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LIVE MARKETS-Year of the pig brings cheer to equities

* European shares rise on trade optimism

* FTSE lags behind as sterling ticks up

* UK PM May seeking another Brexit delay

* STOXX 600 hits highest since Aug 2018

* Dealmaking on the radar in Europe

April 3 - Welcome to the home for real-time coverage of European equity markets brought to

you by Reuters stocks reporters and anchored today by Helen Reid. Reach her on Messenger to

share your thoughts on market moves: helen.reid.thomsonreuters.com@reuters.net

YEAR OF THE PIG BRINGS CHEER TO EQUITIES (1431 GMT)

Credit Suisse believes the worst is behind us when it comes to the long and winding

U.S.-China trade talks and brushes aside the often talked-up China-led weakness. It says China

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has entered a cyclical upturn with domestic demand showing clear signs of improvement.

"This cyclical upturn comes at a convenient time for China with respect to its trade talks

with US," Credit Suisse says.

It's been less than a month since the year of the pig kicked-off and the Chinese stock

markets have been on fire!

The benchmark Shanghai Shenzhen CSI 300 index has surged 25 percent to over 1-year

highs.

And that's all good news for European equities, in particular miners, tech

and autos which are heavily exposed to China. The pan European basic resources index is

on track for a seven-day winning streak, while Germany's DAX is rallying led by autos

and chipmaker Infineon.

(Thyagaraju Adinarayan)

*****

FORGET BAYER: IN TAKEOVERS, EUROPEANS BEAT THEIR BENCHMARK (1123 GMT)

Bayer's disastrous takeover of Monsanto may be the exception that confirms the

rule and data shows that shares of European acquirers have done better than peers in America and

Asia relative to their respective regional benchmarks.

"Europe is the only region worldwide to have recorded a positive M&A performance in the

first quarter of 2019, with European dealmakers outperforming their regional index by +2.8pp

(percentage points)," adviser Willis Towers Watson says in a statement illustrating the results

of a study it ran in partnership with Cass Business School.

North American and Asia-Pacific acquirers underperformed their regional indexes by 10.1pp

and 5.0pp in Q1 respectively, according to the study.

The same is true also looking at a longer time frame.

Willis Towers Watson said a three-year rolling average performance of +5.1pp above their

index puts European acquirers in the top spot, driven by consistent outperformance in the

previous six quarters. Over the same period North American and Asia Pacific acquirers have

underperformed their regional indices by -1.1pp and -5.5pp respectively.

"The decline of the global M&A market continues with the sixth consecutive quarter of

underperformance, as only buyers in Europe able to add value through deals," it says.

In the table below you can see how the European, North American and Asia Pacific benchmarks

performed in Q1 and over the three-year period:

Asia-Pa World North Europe

cific America

Q1 2019 9% 12% 13% 11%

3 year 27% 30% 37% 18%

Since it completed the Monsanto acquisition in June 2018, Bayer has lost around 35 billion

euros in market cap, underperforming the MSCI Europe index by more than 33 percentage points.

(Danilo Masoni)

*****

BOND MARKET PIVOT NOT YET A DEATH KNELL FOR STOCKS (1037 GMT)

The market's pricing in of Fed rate cuts - a sharp turnaround from rate hikes priced in at

the end of last year - has been taken by some as a negative signal, but Societe Generale says

this isn't yet a harbinger of recession.

As you can see below, there have been six occasions in the last 30 years when the market has

switched from pricing hikes to pricing cuts - but only half were followed by a recession, while

three were mid-cycle slowdowns. The difference was the extent of the rate cuts priced.

"We need to see the Fed futures market pricing in 100 basis points of rate cuts over the

subsequent six months to be confident of calling an imminent recession," writes Societe

Generale's Jitesh Kumar.

More clues as to when this cycle will end can be found in volatility markets, he adds.

At the end of the business cycle, equity and commodity volatilities usually switch to a high

regime ahead of others, while rates and FX volatilities pick up much later.

Equity and commodity volatilities have already bounced, and "the recent bounce in rates

volatility from multi-year lows could prove to be the turning point if the market continues to

price more rate cuts going forward."

Kumar adds that FX volatilities are much lower than they would expect at this stage of the

cycle. If the market starts to price sharper rate cuts, interest rate volatility is likely to

feed through to EUR/USD and USD/JPY volatility.

