LIVE MARKETS-Closing snapshot: Europe pulls back from highs

* European stocks fall on bond sell-off

* Defensives under pressure; banks rise

* Gold jumps, U.S. stocks down

Jan 10 (Reuters) - Welcome to the home for real-time coverage of European equity markets

brought to you by Reuters stocks reporters and anchored today by Julien Ponthus. Reach him on

Messenger to share your thoughts on market moves: julien.ponthus.thomsonreuters.com@reuters.net

CLOSING SNAPSHOT: EUROPE PULLS BACK FROM HIGHS (1708 GMT)

Bond market jitters have weighed on the broader stock market today, leaving rate-sensitive

banks, up 2.1 percent, as the only clear sectoral winner on the day, while bond proxies

like utilities and real estate suffered the most. Overall that resulted in the

STOXX 600 index falling just 0.4 percent after hitting fresh 2-1/2 year highs yesterday, while

the bank-heavy FTSE MIB index managed to post a small gain.

Here's your closing snapshot:

(Danilo Masoni)

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EYES ON THE 2.6% LEVEL (1644 GMT)

Nervousness on the bond market is the flavour of the day and equity investors are also

closely watching U.S. Treasury yield charts for any further spike that could have meaningful

repercussions on the stock market.

"The 2.6% level on the 10-Year is an important level which if surpassed could be detrimental

for equities," says Stephane Ekolo, Global Equity Strategist at Avalon Capital Markets.

The yield on 10-year U.S. Treasuries has spiked today to fresh 10-month highs, to within

striking distance from the 2.6% level.

"US CPI data point (this Friday at 1:30pm UK) should be closely monitored as it may provide

evidence confirming the uptrend on the 10yr yield," adds Ekolo.

(Danilo Masoni)

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CHRISTMAS CHEER? A MIXED BAG FOR UK RETAILERS (1606 GMT)

Retailers' Christmas updates so far have been a mixed bag, Liberum analysts say, with

electronics, clothing and fashion the weakest segments, although most warned of tough conditions

going into 2018.

Company updates and industry data alike paint a picture of weak in-store footfall being

offset by strong online sales.

"What we're seeing is the disparity between the 'new-world' retailers versus the more

traditional, mid-market players where the consumer proposition and service elements are not

compelling or agile enough, is widening," they note, adding that most retailers highlighted

tough conditions in 2018.

What to bet on? Strong online players and value propositions, according to them - Liberum's

preferences include ASOS (LSE: ASC.L - news) , B&M and Boohoo, while it remains concerned

about M&S, which reports Christmas trading tomorrow.

Today we've had some disappointing updates from Superdry and Moss Brothers

sending their shares sliding 8.8 and 16 percent respectively.

But overall valuations for the UK's general retail sector have ticked up recently as some

Christmas updates beat gloomy expectations.

(Helen Reid)

*****

HOW DOES IT FEEL BEING A CRYPTO? 267 PCT HIGH THANK YOU! (1545 GMT)

Shares (Berlin: DI6.BE - news) of Eastman Kodak Co are up 65 percent today and have surged 267 percent

since the beginning of the year after the one-time leader in photography became the latest

company to jump on the cryptocurrency bandwagon.

There's really something magical (or not) about crypto : Riot Blockchain shares

have tripled since October when the former biotechnology firm changed its name.

Same thing for soft drinks maker Long Island Iced Tea (Stuttgart: 2LI.SG - news) which has more than doubled

since it said it was shifting focus to blockchain technology and changed its name to Long

Blockchain.

Here's crypto magic for you in the form of Kodak shares:

(Julien Ponthus)

*****

JPM AM STICKS WITH SLIGHT PRO-CYCLICAL TILT IN EUROPE (1510 GMT)

Stephen Macklow-Smith, head of Europe equity strategy at JPMorgan Asset Management, tells us

that the faster earnings growth he expects to see in Europe is probably going to be in the

financial and cyclical area of the market.

