LIVE MARKETS-Low-liquidity rally vulnerable to central bank shocks

* Europe pares early losses, STOXX 600 up 0.1% on weaker euro/sterling * Philips up 4%, Tomra falls after results * Eyes on ECB, Fed 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 LOW-LIQUIDITY RALLY VULNERABLE TO CENTRAL BANK SHOCKS (1150 GMT) Most asset classes have had one of the best first-halfs ever but this rally has been in a backdrop of low market liquidity. Dovish central banks across developed markets have added fuel to the equity surge but it did little to improve trading activity, JP Morgan analysts say, pointing to a 15% drop in volumes during the second-quarter (compared to Q1). What does low liquidity mean for shocks? "Low flow support and trading activity and low liquidity leave both equity and bond markets vulnerable from here if central banks disappoint increasingly demanding market expectations," JPM says. Volumes on S&P 500 futures is close to last year's average, which by itself was close to historical lows, per data by JPM. If central banks become less accommodative than what the market has been pricing, we could maybe see a correlation shock, meaning all asset classes will sell-off given the high valuations, Olivier Marciot, portfolio manager at Unigestion said last week. In Q2, German bund futures and gold were the only asset classes seeing more trading activity with gold seeing 13% more volumes than Q1. The yellow metal hit highest since May 2013, as tensions in the Middle East rise, central banks signalled rate cuts and financial markets turned weaker. Meanwhile, today's volumes also seem to be subdued with the STOXX 600 running 9% below average for this time of day, according to a trader. (Thyagaraju Adinarayan) ***** BEATING A LOWERED BAR (1122 GMT) Most companies in Europe and America are yet to report their latest numbers, but some early signals from the reporting season haven't been that bad, thanks to lower expectations. While that's reassuring in one way, it's still too early to make conclusions about the whole second quarter which is clearly benefiting from a much lowered bar. "The results so far, even though it is admittedly still very early in the season, are quite encouraging," Morgan Stanley says in a note. With 11% of companies having reported in the U.S. and 15% in Europe, MS strategists say the earnings growth is "quite good" - at 8% and 3% respectively year-on-year. They also highlight that the current season was preceded by a preannouncement season more negative than average with companies such as Exxon, Daimler, BASF and Freeport recovering from the sell-off following disappointing announcements relatively quickly. In more mixed showings: the proportion of U.S. companies beating estimates remains above average, while it is falling in Europe, according to MS. "European earnings have delivered a modest EPS beat so far... but lowered expectations, softer sales and a number of notable profit warnings suggest the beat is low quality," the bank says. Of the 46 companies MS tracked so far, 35% of companies have beaten EPS estimates, while 26% have missed, giving a net beat of around 9% of companies. According to JPM, Q2 S&P 500 EPS growth projections have fallen to -2% currently from +5% at the start of the year, while euro zone EPS growth estimate has fallen to 3.5% from 9.2% over the same period. (Danilo Masoni) ***** IS ECB MEETING PRICED IN? (0949 GMT) Many conflicting factors are keeping markets in check this morning, with investors readying for the main event: the ECB policy meeting on Thursday when the central bank is expected to steer towards a rate cut in September as lingering uncertainty continues to dent business confidence. Keep an eye out for the wording: economists at Rabobank, Deutsche Bank and Barclays expect the bank to tweak its forward guidance by vowing to keep rates at "present or lower" levels, rather than just at "present" levels currently, making explicit the downward bias for rates. This will herald a 10 bps cut in September, economists say. Rabobank expects three follow-up cuts in the coming 12 months while Barclays see two more 10 bps cuts in December and March. It's too early for a restart of net asset purchases, although Barclays and Deutsche expect Draghi to sound a note of concern over the impact of a prolonged period of negative rates on banks, paving the way for the introduction of mitigating measures, such as tiered depo rates, in September. Also see: GRAPHIC-Did someone say rate cut? Five questions for the ECB That's all pretty clear, but what's not clear is how much of all this is priced into European equities, particularly the banks. The euro-zone benchmark is up 15% so far this year, with the DAX, CAC and FTSE MIB all outperforming their London counterparts. Draghi's comments a month ago at Sintra which cemented expectations of a rate cut have helped euro-zone bourses outperform their London counterparts. See