LIVE MARKETS-EU's riposte to US steel tariffs could trigger retaliation on cars

* European shares fall, off opening lows

* Industrials lead fallers hit by trade war worries

* U.S. futures point to lower open

June 19 - 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

EU'S RIPOSTE TO US STEEL TARIFFS COULD TRIGGER RETALIATION ON CARS (1505 GMT)

China isn't the only one retaliating to U.S. tariffs - the European Commission is close to

giving the green light to EU tariffs on 2.8 billion euros of U.S. imports. That compares to 6.4

billion metal tariffs from the U.S.. Oxford Economics reckons the tariffs, while minimising

economic impact, may edge the U.S. closer to hiking levies on European cars.

"The EU tariffs are well designed, targeting politically sensitive sectors that will grab

media attention while doing close to no harm to Europe's economy. However there is little

evidence that they will succeed in discouraging another round of tariff hikes from the U.S.,"

writes Oxford Economics chief German economist Oliver Rakau.

"Higher U.S. car tariffs look increasingly likely," he adds. If he's right, Europe's autos

sector could be set for a dive further into the ditch.

As you can see below, Europe does apply higher tariffs to car imports than the U.S., a point

which Trump has taken to heart, even reportedly saying he would hike levies until there were no

more Mercedes (Xetra: 710000 - news) -Benz on New York's Fifth Avenue.

The full list of products the EU plans to raise tariffs on is here http://trade.ec.europa.eu/doclib/docs/2018/may/tradoc_156909.pdf.

(Helen Reid)

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YOU CAN'T EAT THE VIX AND HAVE YOUR RATES TOO (1423 GMT)

Interesting point made by France's LBPAM strategists: the market is once again shorting the

VIX at pre-February sell-off levels and at the same time betting on a rapid rise in U.S.

government bond yields.

"The market is incoherent: a steep rise in yields will most probably destabilise stock

markets," writes Stéphane Déo, adding there's little credibility in betting both on rising

yields and a low VIX level.

"The market doesn't agree with itself, or rather fixed income investors don't agree with

stock investors".

The two following charts (excuse LBPAM's French) show first how short positions on the VIX

are back to where they were before the February sell-off, and then how aggressively the market

is betting on rising U.S. rates.

(Julien Ponthus)

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UNLOVED AND OVERSOLD: AN ODE TO EUROPEAN BANK STOCKS (1400 GMT)

European bank stocks are among the best-performing today, but remain the worst performing

sector year-to-date, down 11.3 percent since the start of 2018.

"Banks continue to look oversold, and on the back of recent underperformance their average

relative valuations are well below the 10-year average," say Morgan Stanley (Xetra: 885836 - news) analysts in their

European equity chartbook.

Performance is well below the 12-month average, they find, and only 6 percent of bank stocks

have outperformed the market over the last 3 months.

One of the main drivers of banks' underperformance is poor earnings revisions (see chart

below).

Joining banks in the "most unloved" category are transportation and telecoms while the most

overbought sector is Software (IOB: 0NJS.IL - news) , according to MS. Energy is "tactically" overbought, but still

below long-run average valuations, and with positive earnings revisions.

Interestingly, MS strategists remain overweight banks and energy while they are neutral on

software.

(Helen Reid)

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EVER CARED ABOUT DEMAND PRICE ELASTICITY FOR ALCOHOLIC DRINKS? (1311 GMT)

Well, that's something you may have to do, especially now that there's a trade war around.

And demand price elasticity is what Kepler Cheuvreux analyst Richard Withagen has looked at

to estimate the impact for European beverage companies if U.S. President Donald Trump were to

impose import tariffs on alcoholic beverages.

There are no such tariffs at the moment but after the EU, Mexico and Canada responded to

U.S. steel tariffs by announcing tariffs on U.S. goods including whisky, that's a concrete risk.

"Retaliation may only be a tweet away," notes Withagen.

Using metrics for demand price elasticity https://www.investopedia.com/terms/p/priceelasticity.asp,

he simulated what would happen to volumes if drink prices were to increase as an effect of

tariffs. Mixing into the blend the price increase companies may be able to pass on to consumers,

Withagen concludes that on average European beverage companies' EBIT could be hit by 2-3 percent

if a 25 percent import tariff is introduced.

