LIVE MARKETS-Europe's China syndrome

* Italian stocks fall into red after ECB growth doubts, Bank of Italy comments

* STOXX 600 climbs 0.3 pct

* Zalando rallies after better-than-expected profit forecast

* Lufthansa recovers slightly after profit warning

April 16 - 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: josephine.mason.thomsonreuters.com@reuters.net

EUROPE'S CHINA SYNDROME (1405 GMT)

As euro zone companies report Q1 earnings, investors are wondering whether the stock market

can extend its four-month streak of gains. The answer may actually lie in Chinese bond markets,

according to Morgan Stanley.

MS analysts note Chinese government 10-year bond yields have risen to 3.40 percent, from

3.07 percent at the start of April. They say the rise in yields is a sign that authorities'

reflation policies are working; hence recent firmer data in China may imply an improvement in

the global export picture too, benefiting export-oriented economies.

European companies are at the forefront of those -- companies listed on Germany's DAX index

derive 6 percent, or 80 billion euros, of their revenues from China; for purveyors of upmarket

cars and fashion such as BMW or Gucci the exposure can range from 18 to 24 percent.

Highlighting the close correlation between EuroSTOXX and Chinese yields, MS analysts tell

clients: "European equities are a way to express reflation-focused strategies. When Chinese bond

yields rise, European stocks tend to rally too."

See below for their chart:

(Sujata Rao)

*****

BEWARE VOL OF VOL (1353 GMT)

It's not just equities that have seen a return to low volatility - there's been a drop in

volatility across asset classes (see below). Volatility in safe assets (U.S. 10-year treasuries,

gold, and the Yen) has been particularly depressed.

But Goldman Sachs strategists, looking at a variety of macro, markets and uncertainty

indicators, don't see a definite direction to volatility going forward. The indicators point to

an "equal probability" of a high or low vol regime.

Hiding behind the main volatility gauge is vol of vol - a measure of the

swings in stock volatility itself - which has crept up this year, having spiked then fallen back

in Q4.

"Amid a backdrop of high vol of vol, in our view the risk of sharp spikes could be

relatively high," Goldman Sachs strategists write.

As volatility turns lower, they say options are becoming more attractive "both as a hedge or

as a cash replacement strategy".

(Helen Reid)

*****

LUFTHANSA'S LIFT-OFF A RECIPE FOR Q1 RESULTS (1312 GMT)

If you need an example of how the Q1 earnings season in Europe may roll, Lufthansa may well

be it.

Shares in Germany's biggest airline went into tailspin in early trading, falling as much as

5 percent after it blamed rising fuel costs and stiffening competition in the overcrowded

European market on a larger-than-expected Q1 loss.

By midmorning they were back in positive territory and are currently up 1.2 percent.

Dealers say the bad news ailing the airline and the broader industry was priced in (coming

after eaasyJet's warning last week and WOW's bankruptcy in late March) and investors were

drawing comfort from the more encouraging outlook - Q2 revenues will pick up as bookings recover

and the airline stood by its 2019 operating margin forecast.

"Almost all brokers were pushing the stock this morning and advising to buy the weakness

this morning," says one dealer.

Getting the bad news out the way was enough to prompt some short covering. Data from FIS

Astec Analytics shows investors have piled on bearish bets in the airline since September, with

the number of shares out on loan - a measure of short interest - hitting its highest in late

March on records going back to January 2018.

So might this be an early example of how European markets will deal with what is expected to

be an avalanche of weak Q1 earnings?

Barclays European equity strategist Emmanuel Cau recommended last week investors look beyond

poor Q1 headlines (analysts are bracing for the worst quarterly results in years) towards H2

when results are expected to stabilise.

BAML's monthly fund survey this morning shows the market still considers short European

equities to be the most crowded trade. That would often be considered a signal for investors to

bail out of that trade.

Might those Q1 headlines be just the much-needed news to inject some life into the

stagnating market?

(Josephine Mason and Helen Reid)

*****

EUROPE'S HISTORIC STOCK TORPOR (1112 GMT)

The volatility gauge for euro-zone stocks has hit its lowest since January last year

this morning, the latest sign that things are .... well .... stuck without direction and lacking

consensus about what happens over the rest of 2019.

That's also reflected in the remarkably narrow 6.4-point range the STOXX 600 has traded in

over the past 11 sessions.

To put that into historical context, we cast a glance back over the past decade and found

that such prolonged periods of small-scale intraday moves like the ones we're enduring now are

pretty rare.

You have to go back to September and January last year to find the most recent examples of

market lethargy.

