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LIVE MARKETS-Q2 earnings season: the good, the bad and the ugly

* STOXX 600 up 0.4% as FTSE 100 +1.8% * Defensive sectors, telecoms, healthcare rise * Trade-sensitive cars, luxury goods fall * Investors cautious as trade talks start, ahead of Fed * Just Eat and LSE soar on dealmaking 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: rm://thyagaraju.adinarayan.thomsonreuters.com@reuters.net Q2 EARNINGS SEASON: THE GOOD, THE BAD AND THE UGLY (1233 GMT) The good news: the busiest week of the result season is behind us and out of the 95 companies that reported so far, 43% have beaten EPS estimates by 5% or more, while 21% have missed, according to Morgan Stanley. If it stays on that course, that would make it the best quarter since Q1 2017. * The bad: this has been a low quality beat because there were such a large cuts to consensus just ahead of results. When the bank published its Q2 preview just two weeks ago, consensus was for a decline of 0.9% in earnings, but that's fallen to -5%. * The ugly: earnings revisions in Europe have deteriorated in recent weeks, not just on Q2 earnings but on estimates further out. All major sectors have seen cuts, with commodities and financials the weakest, the bank's equity strategists say. According to Refinitiv data, analysts have been cutting their earnings estimates at their fastest pace since late December last year. See the chart below: That has seen earnings growth expectations for the MSCI Europe for the full year to drop to 3.1%, down from 3.6% a week earlier. That would be the weakest growth since 2016. See the chart below: Below is a look at the current consensus for U.S. and European earnings estimates out to 2020: (Josephine Mason) ***** UK CHEMICALS FACE MARGIN EROSION FROM NO-DEAL BREXIT (1030 GMT) UBS has looked into what no-deal Brexit could mean for UK chemical exporters to conclude that while further pound weakness could be helpful there is a risk of margin pressure. "With regard to potential WTO tariff structures, it could be a key test of business models and Croda, for example, commented last week that any tariffs incurred would be 'shared with customers'," analysts at the Swiss bank say. "Overall, however, we would not expect any UK chemicals' exporter to be able to fully pass on all of the costs and so would flag margin risk in this respect," they add. According to UBS, Victrex, Croda and Johnson Matthey generate 2%, 5% and 10% respectively of group revenues from Britain versus 100%, 16% and 35% of production - making them the most exposed to "transactional risk" in Brexit. So far the main operational impact appears to be have been higher working capital provisions, UBS adds, citing Victrex increasing inventory in Germany by 15 million pounds. (Danilo Masoni) ***** TARNISHED WITH THE BREXIT BRUSH (1015 GMT) Don't shun UK utilities just because they're British! That's the opinion of Nick Langley, manager of the Legg Mason affiliate RARE global infrastructure income fund who says water and power companies have been unfairly tarnished by the Brexit brush. British utility stocks have been trading at a growing discount to euro zone peers as investors fear the country's deepening political crisis could trigger a general election that ushers in renationalisation of the industry, worth $76 billion. Langley says that discount is now a buying opportunity, noting the sizeable revenue made by utilities abroad and their strong, predictable and regulated cashflows. National Grid makes two thirds of its revenue in the United States. "Firms such as National Grid have been part of an indiscriminate sell-off," he says in a note this morning. The chart below shows the steepening discount of UK sector vs European rivals. (Josephine Mason) ***** "MATERIAL NEW ALL-TIME HIGHS" BEFORE NEXT U.S. RECESSION (0915 GMT) A 21% year-to-date gain for the S&P 500 (also record highs), 27% for Nasdaq, 16% for pan-European STOXX 600, are global stocks peaking? Not quite. JP Morgan equity strategists say they are expecting "material new all-time highs" before the next US recession strikes. Wow! That's despite no U.S.