(Helen Reid)

*****

EUROPEAN INDUSTRIALS LOOK "VULNERABLE" INTO EARNINGS SEASON (0943 GMT)

Barclays analysts have taken a look at European capital goods and even though data this week

has eased worries over manufacturing activity in China they don't look overly upbeat (to say the

least) as the earning season is about to start.

"Industrial activity in China appears to be bottoming out, U.S. remains resilient, and the

consensus view seems to be that Europe exits its 'soft patch' in H2, supported by fiscal easing,

and global industrial activity rebounds to trend. So, we're out of the woods then? Far from it,"

they say.

They also note that the leading component of European manufacturing PMIs - new orders - is

deep in the 40s at levels not seen since the global financial crisis.

That being said, what's the investment conclusion now that companies are preparing their

earnings updates? It seems caution is warranted especially after the recent run.

"With industrial stocks outperforming year-to-date, sector valuation moving back above its

long-term average relative to the market, and short interest lower, we think the sector looks

vulnerable into the Q1 results season," they say.

The season kicks off with Sandvik on April 18.

(Danilo Masoni)

*****

BANKS' DIVIDEND YIELDS AT RISK? (0910 GMT)

Banks are among the best-performing today, behind only autos and miners as a rally fuelled

by China optimism gathers momentum. Value-minded investors may be tempted into the sector that's

burned many over the past couple of years - but analysts at UBS think investors should be wary

of buying banks as a dividend play - as some may not be able to honour their payouts.

The average yield from European banks is high at 6 percent, they note, and this suggests

weak market sentiment.

Weaker than expected revenues are seen as the biggest risk to dividends.

They see "little margin for error" for the French banks, but are buyers of BNP Paribas,

Societe Generale and Credit Agricole for other reasons.

Brexit and anti-money laundering issues are pushing dividend yields for UK and

Nordic/Benelux banks up. But UBS has high conviction on UK domestic bank Lloyds' ability to pay

out, as well as Intesa Sanpaolo's.

"There are few banks that not only screen well on our heatmap but also offer high dividend

yields," they note, pointing to Spain's Caixabank and the Netherlands' Van Lanschot and KBC, "We

would expect those shares to re-rate over time."

(Helen Reid)

*****

SOFTER BREXIT AND TRADE HOPES LIFT STOXX TO 8-MONTH HIGHS (0800 GMT)

European shares have opened up sharply with several indexes hitting new highs boosted by

optimism over US-China trade talks and after Theresa May announced talks with the opposition

Labour party in a bid to break the Brexit deadlock, adding that if they could not agree a

unified approach the government would let Parliament decide on a number of options.

"This is huge news. She is seemingly now prepared to back down on her prior red lines and

also prepared to let parliament decide on the outcome if she and Mr Corbyn can't," says Deutsche

Bank strategist Jim Reid in his morning note.

"Recall that the customs union option came within 3 votes of passage on Monday. If

parliament could muster the votes to pass that plan or an even softer outcome, PM May has now,

for the first time, implied that she would negotiate that with the EU without calling for

elections," he adds.

Of course such developments have pushed the pound up and that's weighing on the FTSE 100,

which is flat.

In the snapshot you can see the STOXX 600 at its highest since August 2018, up 0.8 percent.

(Danilo Masoni)

*****

WHAT YOU NEED TO KNOW BEFORE EUROPE OPENS (0653 GMT)

European shares are expected to open at fresh six-month highs today with signs of progress

in US-China trade talks lifting euro zone futures up as much as 0.8 percent. Prospects of a

Brexit delay have lifted the pound and that’s keeping FTSE 100 futures lagging

behind their euro zone peers, up just 0.1 percent.

In corporate news dealmaking is taking centre stage with shares in Germany's Metro

seen supported after the wholesaler said it is still in talks with several investors interested

in buying its Real hypermarkets chain in a deal that could be worth $1 bln.

Still in M&A, Mediaset said it is still studying a possible cross-border deal with

traders citing an ANSA report that Prosiebensat.1 is among possible candidates, while

Roche said it had extended until May 2 its $4.3 billion offer for US gene therapy

specialist Spark Therapeutics after getting only 29.4 percent of its shares in a tender

originally due to end today. A recommended cash offer for Lighthouse Group is set to

send shares in the financial advisor up as much as 20 percent.

