UK Markets close in 4 hrs 9 mins

LIVE MARKETS-More pain for hedge funds

* Europe's STOXX 600 down 0.4%; euro-zone stocks down 0.6% * Rally triggered by Merkel comments on Brexit erodes on German stimulus worries * Report Bundesbank rules out stimulus pushes euro-zone stocks to day low * Hopes of swift deal to form new govt boosted stocks earlier * Banks among top risers led by Italy; Spanish banks rise on bullish HSBC note * NMC Health soars 18% after investors backed by Fosun making bid for stake Welcome to the home for real-time coverage of European equity markets brought to you by Reuters stocks reporters and anchored today by Thyagaraju Adinarayan. Reach him on Messenger to share your thoughts on market moves: thyagaraju.adinarayan.thomsonreuters.com@reuters.net MORE PAIN FOR HEDGE FUNDS (1523 GMT) Investors redeemed an estimated $8.42 billion from hedge funds in July, bringing the net outflows so far this year to $55.9 billion, and European funds have borne the brunt of the exodus, according to data from eVestment. Those withdrawals are inline with 2016. "Hopes that the second half would bring some sort of major tide changes have mostly been tempered as redemption pressures continued broadly across the hedge fund industry in July," says global head of research Peter Laurelli in the report. A whopping $6.3 billion left funds domiciled in Europe, bringing the year-to-date total to $33.2 billion, more than double the total for 2018. Some $2.2 billion exited those based in the Americas. It's a similar picture for investments by region - some $2.3 billion exited European assets last month, raising the year-to-date withdrawals to $12.6 billion. That's also double 2018 levels. In contrast, $500 million flowed into Asia last month. Fixed income and credit hedge funds were the only ones to see inflows ($310 million), while multi-asset ($5.2 billion), equities ($1.8 billion) and commodities ($1.6 billion) also suffered withdrawals. (Josephine Mason) ***** MERKEL INJECTS LIFE INTO MARKETS (1359 GMT) Well, where the euro-zone PMI data fell a bit flat, a comment about Brexit from German Chancellor Angela Merkel lit a fire under stocks and sterling just now. Speaking at the Hague, Merkel appeared to backtrack from her previous comments, which had set a 30-day deadline for British PM Boris Johnson to find a solution for the so-called Irish backstop, saying the nation could have until Oct. 31, the current cut-off point. She said the 30-day limit was meant to highlight the urgency of the situation rather than indicate a readiness to play hardball. Traders scratched their heads about the explosive reaction in the market - the pound jumped more than half a cent to nearly a one-month high, the euro-zone stocks benchmark hit a day high and export-heavy FTSE 100 fell sharply. "Well that move in GBP was fun in response to Merkel comments in Den Haag - NB she has said NOTHING new," says Marc Ostwald, global strategist & chief economist at ADM Investor Services International. The outsized reaction to what was a pretty routine comment helped soothe growing anxiety across markets about Johnson's hardline stance on the fast-approaching deadline. One market participant said the moves reminded him of last year when markets got twitchy about comments from European Union's Brexit negotiator Michel Barnier. Brace for a rocky ride of the next 70 days. Here's the STOXXE reaction: And the FTSE 100: (Josephine Mason) ***** PMI FAILS TO LIFT SPIRITS (1204 GMT) The flurry of PMI data for August, the single biggest data point ahead of the ECB's meeting in three weeks, has done little to lift spirits in Europe. The euro-zone is now flat although the DAX is still in positive territory. Euro-zone business growth picked up a touch, helped by brisk services activity and manufacturing contracted at a slower pace, but trade war fears knocked future expectations to their weakest in over six years, a survey showed. IHS Markit's composite flash PMI, seen as a good guide to economic health, climbed to 51.8 from 51.5 in July and above 51.2 predicted in a Reuters poll. Factory activity hit 47.0, which was up from 46.5 in July and beat the 46.2 forecast in a Reuters poll, but it was still the seventh straight month of contraction. Anything above 50 indicates growth. "The flash PMI in Europe is better than expected but not sufficiently so to change the outlook for the ECB's policy response in a few weeks," says Marc Chandler, chief market strategist at Bannockburn Global Forex. Labour data and the services PMI numbers so far though suggest that the downturn not yet hurting the wallets of Europeans. "Unemployment is not going up, so whatever is happening in manufacturing is not so far fazing the consumer in our part of the world where 80% of activity is servicing," says Markus Schomer, chief economist at PineBridge Investments. "In Europe, the problem is not so much that manufacturing is weak, but that exports are weak." With time bombs like Brexit and Italy's political crisis potentially exploding at any moment, it's understandable that investors would stay on the sidelines. Schomer expects the bloc to continue to suffer from stalling growth. Adding to the overall gloom, the global outlook is deteriorating - global PMI has been below 50 since May. The EZ data followed factory activity numbers from Japan earlier, which showed a drop for a fourth straight month, and U.S. data is due later today. The United States is still in positive territory, but consensus is calling for manufacturing PMI of 50.34, which would be the lowest in years. (Josephine Mason and Sujata Rao) ***** INDUSTRIALS POISED FOR 2020 TURNAROUND? (1024 GMT) Industrial companies have had a tough time recently with continued weakness in factory activity in the euro-zone. Although today's PMI data was better than expected, it's far from showing signs of stabilisation. Factory activity in the