LIVE MARKETS-Germany: Epicentre of European manufacturing downturn

* European shares slightly higher * STOXX 600 +0.1% hovers around 5-week highs, DAX +0.3% * Asia stocks edge up on stimulus hopes * Air France top STOXX loser, airlines slide Welcome to the home for real-time coverage of European equity markets brought to you by Reuters stocks reporters and anchored today by Danilo Masoni. Reach him on Messenger to share your thoughts on market moves: rm://danilo.masoni.thomsonreuters.com@reuters.net GERMANY: EPICENTRE OF EUROPEAN MANUFACTURING DOWNTURN (1008 GMT) The recent downturn in the euro-zone factory activity shows diverging signals with Germany sharply underperforming the rest. Germany makes up about one third of the euro area economy and the bloc's manufacturing has historically been highly-correlated with the performance of Europe's No.1 economy. What's the bright side in this? "The unusual manufacturing disconnect may also reflect a more structural rebalancing of the euro area industrial sector, with countries like France and Spain slowly regaining market shares against Germany. If true, this would be a welcome development for the euro area as a whole," Citi economists say. "German manufacturing underperformance has never been so acute." Germany has been hit more negatively by Brexit and China than the UK's other trading partners, they add. Why so? It's mainly due to the manufacturing-intensity of the German economy and its higher exposure to the sources of external weakness, mainly trade-related weakness from China and Brexit-effects. (Thyagaraju Adinarayan) ***** ECB EQUITY BUYING: WHAT'S THE BUZZ (0859 GMT) Maybe expectations surrounding stimulus to be unveiled by the ECB this week are running high and no surprise that some policymakers have already tried to cool down the mood. For equity markets a real game-changer would be if the central bank included equities in its asset purchase plan, following the example of Japan. But is that at all possible? What are people saying? Credit Suisse says even though "the political and logistical hurdles are inevitably extremely large"... equity buying by the ECB is not "as inconceivable as it sounds". "The Bank of Japan began equity purchases in 2010, and to the extent that euro area monetary policy has 'Japanified', pursuing equity purchases could be considered the natural next step," strategists at the Swiss bank say. "Even a mention that ECB staff are considering the 'modalities' of such a policy could be sufficient to drive risk appetite higher, and generate a sense that the ECB are genuine in their attempts to deliver a positive surprise," they say. CS also notes Germany makes 31% of the Euro STOXX 50, meaning that if the ECB were to buy an ETF on that index, Germany would in essence be a "disproportionate beneficiary". As you see in the chart from STOXX, France (39%) has the biggest weighting to the index, followed by Germany (30.9%). The Netherlands (10.6%) and Spain (9.6%) follow at some distance. CS also notes that any equity purchases could be an incentive for corporates to invest as that would make share buybacks more expensive. But not everyone looks to be in favour of the ECB buying shares. "Anyone believing in market based price mechanisms must be appalled by such thought," says Commerzbank's chief economist Jörg Krämer. "Since the onset of the financial crisis more than ten years ago, the ECB has done much that was previously unthinkable. In this respect, it could also buy shares at some point, although this is unlikely this year or next," he adds. (Danilo Masoni) ***** STOXX AT 5-WEEK HIGHS, AIR FRANCE LEADS AIRLINES LOWER (0728 GMT) European shares are off to a positive start with the STOXX 600 benchmark holding at five-week highs, up just marginally, underpinned by hopes of central bank stimulus and fresh weakness in the pound that's lifting the international heavyweights of Britain's FTSE. Among stock movers, airlines have come under pressure with Air France down 6.4% after the company said "close-in bookings in the peak travel period were weaker than foreseen in view of softening macro-economic environment". "The comment... implies downside risk to estimates and reads across negatively to the other European airlines," say Liberum analyst Gerald Khoo. Traders also cited a Les Echos report saying Air France could be interested in Aigle Azur. IAG shares are down 1.6% as British Airways pilots began a 48-hour strike today, grounding nearly all its flights and disrupting the plans of thousands travellers, while easyJet is down 1.9%, Lufthansa down 1.2% and Ryanair down 0.3%. Meanwhile, a UBS upgrade to buy is lifting ProsiebenSat shares up 3.6% to the top of the STOXX. Here's your opening snapshot: (Danilo Masoni) ***** WHAT'S ON OUR RADAR (0652 GMT) European shares are expected to rise slightly at the open today, holding at 5-week highs as GMT)hopes of more stimulus by central banks around the world keep equities in demand, while corporate newsflow slows down. Futures on euro-zone benchmarks are trading between flat and a rise of 0.2 %, while FTSE futures are up 0.5%, helped by fresh weakness in the pound. On the corporate front, shares in IAG are seen opening 2% lower after British Airways pilots began a 48-hour strike on Monday, grounding most of the airline's flights and disrupting thousands of travellers' plans. In M&A, a Sunday Times report saying Orion Capital is seeking partners for buyout of Intu is seen lifting shares in the manager of shopping centres by around 10% at the open, while Eddie Stobart Logistics said it has received a preliminary expression of interest from its third largest shareholder DBAY Advisors Limited. In earnings, Associated British Foods maintained its guidance for the 2018-19 year, forecasting good profit performances at its Primark fashion chain and grocery business would offset a decline in its sugar operations. Its shares are seen up 1-2%. Headlines roundup: British Airways pilots ground planes in unprecedented 48-hour strike Primark owner AB Foods maintains full-year guidance Lloyds ups PPI provisions to 1.2-1.8 bln stg, suspends buyback Ahold's CFO to leave company in 2020 Eddie Stobart gets takeover interest from investor DBAY Advisors Adevinta's Leboncoin to buy French Argus Group Dorian industry insured losses seen in several billions of dollars - Munich Re Deutsche Bank appoints new German corporate bank chief Geely to bring air taxis to China in tie-up with Daimler-backed Volocopter Banco do Brasil, UBS in advanced talks for investment banking joint venture -sources Italy's Snam seeks U.S. footprint with bid for Midwest gas pipeline - sources Priority for Renault is boosting Nissan alliance-France's Le Maire Ferrari to lift lid on new F8 Spider to maintain fast track growth German broadcaster ProSiebenSat. 1 is doubling down on its free-to-air model - FT BRIEF-Telefonica Deutschland reiterates full-year 2019 guidance Unregulated firm Financial.org closes, investors say accounts frozen Santander to increase its Mexican business ownership to 91.6% (Danilo Masoni) ***** EUROPE SEEN SLIGHTLY UP BEFORE ECB LATER IN THE WEEK (0532 GMT) European shares are expected open mostly higher ahead of the European Central Bank meeting later this week where the central bank is expected to unveil a comprehensive stimulus package. Spreadbetters expect at IG London's FTSE to open 22 points higher at 7,304, Frankfurt's DAX to open 15 points higher at 12,206, and Paris' CAC to open 6 points lower at 5,598. "Doves will rather be flying over the European Central Bank (ECB) this week. Rising trade tensions, weakening global demand and Brexit uncertainties have recently taken their toll on the Euro zone’s economy," says Ipek Ozkardeskaya, Senior Market Analyst at LCG. Over in Asia, stocks edged higher amid a cautious market mood as investors hoped for stimulus to support growth in the world's major economies. (Danilo Masoni) ***** (Reporting by Danilo Masoni, Josephine Mason and Thyagaraju Adinarayan)