"If we're seeing higher growth and higher inflation, then yields should be moving higher and

yield curves should be steepening, and that's exactly what we are seeing," Macklow-Smith says.

"That's normally an environment in which financials and cyclicals outperform defensives and

growth companies."

Macklow-Smith adds that they are sticking with the "modest pro-cyclical financial tilt to

the portfolio" they have had through most of the time since the yield curve in Europe started to

steepen in the middle of 2016.

(Kit Rees)

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"NO I DON’T THINK THIS IS THE START": PERMABEAR REBUFFS BOND BEAR CLAIMS (1502 GMT)

With (Other OTC: WWTH - news) bond kings such as Bill Gross claiming the start of a bear market has begun, you would

have thought that SocGen (Paris: FR0000130809 - news) 's Albert Edwards, who's been warning for quite some time now about the

possibility of a market collapse, would join in.

But no, far from it.

"The US 10y can rise all the way to 3% and we will still be in a long-term secular bull

market", he just told us. "My own view is that we could visit 3% before yields crash lower in

the next recession to -1% US10y (yes that is minus 1%)", he added.

Just to reassure you guys, he is still a permabear : "Do I think the equity markets could

collapse this year, just like in 1987? Yes I certainly do," he stressed.

Here's the chart he used yesterday during a conference in London to make his case:

(Julien Ponthus)

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IS THIS THE TURNING POINT FOR A SOUR BET ON EUROPEAN BANKS?(1440 GMT)

One equity trade of 2017 that has so far failed to pay off was euro zone banks, driven by

the expectation that recovering economies and an eventual pull-back in bond purchasing by the

ECB would finally nudge interest rates higher, firing up bank profits.

But a turning point could be ahead with bank stocks shooting up today as bond yields rise.

Every market watcher is talking about the interest rate outlook today and how to position in

equities in preparation - with many strongly bullish on bank stocks.

"Higher rates could be coming in our view, and given the moves can be vicious when they

finally arrive it seems sensible to position for such ahead of the event," write Northern Trust

Capital Markets analysts.

They cite valuation discounts, dividend premiums, a peak in regulation as just a few of the

reasons to buy bank stocks.

"Clearly banks should win in a rising rate environment; so too should commodities," the

analysts add.

Citi analysts also remain overweight financials, saying the sector will be driven higher by

rising bond yields, solid earnings growth, as well as the potential for sector M&A.

(Helen Reid)

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AFTERNOON UPDATE: EUROPEAN BANKS SOAR BUT STOXX STILL SOUR (1354 GMT)

It's just past lunchtime and financials are the one bright spot in an otherwise negative

European stockmarket.

Over in the U.S. it looks like it's going to be a similar story with Wall St futures

pointing to a muted start to trading following a report that China may slow its purchases of

U.S. bonds.

Here's your snapshot:

(Kit Rees)

*****

SMALL IS BEAUTIFUL IN EUROPEAN EQUITIES (1340 GMT)

JP Morgan strategists are pouring praise on the small- and mid-cap parts of the market which

they see as safe bets in this late-cycle stock market where valuations are running high.

Small and mid-caps in Europe continue to offer faster earnings growth than large-caps, at

discounted valuations, and with less leveraged balance sheets, they note.

JPM believes the next global recession will start in the U.S., and accordingly analyzes the

performance of small and mid-caps around the world during U.S. recession-linked downturns in the

S&P 500.

"Our findings suggest that some of the best alpha opportunities in small & mid-caps today

would also be low beta plays when we hit the next economic downturn," they write.

Accordingly they're overweight small and mid-caps versus large-caps in the Eurozone, but

have the opposite positioning in the UK.

Globally they also prefer the smaller side of the market, seeing U.S. stocks in particular

as benefiting from tax reform they see as having a bigger impact than many expect.

