation and the economic impacts of such tit-for-tat tariff war gripping financial markets. "This is just the tip of the iceberg," a trader says. The latest escalation between Washington and Beijing resulted in market pricing in more than a 90% probability of a 25 bps rate cut in September. It was less than 50% before Trump's latest tariffs on Chinese imports. In companies, we've got Europe's biggest bank HSBC announcing the shock exit of its CEO as the bank says it needs a change at the top to address "a challenging global environment". HSBC's Hong Kong listed shares were off 1.5%. Meanwhile, U.S. activist investor Elliott urged German classifieds group Scout24 to sell its car listings division and ramp up a share buyback programme. Key headlines: Deutsche Bank sets aside $1.1 billion to exit derivatives HSBC CEO Flint leaves abruptly after only 18 months in role Fiat Chrysler CEO: We'll talk alliances, but we can go it alone Dutch PostNL Q2 operating income tops estimates, confirms outlook Elliott urges Scout24 to sell car listings arm, increase buyback (Thyagaraju Adinarayan) ***** AUGUST ANGST (0632 GMT) It's been a tough start to August: European stocks look set for another sharp sell-off after Friday’s rout as Sino-U.S. trade tensions continue to rattle global financial markets. "As we head into a new week, and a disappointing start to August, the big question is whether last week’s sell-off is a one-off and a buying opportunity, or the start of a much bigger decline," Michael Hewson at CMC Markets UK says. Asian stocks suffered their steepest daily drop in nine months with the offshore yuan hitting the lowest level since offshore yuan trading began. Financial spreadbetters IG expect London's FTSE to open 94 points lower at 7,313, Frankfurt's DAX to open 148 points down at 11,725, and Paris' CAC to open 63 points lower at 5,296. In corporate news, we've got HSBC CEO's sudden departure. John Flint leaves the company after just 18 months in the role as the bank says it needs a change at the top to address "a challenging global environment". (Thyagaraju Adinarayan) ***** (Reporting by Danilo Masoni, Josephine Mason and Thyagaraju Adinarayan)