LIVE MARKETS-The great euro short unwind

* STOXX 600 down 0.1% amid caution ahead of G20 * Tech stocks rise 0.3% after Capgemini move on Altran * Altran trades just shy of Capgemini bid * Miners boosted by soaring gold prices * Wall Street dragged down by Iran tensions, trade worries June 25 - 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: rm://josephine.mason.thomsonreuters.com@reuters.net THE GREAT EURO SHORT UNWIND (1457 GMT) No, we're not talking about all the southern Europeans dusting their shorts off as a heatwave sweeps the continent... A significant dialling down of short positions in the euro has been partly responsible for the single currency's surge since Mario Draghi's Sintra surprise last week, according to Goldman Sachs strategists. Despite a dovish turn from the ECB which initially drove the euro down, the currency quickly recovered to rise to near four-month highs. With currency speculators still holding chunky long dollar positions, the strategists say "this leaves scope for further unwinds of long USD positions and could continue to tip the balance in the euro's favour over the near term". But, while short positioning may give it a lift for the moment, fundamental concerns will continue to hold the euro back in the medium-term, they argue. "Further ahead our confidence in the outlook for the common currency is much lower, due to uncertainties about the European growth outlook, ongoing trade disputes, and the dollar's safe haven status." (Helen Reid) ***** WINTER GAMES RETURN TO ITALY IN 2026: THE WINNERS (1433 GMT) Milan and Cortina d'Ampezzo won the right this week to stage the 2026 Winter Games, beating Stockholm, and while the event itself is still far away, analysts have already worked out possible beneficiaries from Italy's first Olympics since 2006. "We believe that the most concrete drivers that should have an impact in the years before the event are investments in infrastructure and roads (Buzzi Unicem and Salini), while the impact of tourist presence should be felt further down the road (Marr, Moncler, Campari, Autogrill)," says Equita analyst Luigi De Bellis. The Games' organisational budget is at $1.7 billion, according to the bid file, but that doesn't include infrastructure projects. Italy's deputy PM Salvini also said the games would bring "at least five billion (euros) in added value, 20,000 jobs, as well as many new roads and sports facilities." On top of the most obvious beneficiaries, De Bellis says Coima Res could also benefit (given its exposure to the Milan real estate market, 90% of NAV), as well as motorway operators Atlantia and ASTM, fitness equipment maker Technogym, and employment agency Openjobmetis. Finally, there might also be something for small local banks Popolare di Sondrio and Credito Valtellinese, he says. (Danilo Masoni) ***** THE WIDESPREAD IMPACT OF HUAWEI BLACKLISTING (1418 GMT) With earnings season around the corner hopes of a second-half turnaround in the tech sector have been dampened by the trade conflict, and in particular Huawei's blacklisting, which has already hit semiconductor companies across the world. German asset manager DWS says Huawei is responsible for 7% of world semiconductor demand and that the potential ban "leads to a lot of disruptions in the supply chain". We've had severe profit warnings from Siltronic and Broadcom leading to a big sell-off in global chip stocks. DWS also points to the big exposure industry bellwethers like Intel and Qualcomm have to the Chinese tech giant. So does the Huawei blacklisting only hurt semiconductor stocks? Not quite. The telecoms sector is another potentially vulnerable industry as 5G deployment is underway. DWS believes a ban on Huawei could prove costly as telcos may have to rely on more expensive options. "I think 5G deployment will take longer," says Andre Kottner, co-head equities at DWS. Bank of America Merrill Lynch analysts have a similar view, and say a deeper question is the need to replace existing equipment, which could prove "very costly". With a lot of negatives priced into the tech equipment sector, where do we hide? Software. "Software is eating the world," DWS says, quoting venture capitalist Marc Andreessen. The asset manager says the sector is "attractive" amid the ongoing trade conflict. Here's the performance of software stocks against the broader tech index: (Thyagaraju Adinarayan) ***** A BIT LESS DEFENSIVE (1324 GMT) Kepler Cheuvreux's top strategist Christopher Potts doesn't think the U.S. and European economies are slipping into recession, and he expects Trump and Xi to agree on further trade talks over the weekend at the much-awaited G20 meeting. That helps support his view that Treasury yields should