But before that, they only occurred five times in 2017, twice in 2014 and 2016 (not at all

in 2015), four times in 2012 and 2013, according to a Reuters analysis.

Between 2007 and 2012, these bouts of torpor slowed to a trickle. That's not such a surprise

given the chaos across markets as the euro-zone sovereign debt crisis deepened and the global

economy imploded. Pre-2006, they were more frequent.

So that's a long way of saying, it's anyone's guess where markets will go from here.

As BAML strategists said earlier this morning, investors are positioned for a low growth,

low inflation environment and stock markets are reflecting that.

Below is a chart of the euro-zone implied vols:

(Josephine Mason)

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SMALL IS THE NEW BIG (1018 GMT)

A life of a Gen "Z" (aged under 20):

A personalised shaver, organic shower gel/cosmetics, a protein-heavy milkshake, a Nude

Coffee Roasters espresso, organic vegan food delivered via Just Eat or Deliveroo.

Some 44 percent of Gen Zs think a plant-based food or beverage is cooler than smoking, as

per a survey by UK plant-based company Bol, highlighting the backlash against processed food.

"(Millennials) want committed brands with authentic products. Natural, simpler, more local

and if possible small, as small as you can," Danone CEO Emmanuel Faber said last year.

These trends and comments highlight how Gen Z is upending the century-old business models of

consumer staples companies that are centred around dominant brands, mass production and

targeting mass groups. The generation after Millennials is on track to become the largest

generation of consumers by as early as next year, according to Forbes.

As a result big brands are losing out to smaller, nimbler rivals, and investors are taking

note.

Marcus Morris-Eyton, European equities portfolio manager at Allianz Global Investors, says

he has recently cut his stake in Reckitt Benckiser, which makes everything from Finish

dishwasher tablets to Veet hair removal products, dropping it to the top 15 investments in his

fund from top five previously.

"You're seeing quite a big structural shift in the sector. Ten years ago, it was all about

scale and economies of scale," he says.

Nivea maker Beiersdorf, Henkel and Colgate-Palmolive have all warned in recent months on

profits citing rising dominance of small brands and changing consumer behaviour.

Morris-Eyton, who also owns shares in Unilever, sees M&A as inevitable in the

sector with the big staples chasing the smaller, successful ones like Unilever's 2017

acquisition of Dollar Shave Club.

Dollar Shave Club allows its customers - or rather members - to customise their shaving kit

with packages delivered to their home.

Now it's all about that kind of mass personalisation, Morris-Eyton says.

The costs of catching up for the big brands will erode their margins further though.

In a recent note, Barclays says it believes the fightback has begun with companies such as

Nestle, Danone and ABF building a healthy portfolio of products for

the Gen "Z".

A quote by Intel Founder Gordon Moore in 1956 summarises it rather nicely: "Change has never

happened this fast before and will never be this slow again"

Check out what's at stake in these nifty graphics from Barclays:

(Thyagaraju Adinarayan)

*****

OPENING SNAPSHOT: ARE EUROPEAN STOCKS STUCK? (0743 GMT)

The STOXX 600 is up just 0.2 percent and we may have another range-bound day on our hands -

it's pretty staggering but the pan-European index has traded in an extremely narrow 4-point

range for the past two weeks.

The stronger March house price data for China is stirring hopes this morning that the

world's No. 2 economy is recovering from slower growth earlier this year as Beijing's stimulus

measures kick in ahead of Chinese GDP data due tomorrow.

But really there's still little sign of any conviction at index level in either direction.

Investors say a pause was overdue after the stellar Q1 across global equities fuelled by the

central banks' about-turn on interest rates and optimism about U.S.-China trade.

With that all priced in, investors are now hoping Q1 earnings season or macro data might

provide the impetus for the next leg higher or lower.

Let's see how German ZEW sentiment data looks in just over an hour, and we have a slew of

PMI data later in the week as well as China growth data tomorrow.

There's some action among individual stocks though - German online clothes marketplace

Zalando is top of the pan-European STOXX 600, rallying almost 10 percent, after forecasting

better-than-expected Q1 profits and lifting rivals Boohoo and ASOS slightly.

VAT Group is up 7 percent after its results.

Arlines and travel companies are losing altitude after Lufthansa's profit warning. Travel

and leisure stocks are among the biggest fallers across Europe after the German airline

blamed higher fuel costs and overcapacity in Europe for its weaker-than-expected Q1 profit

outlook, reinforcing worries about stiff competition across the sector.

Lufthansa is down 2 percent languishing at the bottom of the DAX and dragging rivals with

it. British Airways owner IAG and TUI are down 0.7 percent on the FTSE 100 and easyJet is down

0.6 percent. Air France is 1.5 percent lower.

