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LIVE MARKETS-European shares hit session low ahead of close

* European stocks fall

* BoE (Shenzhen: 000725.SZ - news) rate outlook pushes banks, sterling up

* M&A in focus as TDC (LSE: 0MOP.L - news) , Swiss Re (LSE: 0QL6.L - news) jump

Feb 8 (Reuters) - Welcome to the home for real time coverage of European equity markets

brought to you by Reuters stocks reporters and anchored today by Helen Reid. Reach her on

Messenger to share your thoughts on market moves: helen.reid.thomsonreuters.com@reuters.net

EUROPEAN SHARES HIT SESSION LOW AHEAD OF CLOSE (1601 GMT)

Late in the session and some selling pressure is coming through with the STOXX 600 down 1.3

percent at a session low.

The move looks to be in part driven by oil prices which have fallen to 2018 lows, while on

Wall St stocks are down 1 percent.

Investors are jittery following the slide we saw earlier in the week.

"We have gone from a market which in my view was complacent about any downside risks to

genuine concerns," a trader says.

"Even (Taiwan OTC: 6436.TWO - news) though it was technical from ETF/flash crash it has still undermined confidence and I

think put more focus on the upwards trajectory of interest rates," the trader adds.

(Kit Rees and Helen Reid)

*****

GOODBYE GOLDILOCKS? GO HEAVY METALS, SAYS CITI (1421 GMT)

"Having had the correction we feared, the question of course becomes do we buy the dip or

does this rout have further to run?"

The question is on everyone's lips, and Citi's global macro strategists have an interesting

answer to it.

They point to the fact cyclicals and growth stocks held up relatively well, U.S. Treasury

yields kept near their highs, and commodities didn't sell off, as signs the correction was

triggered by an inflation shock rather than a growth shock.

So if this really is goodbye to the 'Goldilocks' bliss of high growth and low inflation,

then where can investors hide?

In industrial metals, Citi says. "Historically moving from a Goldilocks environment to one

of increasing inflation generally sees volatility increase in equities and Sharpe ratios

decrease. Bonds do less well, and often commodities stand out as the outperforming asset class."

On stocks, the bank says "rather than try to catch a falling knife, we would rather wait for

signs of stabilisation."

(Helen Reid)

*****

EURO ZONE GROWTH TO FEEL LIMITED PAIN FROM EURO GAIN (1356 GMT)

The move in sterling might be hampering the FTSE today, but what about the euro?

Well, UBS (LSE: 0QNR.L - news) economists don't think euro zone growth will be hit so hard by a stronger euro.

"Strong global growth and robust Eurozone domestic outlook are likely to soften the negative

impact of the stronger EUR," say UBS economists.

They flag two reasons: 1) the shift in demand from domestic towards foreign goods is likely

to be smaller and 2) more expensive euro zone exports can be absorbed better by the main export

markets thanks to the global upswing.

So far this year the move in the trade-weighted euro seems to be having limited impact on

euro zone stocks, which are down 1.4 percent year to date.

(Kit Rees)

*****

"WE'RE LIKELY TO SELL THAT ETF AND BUY AN ACTIVE FUND" (1318 GMT)

As volatility returns and central banks phase out loose monetary policies, 2018 may turn out

to be the year active managers turn the tables on passive ETF investing which has become so

popular in this long bull market.

StJohn Gardner, Head of Investment Management at Arbuthnot Latham, has given us one

interesting example of how he plans to reduce his ETF exposure to seek better returns from

active managers: "We currently have a 3 percent exposure to a European ETF that we have held for

some time now... We're likely to sell that ETF and buy an active manager."

Arbuthnot Latham has an 8 percent exposure to European equities, made up by two actively

managed funds and one ETF, said Gardner who oversees more than 1 billion pounds of assets.

"Active management is beginning to provide better returns," he said.

The multi-year boom of inflows brought total ETF assets under management to $4.7 trillion

globally. Is the peak close?