trough in this period and explains why he turned a bit less defensive -- closing underweights in two compartments of the materials sector in Europe: Basic Resources and Construction. "The recession in the global producer space, although prolonged, should not give rise to authentic recession in the West because there is comparatively little stress in the credit space and little pressure upon household finances and consumer confidence," he says in his latest strategy update. On the trade war front, he argues: "Trump's 'deal of the century' appears to be unobtainable... China will not capitulate. At the same time it seems unlikely that Trump will escalate the conflict at this point, because the consequences would be excessively damaging to his cause... Agreement to 'continue to talk' seems to us to be the most probable outcome of the forthcoming meeting between Presidents Trump and Xi." On his recommendations, Potts argues it's still too early to formally downgrade any of the defensive sectors and only marginal adjustments are warranted. "We will reduce our positions marginally in the sectors of Staples, Healthcare, Utilities and Telecoms pro rata... If and when we increase our portfolio exposure to the value universe it will be in three stages: first, commodity value, second cyclical value and - finally - financial value," he concludes. In the chart below, you can see European sector performance over the past 12 months: (Danilo Masoni) ***** CONFUSED BY FED U-TURN? YOU'RE NOT ALONE (1301 GMT) Scratching your head about the Fed's policy U-turn and how to trade it? You're not alone: even the wealthiest people in the world have been knocked sideways by the U.S. central bank's increasingly dovish stance. Speaking to us earlier today, Josef Stadler, who heads up UBS' global ultra high net worth (UHNW) business, said his clients who have billions of dollars to invest are also worrying that the Fed knows something they don't, given the rapid turnaround in policy. "The question is why? Why now and how fast and how strong," he said. The rise in tandem of riskier assets and safe-haven bonds lately has been viewed by many as a sign of confusion among investors about the Fed's sudden change in tack on interest rates in just six months without a major change in the macro outlook. Following Fed chairman Powell's comments last week, the market is now pricing in a 25-basis-point rate cut for next month and a further two cuts by year-end. It was only in December that the central bank raised rates, and at the start of the year more hikes were expected. There's been a breakdown today in the correlation between bonds and stocks. Ahead of a speech by Powell later today, keenly watched for comments that will either validate or undermine the market's rate cut outlook, German government bond yields have fallen to a record low. European stocks are under pressure amid jitters ahead of the Xi-Trump meeting, which could be another key factor in determining the market's direction in the second half of the year. But Stadler's clients are also getting nervous that, following relief at the start of the year that the global economy hadn't fallen off a cliff, the stellar rally in stock markets will soon run out of steam. Weaker earnings loom large for them. "The issue right now is many of those market participants don't believe in endless growth in stock markets given the earnings momentum," he said, with some bracing for a global stock market correction of between 5-10%. "A combination of weaker earnings momentum and a strong signal (of a rate cut) in July will probably not be a recipe for success in the public market," he warned. (Josephine Mason) ***** TRADES TO PLAY IF YOU THINK G20 WILL DELIVER THE GOODS (1213 GMT) What do stocks stand to lose from a further escalation in trade conflict? About 20%, according to UBS economists. U.S. equities would surrender part of their outperformance over Europe, but emerging markets will suffer most of all, write Arend Kapteyn and team. But ahead of the G20 this weekend it's all still to play for. While most are sceptical there will be a substantive breakthrough, anything could happen and UBS economists offer some trades for those brave investors tempted to bet on a truce: * Chinese stocks (no surprises there!) - "The MSCI China and CSI 300 indices have been penalised more than their EM and APAC peers," they write. "Chinese equities have more room for a potential rebound if trade worries fade." * Long MSCI ACWI Energy versus MSCI ACWI Utilities - Energy has been hit the hardest by trade tensions, according to UBS' "trade discount" framework (see below), while utilities have the most negative correlation to trade conflict. "A trade resolution