bloc contracted for the seventh month in a row, the latest PMI reading showed, and that's already reflected in companies' results in the second-quarter with most of them in the industrials sector reporting weak growth. Amid weak macro signals, UBS picks out Alstom, FLSmidth, Siemens Gamesa , Kion and Outotec as its favourites based on their valuations. "We believe that the sector will potentially reach the bottom (organic growth) in 2H19, and should start to tick up again in 2020," UBS says. The bank likes Schneider, Atlas Copcp, Assa Abloy and Knorr for their growth profiles and dislikes Volvo, Kone and SKF for their expensive valuations. The recent quarterly updates from companies showed regionally Europe and North America were pain points, while Asia remained steady. UBS says: "Leading indicators now suggest that the momentum in China has improved sharply, as well as EU just about breaching into positive territory, while momentum in US is also stabilising/improving, but still in negative territory." The sector has not derated despite falling earnings expectations. "Despite lagging fundamentals and consensus estimates revisions for a weaker 2019, we believe our concerns on European Capital goods growth are fairly priced in." Industrial stocks shine despite earnings downgrades: PMI versus long-term earnings growth rate: Industrials P/E: (Thyagaraju Adinarayan) ***** OPENING SNAPSHOT: EUROPE SLIGHTLY LOWER, ITALY OUTPERFORMS (0740 GMT) Risks are off the table with the pan-European STOXX 600 opening slightly lower ahead of the Jackson Hole summit. It's a bit of a mix bag across the regional bourses - Italy is outperforming the rest of Europe after a Reuters report, citing a source close to the President, that he is calling on parties to show "significant developments" today on forming a new government, potentially avoiding another election. Germany's DAX has also turned positive after a weak open as August manufacturing PMI data came in better than expected, soothing worries about the health of Europe's top economy. Investors are in wait-and-see mode ahead of the Jackson Hole summit, where Fed Chair Powell will make a speech on Friday, after Fed minutes from yesterday showed policymakers were deeply divided over whether to cut interest rates. Among single stocks, NMC Health shares are skyrocketing 40% after a Reuters report that two investor groups, one of them backed by China's Fosun, are making a bid for a stake in the company. Among cyclicals, STOXX travel & leisure index is rising on a strong rally in GVC Holdings shares after CEO bought shares in the company. (Thyagaraju Adinarayan) ***** HEEBIE-JEEBIES AHEAD OF PMI DATA, BREXIT, JACKSON HOLE SUMMIT (0643 GMT) Stock futures indicate a weak open in Europe as anxious investors avoid risky bets ahead of UK PM Boris Johnson's meeting with France's Macron today on Brexit, August PMI data from key euro-zone economies and the Jackson Hole summit on Friday. Eurostoxx futures are down 0.2% and the CAC and DAX futures are down 0.3%. A pullback was expected after a pretty decent performance across the board yesterday. German PMI data is due later in the morning, which will indicate if the economy has shown any improvement after contraction last quarter. Later in the day, we'll have updates from Rome on the next steps after Conte's resignation and from Paris on Johnson-Macron Brexit meeting. In corporate news, NMC Health shares are seen rising 5%-10% after a Reuters report that two investor groups, one of them backed by China's Fosun, are making a bid for a stake in the company. Osram shares are rising 2% in premarket trade after the German lighting maker cleared the way for AMS to launch its takeover bid. AMS shares are however expected to fall 1% at open. In earnings, Nordic companies Elekta and GN Store are seen rising 3%-4% after their estimate-beating results and Dutch payments services provider Adyen is seen jumping 5% after solid first-half results. CRH seen up 2% by traders after the Irish building materials supplier reported "strong numbers across the board" and announced a further 350 million euro share buyback. Sunrise Communications in focus after the Swiss telco escalated its defence of its planned takeover of Liberty Global's Swiss unit UPC, blasting a shareholder that is fighting the deal. British drugmaker GlaxoSmithKline shares could get a boost after its new HIV two-drug injection meets main goal in late-stage study. Key headlines: Swiss telecom Sunrise touts UPC deal, blasts shareholder as "self-serving" Deutsche Bank tightens worldwide procedures on new hires - memo Two groups, one backed by China's Fosun, bid for NMC Health stake-sources AMS clear to make takeover bid for Osram in potential bidding war Miner Antofagasta first-half profit jumps 44% GSK new HIV two-drug injection meets main goal in late-stage study (Thyagaraju Adinarayan) ***** EUROPE SEEN TAKING A BREATHER AHEAD OF PMI (0535 GMT) European stocks are heading for a subdued open as Fed minutes showed policymakers were deeply divided over whether to cut interest rates and ahead of the key PMI data from France and Germany. "Judging by the reaction in bond markets, and the shorter end in particular, the prospect of a 50bp cut next month is much less of a probability, than it was 24 hours ago," CMC Markets analyst Michael Hewson says. In Europe, the German PMI data due later today will help investors read into the health of the euro-zone's largest economy, which contracted in the second quarter. Meanwhile in Rome, President Sergio Mattarella is likely to decide today if Italy will go for a snap election. Here's an explainer on what comes next in Italy: Financial spreadbetters IG expect London's FTSE to open 29 points lower at 7,175, Frankfurt's DAX to open 36 points lower at 11,767, and Paris' CAC to open 15 points lower at 5,420. (Thyagaraju Adinarayan) ***** (Reporting by Josephine Mason)