(Danilo Masoni)

*****

"AN INTERESTING CHALLENGE TO THE CONVENTIONAL ECONOMIC THINKING" (1304 GMT)

With (Other OTC: WWTH - news) such a focus on whether equity risk premia actually reflect where U.S. interest rates

are heading, it can be useful to take a step back and look at what the actual economic policy of

the U.S. government is.

The bipartisan U.S. budget deal agreed overnight adds some $300 billion of extra government

spending to an economy growing up to three percent and near full-employment and that's even

before Trump's promised $1.5 trillion infrastructure spend.

For Paul Donovan, global chief economist at UBS wealth management, the U.S. is "showering

money like confetti over the US economy".

Here's his take: "It may be worth watching the bond market as the idea of tax cuts and more

spending in an economy that has full employment and a large budget deficit is an interesting

challenge to the conventional economic thinking".

You can listen to him here: http://bit.ly/2nRZnuv and hear how he pronounces the word

"interesting". It's interesting.


(Julien Ponthus)

*****

BOE GIVES UK BANKS A BOOST, FTSE GETS A SLAP (1236 GMT)

UK banks turned positive and hit a session high after the BoE said interest

rates would probably need to rise sooner and by a bit more than it thought three months ago due

to the strong global recovery. Here's the story:

The same can't be said of the FTSE which got a little slap from the rising sterling.

(Julien Ponthus and Helen Reid)

*****

VOLUME SPEAKS VOLUMES. BUT WHAT IS IT SAYING? (1144 GMT)

This month's sell-off saw the heaviest volumes traded on the STOXX 600 in more than seven

months, which is important, sure, but nothing serious in comparison to what could be seen on the

other side of the Atlantic (Shanghai: 600558.SS - news) .

As you can seen below, for the Dow (left), the volumes are the biggest ever, but for the

STOXX 600 it seems a mere blip in comparison to the Brexit vote for instance.

Seems to confirm that whatever happened on the markets didn't have its roots on our side of

the pond.


(Julien Ponthus and Helen Reid)

*****

GERMAN AUTOS: STAYING CAUTIOUS ABOUT EXCITING BREAKUPS (1039 GMT)

The death of the conglomerate seems to be building up as a major topic with General Electric (Euronext: GNE.NX - news)

considering breaking up, Siemens (BSE: SIEMENS.BO - news) listing its healthcare business and now growing speculation

about spin-offs in the German automotive industry.

"We are excited about longer term upside opportunities," Barclays (LSE: BARC.L - news) analysts say in a note

where they view the potential for break-ups as "a key theme for 2018 given the structural

reviews unveiled by management teams at Daimler (IOB: 0NXX.IL - news) , Volkswagen (IOB: 0P6N.IL - news) and Continental (IOB: 0LQ1.IL - news) ".

Rumours that German giants could consider similar deals are definitely food for thought

after the arguably successful spin-off of Ferrari (Xetra: 30092157.DE - news) from Fiat Chrysler two years ago.

The only thing seriously keeping Barclays' enthusiasm in check (they are neutral on the

sector) is the fact it could take some time given the complexity of the process in Germany.

"This is not to say that we don't believe structural changes will happen, just that we urge

investors not to base investment decisions on expectations of a quick turnaround," Barclays (Swiss: BARC.SW - news)

cautions.

Here are a couple of recent headlines:

Continental still has no concrete plans for potential break-up

Daimler open to alliances, partial listing of mobility services

And here is a Ferrari:

(Julien Ponthus)

*****

CAUTION IS THE ORDER OF THE DAY (0927 GMT)

There's been a lot of talk about how volatility-linked products may have contributed to the

correction seen earlier this week, and Hermes Investment Management is urging investors to

remain cautious about leveraging positions too far.

“Gearing is fine as long as implied volatility remains low, but given we anticipate further

shocks with sharp surges in volatility, those same investors will be forced to cut their

positions, leading to self-reinforcing position shedding," Eoin Murray, head of investment at

Hermes Investment Management, says in a note.

Murray also notes that their correlation surprise indicator hit a new high during the last

quarter, adding that investors should be wary about making assumptions as to cross-asset

relationships.