Here's the breakdown:

* Remy Cointreau (Swiss: RCO.SW - news) : -6 percent

* Campari (Milan: CPR.MI - news) : -3 percent

* Heineken (LSE: 0O26.L - news) : -3 percent

* Diageo (LSE: DGE.L - news) : -2 percent

* Pernod: -2 percent

* AB Inbev (Brussels: ABIT.BR - news) : 0 percent

And here's the demand price elasticity of various drinks which shows that brewers face a

bigger challenge than distillers with tequila being an exception.

P.S.: Global U.S. imports of beer and spirits exceed $13 billion with the vast majority

coming from Europe, Mexico and Canada.

(Danilo Masoni)

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AFTERNOON SNAPSHOT: A BIT LESS RED (1257 GMT)

Trade war worries are keeping European shares in negative territory but it looks like the

sell-off has managed to hit a floor with main benchmarks now trading above their opening lows.

Although U.S. futures are pointing to declines of more than one percent, the

STOXX 600 is down just 0.7 percent, having lost as much as 1.3 percent at the open, while

Portugal's PSI (Taiwan OTC: 8028.TWO - news) index has just pared all its losses.

Here's your snapshot:

(Danilo Masoni)

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WHO'S AFRAID OF A FOURTH BELGIAN MOBILE OPERATOR? (1236 GMT)

Competition's a good thing right? Well for consumers, sure, but for investors in Belgian

telcos, less so, HSBC analysts warn.

While the prospect of further consolidation and M&A has given a speculative flavour to

otherwise struggling European telecom stocks, like in France, the fact that the Belgian

government is actually considering opening the path for a new entrant to the market is diffusing

a very different kind of smell.

"Operators and investors have been shaken by the proposals," HSBC says, noting that shares

in Proximus (LSE: 0DPU.L - news) , Orange Belgium (Brussels: OBEL.BR - news) and Telenet (LSE: 0GAF.L - news) have lost over 2 percent since June 13 when Belgian

Telecoms minister Alexander De Croo put out a press release defending the idea of using a 4G and

5G license auction next year to allow a fourth mobile operator into the country.

"Our concern is that the response of all the operators (including, over time, the entrant)

will be to redirect capital elsewhere, to markets offering better visibility," the bank writes.

"We cannot advocate putting any more money into the Belgian telecoms market" should the

Belgian government decide to go ahead and until the auction process is completed in spring 2019,

HSCB analysts argue.

The broker cut the rating of Proximus and Orange Belgium from "Buy" to "Hold", and reduced

the target price of the three operators.

As you can see below, Belgian telcos have indeed underperformed their European peers since

the announcement on Thursday:

(Julien Ponthus)

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TRADE WAR AHOY! WHERE TO HIDE FROM THE STORM?(1112 GMT)

European companies are, on average, highly exposed to the global economy, as we mentioned

earlier. So it's all the more important to adequately analyse which stocks in Europe are likely

to be the most insulated from a global trade war, and which are most at risk.

Mirabaud Securities has made a handy list of what it calls "home comforts" versus "high

seas" stocks, saying: "If international trade clogs up, then simple common sense favours

domestic businesses involved in providing a service over those with a broad global footprint

selling 'stuff'".

Mirabaud strategists note that UK stocks dominate their "home comforts" category determined

by cheap value and domestic exposure. Here's what they have to say on a variety of stocks they

see as ideal for investors battening down the hatches.

Home comforts:

- WH Smith (LSE: SMWH.L - news) : "A stock which elicits a yawn. But in case of a trade war, boredom is one of

those perfections you want to have. A bit of blandness and tedium is just what you need when

panic and fear is harrumphing its way through the market."

- Ryanair: 100% of sales from Europe

- Moneysupermarket: 100% of sales from UK

- Whitbread (Frankfurt: WHF4.F - news) : 96% of sales from UK

- Geberit (IOB: 0QQ2.IL - news) : 91% of sales from Europe

- Marks & Spencer (Frankfurt: 534418 - news) : close to the cheapest it has ever been

- Takkt (Swiss: TTK.SW - news) "Providing staples, chairs or filing cabinets for businesses is even duller than WH

Smith's business... but is certainly lucrative"

- BT, SSE (LSE: SSE.L - news) , Prosegur, and Howden Joinery (Frankfurt: 884600 - news)

The "high seas" group includes leading cognac exporter Remy Cointreau, highly dependent on

the U.S. and Asia, and Hermes.