would see global growth, IP and trade activity improve, boosting oil prices, while a rise in rates would hurt utilities." (Helen Reid) ***** M&A UNDERPERFORMANCE SPREADS TO ALL MARKETS, INCLUDING EUROPE (1009 GMT) It's not common to see a company rising after announcing a takeover but Capgemini is just doing that, following its 3.6 bln-euro acquisition of smaller rival Altran. Despite today's welcome exception, adviser Willis Towers Watson has found out that the M&A market has further worsened in Q2 with the underperformance of shares in predator firms spreading to all markets for the first time since data collection started in 2008, "sounding (a) warning bell for future dealmaking in 2019". According to the results from its latest quarterly report, companies making M&A deals in every region on average lost shareholder value, underperforming the world stock benchmark by 6.3 percentage points. The global market underperformed for an unprecedented seven consecutive quarters, while even European acquirers, which in Q1 outperformed, were beaten by the regional benchmark. "M&A activity is a barometer of business confidence and the rapid drop in deal volume in the last six months, especially in the U.S. market, suggests the impact of geopolitical, trade and tariff uncertainties has been brutal, fuelling board room uncertainty around the world," says Jana Mercereau, head of corporate mergers and acquisitions for Great Britain at Willis Towers Watson. "Until there is less turbulence in the global markets, there is a good chance that even fewer deals will be announced in the second half of 2019," she adds. (Danilo Masoni) ***** DOVISH BUT NOT BULLISH (0929 GMT) The pattern in markets recently has been a strong rally on expectations of monetary policy easing, followed by a pullback as the realisation hits investors, like a hangover, that there *is* a reason why central banks are shifting towards easing - and it's not good news. "It is due to inflation being where it is, and the fact tariffs are playing a role for the first time in decades, and the fact we are late cycle," says David Holohan, head of equity strategy at Mediolanum Asset Management in Dublin. "We are dependent on Asia in a lot of ways to generate growth because Europe continues to be quite sluggish, the U.S. is cooling, and unfortunately Asia is where a lot of the tariffs are aimed at. While it's not surprising central banks are dovish, does that not mean earnings multiples need to be lower and prices drift down? Valuations are quite high particularly in the US." Holohan sees a "disconnect" between the downward drift of earnings expectations (see chart below) and equity prices which keep climbing, and doesn't see that lasting. "Earnings are going to go lower and I suspect as we enter Q2 earnings season almost every company is going to say it is more cautious as the year goes on. We've already started to get profit warnings - from Carnival, Daimler, Broadcom... - and that is the ultimate decider of where equities go, if companies reiterate a very cautious stance through earnings," he adds. (Helen Reid) ***** OPENING SNAPSHOT: STOCKS ON THE BACK FOOT, BUT TECH SHINES (0729 GMT) IT consulting is the only game in town today - Altran has jumped 22% and is trading just a touch below the 14 euro offer price made by Capgemini in its bid to gain a foothold in the burgeoning engineering outsourcing services market. Capgemini is up 5.6% as dealers cheer the move, but one of only nine stocks on Paris' CAC 40 in positive territory. The news is also helping lift the tech index by 0.4%, one of only three to be gaining in early deals. Otherwise, it's pretty quiet, with stocks moving largely on the macro environment, which is dominated by caution ahead of the G20 Summit at the weekend. Still up a decent 4% for the month, the STOXX 600 is down 0.2% in early deals, led by banks, down 0.8%. (Josephine Mason) ***** CARPETS, PHONES ... AND CONSULTING (0659 GMT) It's not considered the most exciting industry, but dealmaking in France's IT consultancy sector has caused most of the excitement so far this morning - business consultancy firm Capgemini has agreed to buy French engineering and digital services company Altran for 3.6 billion euros ($4.10 billion) in cash to create a global IT powerhouse. Dealers have welcomed the acquisition, which is expected to be earnings accretive from year one and will give the company a foothold in the fast-growing engineering outsourcing services market. Capgemini could rise as much as 10% and Altran up to 18% on the news. Although the deal is not expected to cause major anti-competition issues given the fragmented nature of the market, watch rival SAP for whom it ramps up