"Traditional methods of portfolio diversification that rely principally upon historical

measures of correlation have become less effective," Hermes' Murray says.

(Kit Rees)

*****

Opening snapshot: financials help limit STOXX losses (0812 GMT)

European shares are down in early dealing, with commodity stocks leading losers but M&A

newsflow in the insurance sector and well-received results from some banks are boosting the

financial sector, helping limit the STOXX decline to 0.3 percent.

The UK's FTSE is down 0.3 percent ahead of the Bank of England policy meeting.

Telecoms are also in the spotlight with TDC up 20 percent after the Danish telecoms

operator turned down an indicative takeover bid from Australia's Macquarie and three pension

funds.

Here's your snapshot:

(Danilo Masoni)

*****

WHAT'S ON THE RADAR FOR THE EUROPEAN OPEN (0748 GMT)

European shares’ recovery rally looks set for an abrupt ending on Thursday with futures

pointing to losses of 0.7 to 0.9 percent after weaker trading on Wall Street and in Asia.

Earnings, which took a back seat earlier this week amid the global market turmoil, are

coming in thick and fast with several big European banks and industrial firms reporting.

Societe Generale (Swiss: 519928.SW - news) and Commerzbank (Xetra: CBK100 - news) both reported declining profits,

blaming weak markets and restructuring, while Italy's UniCredit (EUREX: DE000A163206.EX - news) swung to a profit in

2017.

Oil major Total (LSE: 524773.L - news) , whose shares fell sharply this week as crude prices tumbled,

reported soaring profit, raising its dividend and planning a share buyback.

And as we detailed just now, some surprising M&A news should liven up the insurance sector.

(Helen Reid)

*****

M&A NEWSFLOW PUTS INSURERS IN FOCUS (0743 GMT)

Insurance stocks are definitely on the watchlist with some interesting M&A newsflow that

could liven up the session with Swiss Re set to lead the dance after surprise news

that Japan's SoftBank (Swiss: SOFB.SW - news) is in talks to buy a minority stake in the Swiss reinsurer.

"Yesterday’s announcement is totally surprising," says Baader Bank Helvea analyst Daniel

Bischof. "However, given SoftBank’s technology-vision, Swiss Re makes sense as a target given

its extraordinary research & development capabilities which distinguish Swiss Re from

competition and make the company a knowledge powerhouse," he added.

Swiss Re shares are seen up 5 percent following the news. The deal is reported to be worth

10 billion or more.

Still in the sector, a source-based Bloomberg report said yesterday that Bermuda-based

insurer XL Group (NYSE: XL - news) attracting interest from rivals including Allianz SE (LSE: 0M6S.L - news) of Germany. https://goo.gl/XHHosw

And there are also some earnings updates. Zurich Insurance (IOB: 0QP2.IL - news) reported

better-than-expected earnings as the insurer dealt with a raft of natural catastrophe losses and

a sluggish investment environment.

(Danilo Masoni)

*****

EARLY MORNING EUROPEAN HEADLINE ROUND-UP (0732 GMT)

Oil group Total raises dividend and plans share buyback as 2017 profit soars

Swiss Re in talks with SoftBank, Japanese firm could take minority stake

Italy's UniCredit swings to 2017 profit

SocGen (Paris: FR0000130809 - news) quarterly profit plunges although results top expectations

Commerzbank profit declines in Q4 amid weak markets and restructuring

Compass Group (Other OTC: CMPGF - news) sees FY organic revenue growth at top end of forecast

ABB (LSE: 0NX2.L - news) sees brighter outlook after Q4 net profit drops

Digital shake-up drives Publicis (Paris: FR0000130577 - news) to revise down profit target for 2018

Hermes sales growth slows in Q4, but margins to hit record in 2017

Akzo Nobel (Amsterdam: AKZA.AS - news) warns of 130 mln euros in 'transformation' costs

Norway's Yara Q4 lags forecast, proposes smaller dividend

Voestalpine (IOB: 0MKX.IL - news) 's Q3 net profit boosted by strong steel demand

Pernod Ricard (TLO: RI-U.TI - news) raises profit goal after forecast-beating H1 results