In the battered banking sector, squeezed by ultra-low interest rates and a tough investment

bank environment in Q1, Societe Generale could feel some pressure after BAML set an

underperform rating on the stock. In earnings, CMC Markets could fall as much as 5

percent after the online trading firm forecast a plunge in net operating income, hurt by lower

client trading activity due to regulatory curbs in Europe.

Other stock movers: Britain's Babcock names Rolls-Royce exec Ruth Cairnie as chair; Pernod

Ricard betting on growth from green agenda; Carlos Ghosn on Twitter: Ready to 'tell the truth'

about events; U.S. March and Q1 auto sales drop in weak start to 2019; China's huge Airbus order

padded by old or incomplete deals -sources; EU has no major concerns in Germany over

Vodafone-Liberty deal - sources; Bayer board says pursuit of Monsanto was done diligently

(Danilo Masoni)

*****

U.S.-CHINA TRADE "HEADWAY" BOOSTS EUROPE, FTSE LAGS (0709 GMT)

Futures are up 0.7 to 0.8 percent in early deals as U.S.-China trade bulls are given a boost

by the White House saying it sees "headway" in trade talks this week.

FTSE 100 futures are up just 0.1 percent as a stronger pound shaves off gains from the

multinational exporter-heavy index.

The European rally, if it continues, helping the STOXX consolidate at six-month highs, will

likely be painful for the large share of investors underweight the region.

As Ian Williams, strategist at Peel Hunt, puts it: "Another good session for the contrarian

bulls of European equities yesterday; they continue to shrug off concerns about global growth

and politics to rack up further gains, led by the economically sensitive groups."

(Helen Reid)

*****

COMPANY NEWS: DEALS, CAR SALES, CASINO RATING CUT (0550 GMT)

With no big results from European companies today, focus turns to deal news. German retailer

Metro says it's still in talks with investors on a sale of its hypermarkets business, Mediaset

says it is still studying a cross-border deal, and Deutsche Telekom could be hurt by an analyst

saying they see less likelihood of a Sprint/T-Mobile deal. Take your pick!

Car stocks could also be hit by U.S. March auto sales data showing a feeble start to 2019.

Planemaker Airbus meanwhile may fall after sources told Reuters China's huge Airbus order, which

boosted the shares last week, was bolstered by repeat announcements of existing deals and

advance approval for deals yet to be struck.

Swedbank, which rallied yesterday after having sunk on ongoing investigations into

money-laundering allegations, could tumble after Fitch put the lender on rating watch negative.

And Casino shares could be hit by Moody's downgrading its rating to Ba3 with a negative

outlook.

Here are your headlines to watch:

China's huge Airbus order padded by old or incomplete deals -sources

Telecom analyst says approval for Sprint/T-Mobile deal less likely

U.S. March and Q1 auto sales drop in weak start to 2019

Metro still in talks with several investors on hypermarkets sale

MEDIA-Deutsche Bank's U.S. unit kept Danske's shady billions flowing - Bloomberg

Julius Baer shares to drop out of Swiss blue-chip index

France's Total signs 10-yr LNG deal with China's Guanghui

Pernod Ricard betting on growth from green agenda

Carlos Ghosn on Twitter: Ready to 'tell the truth' about events

Mediaset still studying cross-border deal, "not just up to us" - chairman

Citing climate differences, Shell walks away from U.S. refining lobby

Roche extends Spark offer after getting only 29 pct

(Helen Reid)

*****

ONWARDS AND UPWARDS (0520 GMT)

European stocks are set to stretch further today and the STOXX could regain the 6-month high

touched yesterday, after a rally in Asia on hopes a trade deal could be imminent.

Asian shares rose to seven-month highs as investors lapped up signs of progress in

U.S.-China trade talks and brisk economic data, while oil approached the key $70 per barrel

mark.

Hopes for a deal to end the trade war between the world's two largest economies were fanned

by fresh comments from White House economic adviser Larry Kudlow that Washington expects "to

make more headway" in talks this week.

London's FTSE 100 meanwhile will be weighed down by a stronger sterling after PRime Minister

Theresa May said Britain needed a further extension of Article 50 to ensure it leaves the EU

with a deal.

Financial spreadbetters expect London's FTSE to open 5 points higher at 7,396, Frankfurt's

DAX to open 89 points higher at 11,844 and Paris' CAC to open 34 points higher at 5,358.

(Helen Reid)

*****

(Reporting by Helen Reid, Danilo Masoni, Josephine Mason, and Thyagaraju Adinarayan)