below: (Josephine Mason) ***** OPENING SNAPSHOT: FLAT START IN CHOPPY TRADE (0730 GMT) European shares are off to a flat start as investors stick to the sidelines in what will be big week for earnings, politics and macroeconomics while expectations are waning for a major 50 basis-point cut in U.S. interest rates next week and investors brace for the ECB's monetary meeting on Thursday. The pan European STOXX 600 is now flat in choppy trading, although the euro-zone benchmark is now up 0.1% as Frankfurt, Paris and Milan shrug off early weakness. Italian stocks are recovering from their worst day in months on Friday amid renewed political turmoil in Rome. Investors are shunning real estate stocks that would benefit from lower interest rates and defensive sectors - utilities and telecoms - which are often considered bond proxies and popular in times of economic and political strife. The oil and gas sector is outperforming, lifted by the stronger crude prices amid renewed tensions between the UK and Iran. Among individual moves, Philips is up 3.6% after its earnings beat, and Tomra Systems is down 4% after its results. (Josephine Mason) ***** LONDON RISING, BUT EURO ZONE STOCKS UNDER PRESSURE (0637 GMT) It's a mixed picture in Europe. FTSE stock futures are up 0.1% in early deals, outperforming its euro-zone peers as its heavyweight oil constituents give the London market a boost after crude prices rise on worries Iran's seizure of a British tanker may lead to supply disruptions in the Middle East. The export-heavy market is also garnering some support from a weaker sterling ahead of the leadership ballot. Other stock futures indices are down 0.1% as worries about those tensions sap appetite for riskier assets and investors keep to the sidelines ahead of a slew of major macroeconomic data and major corporate earnings. Italy's stocks are likely to remain volatile after their worst day in months on Friday in what could be a make-or-break week for the country's fractious coalition partners that could determine if the government will collapse, triggering autumn elections, or survive to the end of the year. Simmering tensions in the euro zone's No. 3 economy have stirred speculation that Italy may have a snap election, which could usher in a new more centre-right coalition government. That would temper worries about the country's budget deficit and fiscal policy potentially aiding stocks, but investors hate uncertainty and Prime Minister Conte will hold another round of consultations today with the hope of presenting a final proposal by Friday. In individual moves, Bayer shares are down slightly in pre-market trade as comments from a supervisory board member renewed worries about the speed of the German chemical company's moves to settle its damaging and costly glyphosate litigation. In earnings, Dutch health technology company Philips has delivered a better-than-expected 6% rise in comparable sales for the second quarter, helped by strong demand for its hospital equipment in China and the United States. One dealer sees the shares up 1%. Swiss private bank Julius Baer has reported a 19% decline in adjusted net profit in the first six months as tepid trading continued from its wealthy clients, a dip it nonetheless hailed as a pick-up from challenging conditions late last year. Its shares may come under pressure. Here are some early headlines: Philips Q2 results top estimates as growth picks up French oil and gas group Maurel & Prom eyes UK's Amerisur Julius Baer H1 adjusted net profit slumps to 391 mln Sfr EXCLUSIVE-Apollo Global makes offer for France's Coface Cummins makes offer for VW's large engines unit -sources UK parliamentary committee questions StanChart's remuneration policy Italy's Campari in talks to buy French liquor firm Rhumantilles British Airways suspends flights to Cairo for seven days Centrica preparing to cut dividend again - report http://bit.ly/30NIGCg Metro Bank confirms in talks on loan portfolio sale (Josephine Mason) ***** BIG WEEK, SUBDUED START (0517 GMT) It's the start of a crucial week for earnings, macroeconomic data and British politics: heavyweights, including Facebook, Amazon, Google-parent Alphabet and Deutsche Bank will report numbers, there's an ECB policy meeting which will be scoured for signs on easing and a slew of data from U.S. GDP to PMI for the euro zone, Japan and the U.S.. See our Global Themes story for a summary of the week ahead: Markets overnight have been pretty subdued and at the moment IG spreadbetters are calling for a lower open in Europe too - they see London's FTSE to open 2 points lower at 7,507, Frankfurt's DAX to open 12 points down at 12,248, and Paris' CAC to open 8 points lower at 5,545. Heightened tensions following Iran's seizure of a British oil tanker is likely to sap investor appetite for riskier assets like equities. (Reporting by Danilo Masoni, Josephine Mason and Thyagaraju Adinarayan)