LIVE MARKETS-Will Italy repay its 10-year bonds at par and in euros?

* European shares flat * ECB pushes back rate hike as outlook darkens * ECB reveals TLTRO details but banks slide * Renault tumbles after Fiat Chrysler withdraws merger offer * German property stocks fall on report of Berlin rent cap * Wall Street ekes out gains at open on rate cut hopes June 6 - 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 WILL ITALY REPAY ITS 10-YEAR BONDS AT PAR AND IN EUROS? (1343 GMT) Deutsche Bank strategist Jim Reid put that question to a London conference attended by several hundred investors. At first glance the answer -- 67% saying YES and 33% saying NO -- may sound somewhat reassuring, but for Reid it's quite the opposite. "I did the same poll last year and the number expecting Italy to pay back its debt in full dropped from 79% to 67%. So it’s quite remarkable that in a two trillion euro plus market, one third of investors expect there to be a haircut of some kind within a decade," he writes. Meanwhile on markets, the ECB is driving price action. The central bank has just released more details on its new round of cheap loans for banks but euro zone banking stocks are continuing to slide, down 0.3%. (Danilo Masoni) ***** TLTRO-DRIVEN GAINS FADE FAST AS DRAGHI SPEAKS (1308 GMT) Italian banks jumped as much as 2%, boosting the euro-zone banking index after the ECB revealed details of the targeted longer-term refinancing operation (TLTRO). Italian banks are the biggest recipient of the TLTRO programme. But investors fast curbed their enthusiasm: banks and broader indices have cut most of their gains with Mario Draghi's conference underway (see below). The euro zone bank index is now down 0.5% at a day low. Another major highlight from the ECB's statement was its pledge to keep interest rates at their current, record-low level at least through the first half of 2020, instead of 2019-end. The forward guidance is a marked difference from what was given in May. Jefferies says the ECB's statement is a "bit of mixed bag", but not as dovish as some were speculating. TLTRO details: banks will be able to borrow from ECB at 10 bps above the average rate applied in the Main Refinancing Operations, currently set at zero, over the life of the loan. Credit Suisse says the ECB announced somewhat better than expected TLTRO3 terms. In FX, the euro jumped over half a percent, weighing on euro zone stocks. (Thyagaraju Adinarayan) ***** "IMMENSE PRESSURE": BANKS' PAIN IN ONE CHART (1028 GMT) Investors are awaiting for Draghi to lay out details of a new round of cheap loans for banks and there is even chatter about another measure -- tiered rates -- to support the sector. Still these measures may just alleviate the pain that banks are suffering as a results of years of ultra-low rates and the broader monetary policy outlook isn't of any comfort. Illustrating their pain is this chart showing how European banks are trading at a record low relative to the market. As Jason Napier, head of European banks research at UBS in London, has put it this week, euro zone banks are under "immense pressure" with profitability squeezed by low rates, market fragmentation and higher capital requirements. "As hard as it may be to believe eurozone banks are currently over-earning," Napier said. "We think profits would fall by 20% from current levels simply as old, higher-yielding loans are replaced with deals struck at today's narrower credit spreads.... Without policy measures banks will struggle more in the future". (Danilo Masoni) ***** FIAT/RENAULT: WHAT'S UNDER THE HOOD? (1005 GMT) 10 days! That's all it took for Fiat Chrysler to pull the plug on $35 billion Renault merger, dashing hopes of a mega car deal in Europe. Renault shares are tanking, but rest of the sector is pretty stable. Fiat abandoned the Renault offer blaming French politics and a source close to Renault board said the move came after France sought to delay a decision on the deal to win the support of Nissan. On the failed Renault deal, BAML analysts say they think Fiat can do better than merge with an operator that is "smaller scale, effectively state-controlled and appears inflexible, and which will burn cash this year on our calculations". A tactic to get the deal done faster? "We still need to understand whether the move is a negotiation tactic to push the French to accelerate (on a deal) or rather a true withdrawal," said Angelo Meda, head of equities and portfolio manager at Banor SIM in Milan. Renault shares are down 8% after the deal got called off and a Citi downgrade is further adding to woes. Among auto stocks in Europe, Peugeot is outperforming the sector on speculation that Fiat might look into buying Peugeot. But, let's