Small and micro-caps have indded strongly outperformed the large-cap market in Europe over

the past five years as the economy recovered:

(Helen Reid)

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CONSENSUS BUILDS AROUND EUROPEAN STOCKS (1310 GMT)

Morgan Stanley (Xetra: 885836 - news) has just raised its overweight recommendation on European stocks and trimmed

its US weighting, adding to those expecting European stocks to outperform Wall Street this year.

"U.S. stocks have outperformed and are now close to our year-end price target with limited

upside, while the backdrop for European stocks outperformance is intact," the U.S. bank's

strategists said in a cross-asset note.

Earlier on today, Tomas Hildebrandt, senior portfolio manager at Evli, said investors should

favour non-U.S. equities including European ones.

"Europe and Emerging Markets have the best upside potential in 2018, even though the U.S.

tax resolution boosts US earnings. Both Europe and EM usually perform well in late-cycle

markets. In Europe earnings and margins are still lagging long-term trends, hence a catch-up

with the rest-of-world seems plausible for the region."

Just yesterday, UBS (LSE: 0QNR.L - news) strategists warned that the temperature in European - and global -

markets is rising, but said EU stocks offered catch-up potential.

(Helen Reid and Danilo Masoni)

*****

THAT'S USUALLY NOT A GOOD SIGN RIGHT? (1209 GMT)

Gold has jumped 1 percent during morning trading to its highest in about four months,

usually a clear "risk-off" sign for markets. It has eased off a bit to 0.8 percent.

In the U.S. futures are currently pointing to a dip of about 0.5 percent for the Dow and the

S&P and of 0.7 percent for the Nasdaq (Frankfurt: 813516 - news) as reports that China is looking to cut down on U.S. bond

purchases send U.S. yields to fresh highs.

Here's the gold report:

Here are gold prices in the last three days:

(Julien Ponthus)

*****

COULD EUROPEAN EQUITIES CATCH UP WITH U.S.? (1144 GMT)

They would have a long way to go in order to do so...

Man Group (LSE: EMG.L - news) says Europe's political travails have depressed the region's equity valuations

versus U.S. stocks and the spread in price/earnings ratios on either side of the Atlantic (Shanghai: 600558.SS - news) is at

its widest since the global financial crisis, according to its latest "Views From The Floor".

"If 2018 does bring U.S. PE compression and Europe manages to stay on a political even keel

(a big 'if' in our view given the culmination of Brexit negotiations as well as the Italian

elections) then maybe we might start to see this trend reverse."

Here's that big PE divergence:

And looking at the performance of MSCI Europe versus MSCI World, Man Group concludes

European equities are at their lowest ever versus the U.S.:

(Tom Pfeiffer, Danilo Masoni and Helen Reid)

*****

CHINA BOND PURCHASES REPORT ACCELERATES SELL-OFF (1117 GMT)

A report that China is looking to cut down on U.S. bond purchases sent U.S. yields to fresh

highs and sent the dollar tumbling, accelerating a sell-off in European stock markets as the

euro shot up.

Bank stocks are the only ones spared as higher bond yields are a blessing for lenders: Euro

zone banks are flying up 1.3 percent while the STOXX 600 banks are up 1 percent.

Saxo Bank's sales trader Pierre Martin tells Live Markets colleague Julien Ponthus he thinks

it's only a temporary risk-off moment, "a temporary spike in nervousness". But others reckon

this is just the beginning of a market-wide recalibration after Bond king Bill Gross's claim

that a bond bear market has begun.

"We look at financial markets and they hugely underestimate the potential for interest rate

rises," says Nick Gartside, of JP Morgan Asset Management, who spoke to our colleague Marc

Jones.

"The biggest risk is Europe," he adds. "The market is pricing the first ECB rate rise in

2019. That's absurd: -0.4 rates are set from an emergency, is Europe in an emergency? Certainly

not from the data we have just seen."

