LIVE MARKETS-How to navigate slower growth in the euro zone and France

* U.S. stocks tread water

* European stocks slide after brief opening bounce

* China-U.S. trade talks kick off in Beijing

* Adyen jumps after JPM upgrade, tech stocks lead

* Miners climb as metals prices gain on China stimulus

Jan 7 - 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

HOW TO NAVIGATE SLOWER GROWTH IN THE EURO ZONE AND FRANCE (1552 GMT)

With (Other OTC: WWTH - news) slowing growth the main theme for the euro zone this year, HSBC strategists warn

European small-caps are particularly vulnerable to stagnation in domestic demand, given they get

a lower share of revenues from overseas - 30 percent compared to the 47 percent exposure

large-caps have.

France is especially in focus as its sweeping protests add extra pressure to the economy.

How can mid-cap investors navigate this? HSBC advises them to focus on:

* mid & small caps with relatively limited presence in France

* companies investing in technology to protect/expand profit margins against disruption and

rising

wage growth

* companies that will benefit from the recent drop in oil prices

* stocks with strong and sustainable dividend yield

Their favourite French mid-cap stocks for the year are computer hardware maker Ingenico (Paris: FR0000125346 - news) ,

publisher Lagardere (Paris: FR0000130213 - news) , electrical components company Rexel (LSE: 0KBZ.L - news) , petroleum storage firm Rubis (LSE: 0MUI.L - news) , and

flooring and sports surface maker Tarkett (Other OTC: TKFTY - news) .

One powerful indicator of the rise in risk perception around France is the spread between

France's 10-year bond and the German Bund: it's today hit its highest since April 24 2017, the

day after Macron all but clinched his victory in the presidential elections (see below):

(Helen Reid)

*****

CUTTING DOWN ON EQUITIES: A POPULAR (NasdaqGS: BPOP - news) 2019 RESOLUTION (1458 GMT)

While "dry January" seems to be growing in popularity, investors have taken en masse another

kind of New Year's resolution: cutting down their equity exposure.

BlackRock (Sao Paolo: BLAK34.SA - news) surveyed 230 institutional clients between November and early December and found

that "51% of clients intend to decrease their allocation to equities".

"This shift is accelerating as 35% planned reductions in 2018 and 29% in 2017," BlackRock (Xetra: 1005182.DE - news)

adds, noting that "heading into 2019, this trend is most pronounced in the U.S. and Canada,

where 68% of clients plan to reduce equity allocations, versus just 27% in Continental Europe".

(Julien Ponthus)

*****

THE BEAR NECESSITIES (1433 GMT)

The celebrated Jungle Book song gets a nod in Goldman's latest note, but the tune isn't half

as cheerful. For one, analysts at the U.S. bank aren't telling equity investors to "forget about

your worries and your strife", far from it they have a pretty dire warning for them:

"We expect a sharp slowdown in profit growth in all regions this year, particularly in the

U.S., coupled with significant downgrades to consensus expectations."

GS' Peter Oppenheimer and team point out, however, that valuations have already come down

quite significantly, meaning any positive surprises could produce a big impact.

"What matters now, therefore, is not so much a deterioration in data but rather how far it

deteriorates relative to current negative expectations," they write.

Macro (Shenzhen: 000533.SZ - news) markets have increasingly been driven by negative growth expectations rather than Fed

policy, they say, pointing to long-term global GDP growth forecasts being at a "historic" low -

their lowest in at least 28 years (see below).

And all these factors are converging at exactly the same time liquidity is being drained out

of global markets.

It certainly is a jungle out there...

One piece of good news, though, is that GS thinks, when comparing fundamentals and what the

markets are now pricing, "it seems there is a strong chance that markets have overshot the

likely fundamentals".

They see a bounce this year followed by a "flat & skinny" trading range. Miss that rally,

though, and you risk being left out in the cold, "losing out on the bulk of the returns on

offer".

(Helen Reid)

*****

THAT FEELING OF DEJA VU (1405 GMT)

If you want to grasp an ounce of comfort from history, casting your mind back to the market

tumult of 2015 wouldn't be an obvious choice.

But JP Morgan equity strategists say the recent sell-off in global markets has a striking

similarity to the one in late 2015, which may offer a glimmer of hope for the year ahead.

Issues familiar to today had rocked financial markets in late 2015 sowing fears of U.S.

recession amid concerns about China's economic growth and falling commodity prices. In H2 2015,

EM, euro zone, cyclicals and commodities were all down between 20 percent and 40 percent.

Fast (Shanghai: 600391.SS - news) forward to the present, and all those fears are again in full swing and it all feels

very familiar.

But in 2015, the U.S. however didn't end up in recession and the market rallied to new highs

after the Fed paused rate hikes in March 2016, the U.S. dollar peaked and China stimulus came

through.

With 2015 in mind, investors shouldn't necessarily extrapolate U.S. growth slowdown all the

way into a recession while jobless claims and the labour market more broadly are still

relatively solid, JP Morgan strategist Mislav Matejka says in a note this morning.