Other risky stocks for the buccaneering investor include:

- Infineon (Xetra: 623100 - news) : "Selling semis to the automotive industry, energy sector and consumer product

firms is not ideal in case of trade war"

- Dassault Systemes (Swiss: DSY.SW - news) , whose biggest customers include Boeing (NYSE: BA - news) , Airbus, Samsung

- Renishaw (Frankfurt: 868884 - news) , which sells precision measurement tools to the world's engineering firms

- Novozymes (LSE: 0Q4U.L - news) , a big exporter of industrial enzymes

- Pernod Ricard (TLO: RI-U.TI - news) , also at risk from import tariffs on spirits

- Automotive chip maker Melexis (LSE: 0FA0.L - news) , valve maker Rotork (Frankfurt: RO41.F - news) , pharmaceutical equipment firm Sartorius (Swiss: SRT3.SW - news)

and electrical components firm Halma

Interestingly, so far this year the "high seas" group has far outperformed home comforts -

so despite increasing trade fears this strategy hasn't paid out for investors quite yet.

Here's a look at the export imbalance between the U.S. and the EU:

(Helen Reid)

*****

THIS TIME IT'S DIFFERENT: NO HELP FROM FALLING EURO AND POUND (1033 GMT)

While European and UK stocks usually get an accounting boost when the euro or the pound fall

against the dollar, it seems this doesn't apply when fears of a full-blown trade war actually

kick in!

"It doesn't matter what accounting boost you get if you can't trade," Mike van Dulken, head

of research at Accendo Markets just told us.

"USD strength from safe-haven seeking is pushing GBP lower, however, the FTSE is failing to

benefit, the threat to international trade is clearly greater than the accounting benefit," he

explained, noting that Germany's DAX, whose constituents are typically heavy exporters, is

suffering the most in Europe.

The dollar is at its highest in a year versus a basket of major currencies, and the euro and

the pound are down about 0.7 percent and 0.5 percent respectively against the greenback.

Analysts believe a trade war could benefit the dollar because import tariffs would fuel

inflation in an already strong U.S. economy in the midst of an aggressive rate hike cycle.

(Julien Ponthus)

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"INVESTORS LOOKING AGAIN AT UK BANKS" - DESPITE BREXIT (0956 GMT)

It hasn't been a good year for banks with political risk and delays to the expected timing

of rate hikes in the euro zone sending their index down more than 12 percent

year-to-date - the worst sectoral performer in Europe.

But the ECB rate risk looks to have refocused the attention on the UK domestic banks and UBS

analysts led by Jason Napier see opportunities there, perhaps ironically given the ongoing

Brexit negotiations.

"With (Other OTC: WWTH - news) larger parts of the European universe looking more fragile from an investment

perspective we've been fielding more calls from investors looking again at the UK domestics,"

analysts at the Swiss bank say in a note.

"Notwithstanding the risks around a disorderly Brexit and the negative reaction on rates

from the BoE (Shenzhen: 000725.SZ - news) which we think would follow, our base case remains that a lengthy

transition will occur," they also say.

The heavily discounted stock valuation and evidence that mortgage spreads are widening again

in June from May make them particularly bullish on Barclays (LSE: BARC.L - news) and Lloyds Banking Group

.

The FTSE 350 Bank index is down 7 percent year-to-date, easily outperforming

the double-digit slump suffered by the broader STOXX Bank index.

(Danilo Masoni)

****

OPENING SNAPSHOT: RED, A LOT OF IT (0722 GMT)

It didn't start well and it doesn't seem like it's getting any better. European stocks are

deep into the red with the STOXX now down 1.2 percent, doubling the opening 0.6 percent loss.

Beyond the trade war concerns, which are triggering what would be a third session of losses,

some disappointing news on the UK corporate front is prompting spectacular falls at Debenhams (Frankfurt: D2T.F - news) ,

down 12 percent, McCarthy & Stone (Frankfurt: MCM.F - news) sinking 18.8 percent and Ashtead down 6.6 percent.

Here's what European markets look like at 0715 GMT:

(Julien Ponthus)

*****

ON THE RADAR BEFORE THE OPEN: TRADE WARS, M&A AND UK DEBENHAMS (0646 GMT)

An escalating protectionist tit-for-tat between the U.S. and China is set to extend a

selloff in European stocks on Tuesday after Asian shares hit a four-month low overnight.

Futures for the main European benchmarks were down 1 to 1.3 percent, while Britain’s FTSE

100 futures fell 0.7 percent after Trump warned Washington would impose a 10 percent tariff on

$200 billion of Chinese goods after Beijing decided to raise tariffs on $50 billion in U.S.

goods - itself in response to Trump's announcement on Friday of $50 billion of tariffs.