not to forget the complicated ownership in that stock as well with the Peugeot family, Chinese government and the French government owning 1/8th each in the company. On other potential options for Fiat, Equita analyst Martino De Ambroggi says: "PSA looks unlikely given that political hurdles would resurface. Hyundai and GM remain in the background. If anyone is interested we believe they would show up in a short period of time". Better off being independent? "We believe that FCA has more time and a better profitability and cashflow profile to find a future partner," BAML adds. (Thyagaraju Adinarayan and Danilo Masoni) ***** UK STOCKS DISCOUNTING A HARDER BREXIT (0936 GMT) Uncertainty over Britain's next Prime Minister has resulted in a sluggishness descending over UK markets, with sterling hardly budging as traders are reluctant to place bets on a crowded field of candidates. "The market is discounting a harder Brexit than it was a month ago," says Chris Rodgers, head of UK equities at Sanlam Investments. Indeed, as you can see below, valuations in housebuilders - seen as among the most vulnerable to a no-deal Brexit - have tumbled over the past weeks. But Rodgers remains sanguine: "I am far from disheartened. I am frustrated by Brexit, but I know it will be resolved and in the meantime quality businesses will come through," he says. He also argues some stocks, like housebuilders, are undeserved shunned by investors, taking their valuations down due to Brexit risk while fundamental factors are in favour of it despite uncertainty over a potential general election. "A Labour government would be in favour of building more homes. Not only are the shares in Taylor Wimpey cheap but the UK structurally needs to build more houses. The same with IBStock, the UK's largest brick manufacturer," he argues. Overall, though, Rodgers says he can think of more negatives from a potential Labour government for the stock market and UK economy than positives. "I don't invest in utilities at the moment because I don't need to and the risk of renationalisation is all too real," he warns. For more on investors shunning UK utility stocks: (Helen Reid) ***** ARE U.S. EQUITIES A BETTER PICK THAN EUROPE AS GROWTH SLOWS? (0810 GMT) While Europe may seem a more logical choice for those seeking to avoid being on the front lines of a global trade war, UBS Wealth Management has just entered an overweight U.S. against euro zone equities trade. "U.S. equities are better placed than euro zone equities in this environment of heightened risk and slower growth," UBS Wealth Management's global chief investment officer Mark Haefele writes. His reasons? Estimates for the euro zone's GDP growth rate for the rest of 2019 are just half of those for the U.S., he expects euro zone earnings to grow just 2.5% this year, and sees the MSCI EMU index as trading above fair value with a 12-month forward P/E of 13.6. As you can see below, European earnings are expected to retreat in Q1 while U.S. earnings growth stays positive. "The Fed has more ammunition than the ECB to combat slowing growth should trade tensions escalate," Haefele says, adding that he sees concerns about regulatory risk for technology firms as overblown. All eyes will, of course, be on the ECB in a few hours to show the market exactly how much ammunition the central bank has. (Helen Reid) ***** OPENING SNAPSHOT: STOXX EDGES UP, RENAULT TOP FALLER (0732 GMT) European shares are off to a slightly positive start ahead of today's ECB policy meeting when the central bank is expected to try to give the euro zone economy a boost. Most sectors are trading in the black, while autos are down, dragged by a 7% drop in Renault shares (top faller in Europe) after Fiat Chrysler dropped its $35 billion merger offer for its French rival. Fiat shares are also under pressure, down 1.7%. Real estate is another weak spot with shares in Germany's Vonovia and Deutsche Wohnen hit by reports of a rent cap plan by Berlin's city government. Meanwhile, rate-sensitive euro zone banks are up 0.2% as investors await possible details from ECB's Mario Draghi about a third round of cheap loans to help the ailing sector. Gains in defensive stocks amid continued worries over global growth and trade are propping up the STOXX 600, which is up 0.4% in early trading. (Danilo Masoni) ***** ON OUR RADAR: AUTOS & BANKS (0656 GMT) European shares are set for a muted open ahead of today's ECB policy meeting which could unveil a generous cheap loan scheme for banks and as hopes for a big merger deal in the auto sector vanished after less than two weeks. Futures on main country indices are trading between a fall of 0.1% and a gain of 0.2%. After midnight in Europe, Fiat Chrysler suddenly