(Helen Reid and Julien Ponthus)

*****

CORRECTION AHEAD? (1040 GMT)

Spiking global yields have sparked worries that bonds have entered a bear market, hitting

bond proxy stocks like utilities yesterday and weighing on the broader market today. The

reaction remains contained so far but the "correction" word has resurfaced in market commentary.

"The resilience shown by risky assets (equity, corporate bond spread, emerging markets) is

presumably due to the fact that real rates remain motionless in the current phase. Should this

move continue, and be helped by a limited rise in real rates, stocks and emerging markets would

likely correct (even slightly), if nothing else because of the short-term overbought levels

reached during the euphoric start of 2018," said Alessandro Balsotti, head of asset management

JCI Capital Ltd.

Just about now the STOXX 600 has hit its day low, falling 0.4 percent, while the 10

year US Treasury yields have spiked to a fresh 10 month high.

(Danilo Masoni)

*****

STAY AWAY FROM BITCOIN, WATCHDOG URGES FRENCH TV REALITY STAR (1032 GMT)

"Nabilla, bitcoin is very risky! One can lose it all. No such thing as a miracle investment.

Stay away." France's financial watchdog AMF posted this warning on Twitter (Frankfurt: A1W6XZ - news) after a French TV

reality star urged fans to invest in the crypto currency.

"Even (Taiwan OTC: 6436.TWO - news) if you know nothing about it, it allows you to make money without investing much,"

Nabilla Benattia said in a video on a social network, which quickly went viral.

I thought this could interest those of you looking for signs that the spread of crypto

currencies into retail investors might, perhaps, be signalling a bubble.

Here's Nabilla:

(Julien Ponthus)

*****

FTSE UNMOVED AFTER STRONG UK PRODUCTION (0958 GMT)

No drama here: Britain's FTSE stuck to its modest gains in morning trading after data showed

British industrial output was set to make a strong contribution to economic growth in the final

months of 2017.

Seems economists polled by Reuters are telling the right story so far: the world's

sixth-largest economy should underperform most of its European peers in 2018 but will do better

than the gloomy predictions made around the shock Brexit vote of 2016.

The FTSE is cruising up about 0.2 percent on fresh new highs.

(Julien Ponthus)

*****

EUROPEAN CONSUMER STAPLES' DIVI YIELD STILL TRUMPS BONDS (0855 GMT)

While there may be concerns that a rise in bond yields could dent appetite for

dividend-paying sectors such as European consumer staples, which are also richly valued, the

chart below shows that the MSCI European consumer staples index's dividend yield is still more

than the yield on the German 10-year government bond.

At least for now ...

(Kit Rees)

*****

OPENING SNAPSHOT: DEFENSIVES DRIVE EUROPEAN STOCKS LOWER (0821 GMT)

Falls among European pharma firms, utilities and consumer staples are weighing on the

broader market in early deals following a jump in bond yields, while steel producers are the

biggest fallers among basic resources.

The rise in bond yields is helping banking stocks, however -- the only sector aside

from energy making any notable gains.

Among individual stocks, Metro Bank (Frankfurt: 6MB.F - news) is the top gainer after an upgrade from Citi,

while IG Group is the biggest faller on the Stoxx 600 index following

conclusions of a review of the contracts-for-difference market by the UK's FCA. Sainsbury (Amsterdam: SJ6.AS - news) 's is

up 0.6 percent.

Here's your opening snapshot:

(Kit Rees)

*****

TIME TO WORRY ABOUT THE BOND MARKET? (0752 GMT)

The recent rise in yields on both side of the Atlantic is making a number of analysts

wonder where the global macro picture goes from here as the yield on the 10 year U.S. Treasury

goes above 2.55 percent for the first time since March last year.

"Have we finally entered a bond bear market?", Rabobank asks this morning while DNB (LSE: 0O84.L - news) notes

that "yields weigh on dividend sectors".