TalkTalk to raise cash after cutting forecasts​

Britain looking closely at Melrose (LSE: 136541.L - news) bid for GKN - PM May

Bayer (IOB: 0P6S.IL - news) -Monsanto (Hamburg: 1132157.HM - news) deal edges closer to Brazil antitrust approval

Smith & Nephew (Frankfurt: 502816 - news) meets lower end of guidance range for 2017

U.S. FDA approves Gilead triple HIV drug, GSK venture files lawsuit

Zurich Insurance beats 2017 profit estimates, raises dividend

Finland's Solidium sells Telia stake for 5.1 bln SEK

Thomas Cook (Frankfurt: A0MR3W - news) expands airline business by 10 pct for this summer

TDC rejects takeover offer from Macquarie, Danish funds

ArcelorMittal (LSE: 0NSF.L - news) to top Brazil's long steel output after Votorantim deal -exec

Ashmore says H1 assets up 18 pct on inflows, market gains

Airbus says may increase A400M provision

France's Vinci (LSE: 0NQM.L - news) optimistic on 2018 prospects

Stronger sales at European shopping centres help boost Klepierre (LSE: 0F4I.L - news) 's cash flow

Swiss watchdog in touch with Credit Suisse (IOB: 0QP5.IL - news) over volatility ETN

AA (Frankfurt: A116XA - news) sees FY core profit of 390-395 mln stg

UK's Bellway (Frankfurt: 869646 - news) sees 14 pct rise in first-half housing revenue

Britain's Tate & Lyle (LSE: TATE.L - news) quarterly sales volume picks up pace

(Tom Pfeiffer)

*****

EUROPEAN STOCK FUTURES POINT DOWN (0713 GMT)

It certainly looks like a weaker session for European stocks ahead, with futures down 0.5 to

0.8 percent.

Results from UK companies including Thomas Cook, TalkTalk, DFS Furniture (Frankfurt: DF0.F - news) , and Sophos, are

just hitting the wire.

M&A activity could also liven up today's session with Swiss Re's shares seen

opening up 5 percent after the reinsurer said it was in talks with SoftBank on a

potential minority stake.

(Helen Reid)

*****

EARNINGS, BANK OF ENGLAND IN FOCUS (0644 GMT)

Nevertheless there are other events in Europe today which should grab investors' attention,

with results still rolling in from big corporate players.

Banks are at the forefront today with Societe Generale reporting forecast-beating

results despite quarterly profit plunging on tax-related and restructuring costs.

Commerzbank also flagged a 51 percent decline in Q4 profit, blaming weak

markets and its overhaul.

Other notable results include truck maker Volvo, which reported record profit,

and Swiss engineering group ABB, which gave a brighter outlook for the year.

We'll also be closely watching the Bank of England's rate decision and inflation report -

particularly considering the past week's jitters over inflation.

SocGen analysts expect the BoE to slightly raise growth and inflation forecasts.

"The MPC will be happy to see that the money market is now taking seriously its message of

further tightening," they write. "However the market has brought forward the expected timing of

rate increases compared to its view three months ago quite aggressively, and even though we

expect the tone of the report to be slightly more hawkish, we think it might not be enough to

validate the current Overnight Index Swap curve."

(Helen Reid)

*****

MORNING CALL: A SHORT-LIVED BOUNCE (0622 GMT)

Good morning and welcome to Live Markets.

That was nice while it lasted! European stocks are set to fall back again after a

short-lived recovery bounce yesterday, as Wall Street and Asian markets lost steam overnight.

Looks like those calls for volatility to stay high in the short- to medium-term were prescient.

Asian shares hovered near six-week lows as U.S. bond yields headed towards four-year highs,

keeping pressure on investors spooked by signs of rising inflation.

Spreadbetters call the DAX 108 points lower at 12,482, the CAC 40 down 47 points at 5,208.8,

and the FTSE down 56 points at 7,223.2. The damage done in the past fortnight is considerable:

the DAX ended yesterday 7.4 percent down from its record high hit as recently as Jan 23.

(Helen Reid)

*****

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