Following Fed chief Powell's dovish comments on Friday, he says the central bank may still

pause its tightening fiscal policy, USD may be peaking, China's stimulus is showing signs of

progress (see the RRR cut by the PBOC on Friday) and an end to curve flattening may be coming.

With all that, the possibility of a market turnaround is not a big ask given the P/Es are

"outright cheap now" -- S&P 500 2019 P/E at 14x, while EMs at 10x, Matejka says.

We should note however there's one major X-factor that's missing in comparisons between 2015

and today: the trade war.

(Thyagaraju Adinarayan and Josephine Mason)

*****

REMEMBER THE ICARUS MELT-UP TRADE? SOOOO 2018! (1253 GMT)

Funny to realise that a year ago, analysts were beginning to worry about a melt-up, about

how equities could embark on a speedy surge that could end up a bit like when Icarus got too

close to the sun.

Not quite what investors worry about today...

"2018 could not have started and ended more differently," Goldman Sachs (NYSE: GS-PB - news) analysts wrote this

morning, noting that "January (2018) enjoyed the strongest start for global equity markets in

any year for at least 30 years."

"The 'melt-up' was particularly extreme when we consider that it followed such a powerful

rally in risk assets in 2017 buoyed by strong growth and loose policy," they added.

UBS (LSE: 0QNR.L - news) reports this morning that 10 out of 10 of its indicators show more bearish sentiment

than a year ago.

"What a difference a year makes," the bank acknowledges looking back at a time when

"sentiment indicators were pointing to excessive bullishness".

Talking about contrasting Januaries, Hussein Sayed, chief market strategist at FXTM, notes

that 2018 was the year that put an end to the 2017 global synchronised growth narrative and

that 2019 could be that of a "synchronised global slowdown".

As noted in the Morning Bid this morning "the big debate now is whether market

fears of a looming U.S. recession over the next 12 to 18 months" are overdone.

For the chief economist of BNP Paribas (LSE: 0HB5.L - news) , William de Vijlder "the very strong growth in jobs

in December has been most welcome: it suggests that, barring shocks, the expansionary phase of

the business cycle is not about to end soon".

There are, however, no shortage of clouds on the horizon.

"The outlook for 2019 is marred by a number of serious risks, ranging from trade tensions

and Brexit to the ongoing downturn in China and a potential drop in US confidence," Berenberg

believes, adding that "the risk of recession in the developed world is more acute than it has

been since the end of the euro crisis" but unlikely to materialise in 2019.

Here's an early 2018 story mentioning the melt-up risk: Red hot rally in stocks, risk assets

has some way to run-BAML

And here's the most distant star ever viewed (or at least it was in April 2018), a blue

behemoth located more than halfway across the universe and named after the ancient Greek

mythological figure Icarus. https://reut.rs/2RvddDV

(Julien Ponthus with Marc Jones)

*****

BYE BYE BUYBACKS? (1059 GMT)

Debt is likely to be an increasingly dominant force for equity markets going forward and

with rising interest rates set to push up the cost of debt, corporates may slow the pace of

stock buybacks after a record 2018.

Bernstein quant strategist Inigo Fraser-Jenkins says that it may be particularly true for

the U.S. - where buybacks have become the most important source of demand for stocks - but

Europe too could be affected.

"It would require an increase in credit spreads of the order of 50bp to stop growth in

buybacks, any increase in credit spreads beyond that would see a reduction in the rate of

buybacks. The fit is not quite as tight in Europe (nor is the pace of buybacks as extreme),

however the direction of the relationship is the same," he says.

Fraser-Jenkins has found that the level of credit spreads has a close (and negative)

relationship with subsequent 12-month growth buyback activity.

(Danilo Masoni)

*****

... AND WE'RE BACK IN THE RED (1015 GMT)

It was all looking so positive for European stocks this morning, but after two hours of

trading it's clear it wasn't meant to be.

"After a strong run up, maybe some profit-taking," says one trader.

Indeed, despite the now quite sharp falls, the STOXX 600 is still near its highest level in

three weeks thanks to Friday's strong rally.

"Scratching my head slightly," says another. "Maybe markets woke up to the fact we still

have Brexit, U.S. government shutdown, Italian government issue, etc etc."

There's certainly a lot of news out there that's hard to interpret positively. The White

House chief of staff said on Sunday that the U.S. federal government shutdown, now entering its

third week, could" "drag on a lot longer".

Back in the euro zone, investor morale - as measured by Sentix - slumped to a new four-year

low in January as a possible no-deal Brexit, the impact of yellow vest protests in France and a

weaker global economy take their toll.

And with the parliamentary debate on Brexit set to begin today, sterling is higher but

consultancy EY has put out some worrying research claiming assets worth nearly 800 billion

pounds ($1 trillion) are being moved from the UK to new EU financial hubs ahead of Brexit.