Germany’s DAX, home to some of the world’s biggest carmakers which Trump has explicitly

targeted in his tariffs rhetoric, is set for the worst fall. It also includes many multinational

industrial firms such as Siemens (BSE: SIEMENS.BO - news) , which rely on unfettered access to global markets.

In general European companies are far more exposed to the global economy than U.S.

companies, making them more vulnerable to companies slapping higher tariffs on goods. Some 18

percent of European company revenue comes from North America and 9 percent from China, while 32

percent is derived from emerging markets.

U.S. companies get just 4 percent of revenues from China and 10 percent from Europe.

In M&A news, Swiss drugmaker Roche agreed to buy the rest of molecular information company

Foundation Medicine (Frankfurt: A1W5NZ - news) in a $2.4 billion deal. Sources also told Reuters private equity firm KKR

was close to signing a deal to buy Altice’s telecom towers, having trumped rival bids from

Blackstone (NYSE: BX - news) and a consortium of the infrastructure investment arms of insurers Allianz (Swiss: ALV-EUR.SW - news) and Axa (Paris: FR0000120628 - news) .

On the UK market the biggest stock to watch will be department store Debenhams, which warned

on profit again, blaming its poor trading on increased competitor discounting and weakness in

its key markets. It's likely to fall 20 to 40 percent, traders say.

A day after online grocer Ocado entered the FTSE 100, another warning from the UK high

street underlines the transformation the retail sector is undergoing, and the extra pressures UK

retailers in particular are buckling under.

Headlines to watch:

UK's Debenhams warns on profit again, blames weak market

UK's Ashtead posts 17 pct rise in FY underlying pretax profit

Ion's offer for Fidessa goes unconditional, awaits regulatory greenlight

Ferguson's profit rises 17.1 percent, fuelled by U.S. residential market

Mccarthy & Stone Sees Fy18 Operating Profit Of 65 Mln Stg To 80 Mln Stg

(Helen Reid)

*****

SELL-OFF TO CONTINUE, FUTURES INDICATE (0610 GMT)

European bourses are set to open well into the red, futures show. Euro zone trading centres

in Paris, Frankfurt and Madrid are seen retreating between 1 percent and 1.4 percent as worries

of full-blown trade war between the U.S. and China grow.

To put it in a nutshell: "as the U.S. and China head straight towards a full-on trade war

flows out of riskier assets are on the rise," writes Jasper Lawler, head of research at London

Capital Group.

(Julien Ponthus)

*****

EARLY MORNING HEADLINE ROUND-UP

There's some M&A news on the slate today around Roche and Altice (Other OTC: ATSVF - news) , with investors' eyes also

on the first full day of the ECB Forum on Central Banking.

"A repeat of last year's post-Sintra euro rally is unlikely this year," say Societe Generale (Swiss: 519928.SW - news)

analysts. "Market attention this week will likely be more focused on the OPEC meeting and the

escalating Sino (Dusseldorf: 1205802.DU - news) -U.S. trade dispute."

Here are some headlines to watch:

Roche to pay $2.4 bln to buy rest of Foundation Medicine

KKR close to signing deal for Altice's telecom towers - sources

Anglo American (LSE: AAL.L - news) wins permits to explore for copper in north Brazil

French property group Nexity unveils targets for financial growth

France's EDF (Paris: FR0010242511 - news) says 10-day strike from June 19 could impact power production

(Helen Reid)

*****

NO END IN SIGHT TO TRADE WAR SELLOFF AS TIT-FOR-TAT ESCALATES (0528 GMT)

European stocks are seen opening lower this morning, tracking a deepening downturn in Asian

stocks as the U.S. and China ramped up a trade dispute which has spooked investors wary of a

shift towards protectionism.

A sell-off in Chinese stocks drove Asian equities to a four-month low overnight as U.S.

President Donald Trump threatened further tariffs on Chinese goods in an escalating tit-for-tat

trade war between the world's two biggest economies.

Trump warned Washington would impose a 10 percent tariff on $200 billion of Chinese goods

after Beijing decided to raise tariffs on $50 billion in U.S. goods in retaliation for U.S.

tariffs announced on Friday.

Spreadbetters call the DAX 36 points lower at 12,798, the CAC 40 down 20 points at 5,430,

and the FTSE 100 4 points lower at 7,627. The German index is usually the worst hit by trade war

fears as it's home to carmakers, which have been targeted explicitly by Trump, and industrials

stocks which are highly dependent on unfettered access to global markets.

(Helen Reid)

*****

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