dropped its $35 billion merger offer for Renault, blaming French politics. That leaves the two firms facing an array of issues, starting with the dismay of investors who had bid up their shares. Fiat Chrysler are down 3-5% in premarket trade and Renault down 5-10%. French budget minister Darmanin however said talks "could resume at some time in the future". Banks are in focus as investors await details from ECB's Mario Draghi on a third round of cheap loans for banks, known as TLTRO, to help offset continued pressure on profits from years of ultra low interest rates. Their shares have already come off multi-month lows this week on talk the scheme could be more generous than expected and allow lenders to buy more government bonds and roll over the previous round of cheap loans. Italian and Spanish banks are seen as the biggest beneficiaries of the funding, which however is not expected to materially change their grim outlook. On top of that there is talk Draghi could pre-announce another measure to alleviate pain for banks: rate tiering. Still in the sector, French bank Credit Agricole unveiled this morning a new set of higher profit targets for 2022 after it had met its 2019 targets a year ahead of schedule. One trader has called the stock up 1-2%. Meanwhile, five banks including Barclays and RBS have been fined 90 million Swiss francs in Switzerland for rigging the foreign exchange market. The investigation is still ongoing. In earnings news, Remy Cointreau handed investors a special dividend of one euros per share after its annual operating profits rose by a stronger-than-expected 14.2%, helped by cost controls and robust demand for its premium cognacs in China. Some more headlines here: Aviva overhauls UK business, to cut 1,800 jobs; CMC Markets profit; Norwegian Air's growth slows further in May, passenger income in line; Rolls-Royce agrees 4.6 bln stg pension deal with insurer L&G; AstraZeneca's blood cancer drug meets main goal in late-stage trial; Mitie beats full-year profit guidance, sees steady growth in 2019; Entertainment One Confirms That Mark Gordon Continues To Be A Part Of Eone Team (Danilo Masoni) ***** EYES ON AUTOS AFTER FIAT WITHDRAWS RENAULT MERGER OFFER (0555 GMT) While Europe is set for a muted open ahead of the ECB policy meeting, there will likely be action in the auto sector as hopes for a merger between Fiat Chrysler and Renault to create the world's third-biggest automaker vanished after less than two weeks. After midnight in Europe, Fiat Chrysler suddenly abandoned its $35 billion merger offer for Renault , blaming French politics. That leaves the two companies facing an array of issues, starting with the dismay of investors who had bid up shares in both companies. Eyes also on French bank Credit Agricole which unveiled this morning a new set of higher profit targets for 2022 after it had met its 2019 targets a year ahead of schedule. It said it now expected annual net profits above 5 billion euros in 2022. Still in banks, four British and U.S. banks (Barclays, Citigroup, JP Morgan and Royal Bank of Scotland have been fined 90 million Swiss francs for rigging the foreign exchange market. In earnings, Remy Cointreau handed investors a special dividend of one euros per share after its annual operating profits rose by a stronger-than-expected 14.2%, helped by cost controls and robust demand for its premium cognacs in China. Elsewhere on the corporate front it looks quiet so far. Anyhow, here are the main headlines: Italy's government to extend state guarantees for Carige bond issues - source Carlyle, DWS lining up bids for $3.9 bln Arriva sale - sources Ford expected to announce closure of Welsh engine factory- source St. James's Place pulls mandate from Woodford Investment Management (Danilo Masoni) ***** EUROPE SEEN STEADY AHEAD OF ECB (0526 GMT) European shares are set to open little changed this morning with all eyes on the European Central Bank's policy meeting later today that is expected to try to give an ailing euro zone economy a boost and may even set the stage for more action later this year. Financial spreadbetters at IG expect London's FTSE to open 6 points higher at 7,227, Frankfurt's DAX to open 4 points up at 11,985, and Paris' CAC to open 4 points higher at 5,296. The STOXX 600 ended up 0.4% in the previous session, helped by gains in defensive shares which more than offset a drop in Italian banks after the EU Comission concluded the Rome was in breach of EU fiscal rules, paving the way for possible disciplinary action. Over in Asia, shares were mixed as fears the U.S. trade tussle with Mexico would further depress global growth, warred with wagers central banks would have to respond with fresh stimulus. (Danilo Masoni) *****