(Helen Reid)

*****

OPENING SNAPSHOT: A HESITANT START (0828 GMT)

European shares opened higher but are already trimming their gains just 20 minutes into the

session - a mark of how fragile sentiment remains even after Friday's whopping rally.

The STOXX 600 is now flat while the trade-sensitive DAX holds on to a 0.2 percent rise.

Miners are leading the way, up 1.1 percent, after a reserve requirement ratio (RRR)

cut from China boosted metals prices.

AMS (IOB: 0QWC.IL - news) shares are flying, up as much as 10 percent at the top of the STOXX after the

chipmaker announced a partnership with Face++. The stock is recovering still from its heavy

losses last Thursday when it fell 23 percent.

Dutch payments tech firm Adyen is up 6.4 percent after BAML upgraded it to "buy",

while Wirecard (IOB: 0O8X.IL - news) is up 1.8 percent after BAML also backed it.

Morrisons is barely up 1 percent after it announced price cuts on nearly a thousand products

ahead of its Christmas trading update on Tuesday.

Tyre makers Pirelli and Michelin (Paris: FR0000121261 - news) are down 1.7 and 0.8 percent after JP Morgan downgraded

them.

In bigger moves, appliances maker UP Global is soaring up 14.1 percent after it

said it saw full-year 2019 EBITDA exceeding the market's current expectations.

(Helen Reid)

*****

ON THE RADAR: TELECOMS, RETAILERS AND AIRLINES (0757 GMT)

There's not much corporate activity this morning, but a few pieces of news could stir things

up in retail, telecoms and airline stocks.

A report by the Mail on Sunday that BT is working with takeover advisors to ward off a

potential bid from Deutsche Telekom (IOB: 0MPH.IL - news) could inject life into the European telecom sector, adding

fuel to hopes of consolidation across the industry. BT shares are seen up 1-3 percent by

traders.

Dunelm's shares are expected to rise 2-3 percent after its trading update, the first of many

from the troubled UK high street this week and the latest company to reveal buoyant online

business.

Budget carrier Norwegian Air could be under pressure after posting smaller than expected

passenger growth in December and recorded additional losses from fuel hedging positions.

(Josephine Mason)

*****

FUTURES POINT TO BUOYANT OPEN (0733 GMT)

European futures have opened higher with trade-sensitive DAX leading the gains up 0.7

percent as all eyes turn to Beijing where trade talks between China and the United States are

getting underway today.

On the corporate front, investors will be hoping for more detail on how the UK high street

fared over Christmas with major retailers expected to release updates this week.

This morning, homeware retailer Dunelm has said it expects higher pretax profit for the

first half of the year due to strong second quarter sales, boosted by its online business,

although it remains "cautious" about its full-year outlook due to ongoing uncertainty faced by

consumers and businesses in the UK.

Morrisons has fired the first salvo of the new year in the fiercely competitive grocery

sector with plans to slash prices on nearly a thousand products. The supermarket chain will

issue its Christmas trading statement tomorrow, with rivals M&S, Sainsbury (Amsterdam: SJ6.AS - news) 's and Tesco (Frankfurt: 852647 - news) following

suit later in the week.

Dia (EUREX: 13086668.EX - news) has mandated its creditors Santander and BBVA (LSE: 931474.L - news) to sell its Clarel cleaning and cosmetics

operation in a deal that could raise up to 200 million euros for the Spanish retailer, Expansion

newspaper reported.

A downgrade by JPMorgan (LSE: JPIU.L - news) of some auto makers and parts suppliers - Volvo, BMW (EUREX: BMWE.EX - news) , Pirelli,

Michelin, and Gestamp Automocion - could cast a fresh pall over the battered sector.

Renault (LSE: 0NQF.L - news) and Carlos Ghosn remain in the spotlight. On Sunday, Finance Minister Bruno Le Maire

said the government has told the French carmaker to provide more details on compensation paid to

senior executives via a Dutch holding company jointly owned with its alliance partner Nissan.

In what will no doubt be widely watched, lawyers of ousted Nissan chairman Ghosn are

scheduled to give their first public appearance on Tuesday at a news conference in Tokyo. Ghosn

will make his first public appearance in seven weeks tomorrow too.

(Josephine Mason)

*****

MORE GAINS IN EUROPE ON THE CARDS (0624 GMT)

European shares are expected to build on the optimism that grew steadily during Friday's

stellar session as the latest face-to-face negotiations between the United States and China kick

off in Beijing aimed at resolving the prolonged trade row between the world's two largest

economies. On Friday, stocks in Europe posted their biggest daily gain since June 2016.

Asian shares have shot higher overnight, as the talks in Beijing stir hopes for a deal of

some kind. Chinese stocks firmed after the central bank cut on Friday bank reserve requirements

again freeing up $116 billion for new lending. Oil is also higher this morning.

Financial spreadbetters at IG (Frankfurt: A0EARV - news) expect London's FTSE to open 7 points higher at 6,845,

Frankfurt's DAX to open 48 points higher at 10,815 and Paris' CAC to open 15 points higher at

4,752.

(By Josephine Mason)