Utilities were under heavy pressure during the previous session, a trend which may very well

continue if yields continue to rise.

(Julien Ponthus)

*****

WHAT WE ARE WATCHING (0752 GMT)

Futures point to a slightly weaker open than what earlier financial spread betters

suggested.

The British economy is at the centre of attention with the BCC’s warning of a

“underwhelming” 2018 and industrial and production data expected at 0930 GMT.

It might not be all doom and gloom : Sainsbury's forecast beating sales and Ted Baker (Other OTC: TBAKF - news) ’s

performance over Christmas seem to suggest that shorting high street may have been a dangerous

trade after all.

In the construction sector things don't seem that bad either with Britain's third-largest

builder Taylor Wimpey (LSE: TW.L - news) saying its results in 2017 will be in line with expectations. Interserve

also forecasts better-than-expected 2018 profit.

On a more macro trend, the recent rise in bond yields may put utilities and other dividend

proxies under pressure and tech stocks could suffer too from profit taking in Asia.

Other movers in European include Airbus which is waiting for France's Macron to finalise a

macro deal in China, Deutsche Bank (IOB: 0H7D.IL - news) , which is testing – again – investors’ patience.

On the M&A front, Sweden's Tele2 (LSE: 0QE6.L - news) is merging with cable TV firm Com Hem (LSE: 0QV0.L - news) and Spain's Repsol (Amsterdam: RP6.AS - news) is

reportedly in talks to sell its Gas Natural (Frankfurt: 38G.F - news) stake to CVC (Taiwan OTC: 4744.TWO - news) .

(Julien Ponthus)

*****

BRITISH RETAIL: IT'S ALL ABOUT FOOD AND FASHION (0738 GMT)

It looks like food retailers are coming out on top again after supermarket Sainsbury's

beat forecasts for its Christmas sales and nudged up its profit guidance.

Traders are calling the stock 1-2 percent higher.

And elsewhere Ted Baker also reported a rise in Christmas retail sales. Given that

Next (Frankfurt: 779551 - news) issued an upbeat update earlier this year, perhaps fashion also held up over the

festive period?.

(Kit Rees)

*****

STOCKS FUTURES TO A WEAK OPEN (0707 GMT)

Futures are showing a slightly gloomier picture than early indications from spreadbetters

with most bourses down or flat:

(Julien Ponthus)

*****

UK DATA UNDER SPOTLIGHT AFTER WARNING OF "UNDERWHELMING" 2018 (0650 GMT)

"It’s an important day for UK data today", writes CMC Markets (LSE: CMCX.L - news) ' Michael Hewson this morning

as official data for industrial and construction output in November, as well as trade, are due

at 0930 GMT.

The release of the data comes after the British Chambers of Commerce (BCC (Shenzhen: 002455.SZ - news) ) said the country

should brace itself for "an underwhelming" 2018.

With May's reshuffle dismissed by some of her allies as a failure, any unpleasant surprise

will surely weigh on morale after the BCC's dire warning:

"The economy is set to continue on an underwhelming growth trajectory over the near term

with uncertainty over the impact of Brexit coupled with high inflation and weak productivity

likely to dampen overall economic activity".

(Julien Ponthus)

*****

MORNING CALL: EUROPEAN SHARES SEEN MIXED (0617 GMT)

Good morning and welcome to Live Markets. Stocks in Europe look set for a mixed open today

with spreadbetters calling for slight losses for the FTSE while on the continent shares are

expected to edge slightly higher.

Asian shares flinched from testing their 2007 record peak, as investors booked profits in

high-tech shares while oil prices hit three-year highs due to production cuts and a fall in

inventories.

Here are your early calls: Frankfurt's DAX is expected to open 5 points higher, Paris'

CAC 40 by 6 points and London's FTSE 4 points lower.

(Julien Ponthus)

*****

(Reporting by Danilo Masoni, Helen Reid, Kit Rees and Julien Ponthus)