competition. Elsewhere in corporate news, shares in KPN are expected to come under pressure after the Dutch telecoms group suffered a nationwide outage of its network yesterday and this morning announced its CEO Maximo Ibarra will leave in September citing family reasons. And finally some good news from the UK high street: Britain's biggest floor coverings retailer Carpetright appears to be back on track, reporting a narrower loss and rising sales growth after it closed stores to stay afloat. The shares are seen rising. Across the broader benchmarks though, stocks look set to open lower as investors brace for the G20 summit and simmering tensions in the Middle East force them to seek the safety of gold and other asset classes considered attractive during times of economic and political strife. The main Eurostoxx 50 is down 0.4% and Wall Street futures are also under pressure. The pan-European STOXX 600 is still on track for a 4% rise this month though, its best since January after the increasingly dovish signals from the U.S. and euro zone central banks. Some UK headlines: UK's Carpetright narrows loss, says turnaround on track Petrofac gets $1.7 bln in orders, points to stronger second half Mears Sees FY Results In Line With Previous Guidance (Josephine Mason) ***** ON OUR RADAR: DRUGS, FASHION AND ... CONSULTING (0617 GMT) European stock futures have opened, as expected, on the back foot with Washington's latest Iranian sanctions and the upcoming G20 summit looming large for investors who prefer the safety of gold and other havens. There's a bit of dealmaking to digest this morning that could move individual stocks and stir sector-wide M&A hopes. French business consultancy firm Capgemini has agreed to buy engineering and digital services company Altran for 3.6 billion euros ($4.10 billion) in cash to tap into the fast-growing engineering outsourcing services market. The news could hurt rivals like SAP, for whom it ramps up competition. French fashion group SMCP will buy men's luxury clothing company De Fursac, in a deal it says will boost its earnings this year and fit with its other existing brands such as Sandro. In banking, hopes that Commerzbank may salvage a merger with a European rival from the wreckage of its failed talks with Deutsche Bank will have to be put on hold for now - Italy's UniCredit has put a possible bid for the German bank on ice, four sources said. It's a similar situation at Renault - the Japanese carmaker has poured cold water overnight on hopes for a quick fix to its strained relations with France's Renault, saying inequality between the partners could unravel their two-decade-old automaking alliance. For Novartis, some bad news after a liver disease drug it was working on with Conatus in the U.S. failed in a mid-stage trial, throwing the future of the project into question. The Swiss drugmaker says it remains committed to developing treatments for the disease. Dutch telecoms group KPN has suffered a nationwide outage of its network yesterday and this morning announced its ceo Maximo Ibarra will leave in September citing family reasons. Here are your headlines so far: French fashion group SMCP buys men's luxury brand De Fursac Nissan pours cold water on hopes for quick fix to Renault strain Nokia not immune to impact of trade war uncertainty, says its China president EXCLUSIVE-Italy's UniCredit puts possible Commerzbank bid on ice for now-sources Consulting firm Capgemini to buy Altran for 3.6 bln euros Swiss ready to retaliate against EU over stock market access Italian banks reject Apollo's rescue plan for Carige Dutch telecom KPN confirms outage hits fixed line, mobile services nationwide Dutch telecom KPN says unclear how long network outage may last Royal KPN Announces Maximo Ibarra Resigns As CEO (Josephine Mason) ***** SUBDUED START IN EUROPE (0524 GMT) It'll likely be a subdued start to stock trading in Europe this morning with caution continuing to keep a lid on gains amid simmering tensions in the Middle East after Washington slapped fresh sanctions on Iran and ahead of the G20 summit at the weekend, when Presidents Xi and Trump meet to discuss their trade dispute. Financial spreadbetters IG expect London's FTSE to open 19 points lower at 7,397, Frankfurt's DAX to open 41 points down at 12,233, and Paris' CAC to open 14 points lower at 5,508. London's energy heavyweights may be weighed down by weaker oil prices amid concerns about demand, offsetting rising Middle East pressure, while soaring safe-haven gold prices amid the fresh geopolitical stress will likely bolster the City's gold and silver miners again. (Josephine Mason) ***** (Reporting by Danilo Masoni, Helen Reid, Josephine Mason and Thyagaraju Adinarayan)