(Josephine Mason)

*****

CHINA DATA BOOSTS EUROPE (0652 GMT)

European shares are indicating a slightly higher open today as stronger China March house

price data reinforces hopes that Beijing's stimulus measures have helped shore up the world's

No. 2 economy.

That's offsetting weaker sentiment on Wall Street overnight after uninspiring results from

Goldman Sachs and Citigroup although the banks' lacklustre trading performance in the quarter

highlights a recurring theme across the global banking sector.

All the major futures are up 0.1 percent, while Germany's ZEW investor sentiment data from

Germany at 0900 GMT will be widely watched for signs on the health of Europe's largest economy.

The biggest corporate news this morning are from Germany: a profit warning from Lufthansa

and better-than-expected earnings outlook from online clothes marketplace Zalando

(see earlier blog - Tale of two German Markets).

Lufthansa shares are down 5 percent while Zalando shares are up 3.6 percent in early

Frankfurt trade.

In other corporate news, miner Rio Tinto is likely to get a lift even after cutting its 2019

iron ore shipments guidance amid hopes that any loss of output would be offset by higher prices

of the steelmaking raw material.

Elsewhere in the UK, a blow to housebuilders after FTSE 250-listed builder Galliford Try cut

its FY profit forecast and launched a strategic review of its construction business. Shares are

seen falling as much as 25 percent.

In Italy, traders say the market is taking in its stride news overnight that the country's

top bank UniCredit has agreed to pay $1.3 billion to U.S. authorities to settle probes of

violations of U.S. sanctions on Iran and other countries, ending a six-year probe that has hung

over the bank.

Here are some UK headlines catching attention (see earlier blog for others)

Recruiter Hays quarterly net fees rises

JD Sports' annual profit rises despite retail challenges in UK

BRIEF-G4s Q1 Rev Up 4.8 Pct, Says Separation Review Making Good Progress

Galliford to review construction business, lowers forecast

(Josephine Mason)

*****

TALE OF TWO GERMAN MARKETS (0557 GMT)

It's a tale of two markets in Germany AG this morning - a profit warning from Luthansa

and better-than-expected earnings outlook from online clothes marketplace Zalando

.

Lufthansa has blamed soaring fuel costs and stiff competition in Europe that has dampened

fare prices for its Q1 profit warning, sending its shares in pre-market down 5.5 percent.

The news underscores worries across the industry that are likely to weigh on rivals and

follows downbeat outlook from budget airlines easyJet earlier this month and the bankruptcy of

Iceland's WOW in late March.

In contrast, Zalando forecast its Q1 profits will be above market consensus, coming hot on

the heels of an upbeat update from British online fashion retailer ASOS last week and the latest

sign of the changing retail market landscape as e-commerce grows.

Its shares are up 3 percent in pre-market Frankfurt trade, and the news may give rivals,

ASOS, Boohoo and Next a boost.

It's relatively quiet elsewhere.

The news was well-flagged (and follows a similar move by Standard Chartered last week), but

Italy's top bank UniCredit has agreed to pay $1.3 billion to U.S. authorities to settle probes

of violations of U.S. sanctions on Iran and other countries.

The bank says the penalties in the sanctions probe were fully covered by provisions with

resources that would be released to boost the P&L and core capital, ending a six-year probe that

has hung over the bank.

Here are other headlines catching attention this morning:

Lufthansa's blames high fuel costs on drop in Q1 EBIT

Daimler: Mercedes sells more than 600 Maybach models a month in China

U.S. House panels issue subpoenas to Deutsche Bank, others in Trump probe

Italy's UniCredit to pay $1.3 bln to settle U.S. sanctions probe

Vivendi AGM backs plans for possible share buyback

EssilorLuxottica director rules out merger could unravel due to boardroom row

Zalando Expects Adjusted EBIT In First Quarter Above Consensus

EU says it is ready to launch U.S. trade talks, but without agriculture

Telia to implement 5 bln SEK share buyback programme

(Josephine Mason)

*****

EUROPE DRAWING STRENGTH FROM ASIA (0518 GMT)

Europe is expected to draw strength from Asian markets overnight after a fairly subdued

start to the week yesterday, offsetting for now weaker sentiment on Wall Street induced by

disappointing earnings from Goldman Sachs and Citigroup.

Financial spreadbetters expect London's FTSE to open 14 points higher at 7,451, Frankfurt's

DAX to open 27 points higher at 12,047, and Paris' CAC to open 5 points higher at 5,514.

(Josephine Mason)

(Reporting by Danilo Masoni, Helen Reid, Julien Ponthus and Josephine Mason)