-China trade deal in the vincinity, PMI data pointing to economic downturn in the developed world, rising chances of a no-deal Brexit and central banks signal lower-for-longer interest rate environment. JPM says it believes that growth trends will firm up as we move into the second half of the year and that we're approaching a trough in the global manufacturing cycle. We're in one of the busiest weeks of the earnings season and so far 64% of U.S. companies beat profit estimates and in Europe over half of them delivered a beat. "We believe the potential turn higher in earnings and in activity in 2H will help the equity market, but in any case we do not find equity valuations to be demanding yet, despite the recent rerating." Here's a chart on developed markets 12-month forward P/E valuations: (Thyagaraju Adinarayan) ***** OPENING SNAPSHOT: STOCKS EKE OUT GAINS; LSE, JUST EAT SOAR (0742 GMT) European stocks are slightly higher this morning as a slew M&A news seems to be just enough to offset weakness coming from the trade-sensitive auto sector and Fed jitters keep investors cautious. The European financial services index is the top sectoral gainer as LSE soars 11.5% to record highs on its plan to buy Refinitiv from Blackstone. Apart from financial services, defensive sectors are making decent gains as investors position themselves ahead of the Fed's key interest rate decision on Wednesday and as the chances of a no-deal Brexit are seen rising. Export-heavy FTSE 100 stands out in Europe gaining 0.6% on the ongoing sterling rout and as LSE and Just Eat provide some lift. Just Eat is skyrocketing 25% on Takeaway.com's buyout approach. The move is also driving shares of rival Delivery Hero, which is up 5% while Takeaway.com shares have hit record high. Heineken has slumped 6% and is the worst performer on the pan-European STOXX 600 and set for its biggest one-day loss in eight year after reporting first-half earnings below estimates due to rising input costs. (Thyagaraju Adinarayan) ***** IN FOCUS: MULTI-BILLION DOLLAR M&A, BEERS, DRUGS, AIRLINES (0655 GMT) European stocks are starting week on the backfoot ahead of Fed's key interest rate decision on Wednesday, continuing U.S.-China trade negotiations in Shanghai and another round of corporate earnings. M&A news is making a big splash this morning with some multi-billion dollar deals breaking over the weekend: LSE Group is in talks to buy financial data firm Refinitiv from Blackstone in a $27 billion deal, Takeaway.com is chasing rival Britain's Just Eat with a potential 9 billion pound ($11 billion) offer. Just Eat shares are seen jumping as much as 25%, while LSE is seen 3%-5% higher, according to traders. In a positive read-across for the food delivery sector, dealers see Delivery Hero rising 5%. In the latest activist investor push on European companies, Nelson Peltz's Trian Fund urged Ferguson to sell its UK business. Shares are seen 1% higher. In earnings, we've got the world's second-largest brewer Heineken reporting lower-than-expected first-half profits hit by rising input costs. Traders see shares opening 3%-5% down. Ryanair shares are set to rise 2% on its Q1 profit beat, despite the low-cost carrier warning that fares would decline 6% in the summer season due to overcapacity in Germany and Brexit fears in the UK. Pharma in focus: Swiss drugmaker Novartis is seen 2% lower after its Paragon study in heart failure patients with preserved ejection fraction failed; Traders call Sanofi's Q2 results "mixed" calling moves ranging -1% to +1%; Reports of Pfizer's interest to combine its off-patent drugs business with Mylan could help generic drugmakers. More headlines: Main owner Mellby Gard makes bid for Sweden's Kappahl Activist Peltz's Trian urges Ferguson to sell UK business Insurer Hiscox posts higher profit as premiums rise Brexit weighing on minds of small business customers -Bank of Ireland CEO Liontrust Confirms Deal Talks With Controlling Shareholders Of Neptune Investment Hammerson posts lower rental income, sheds stakes in European shopping centres[ nL4N24U1HQ] (Thyagaraju Adinarayan) ***** FED JITTERS KEEP MOOD SUBDUED ON MERGER MONDAY (0617 GMT) European stocks are set for a cautious start this week as investors await an interest rate decision from the Fed and U.S.-China continue trade negotiations with no possible breakthrough expected. In London, senior ministers said over the weekend new Prime Minister Boris Johnson's government was working on the assumption that the country will cash out of the EU without a deal on Oct. 31, sending sterling down to March 2017 lows this morning and adding further volatility to British stocks. All major European stock futures are down 0.3-0.4%, except for FTSE 100, which is flat on a weak sterling. In corporate news, M&A is making major headlines this morning with a few deals breaking over the weekend. European online food delivery firm Takeaway.com is in talks to buy Britain's Just Eat in a potential 9 billion pound ($11 billion) deal. Credit Suisse analysts see the likelihood of counter bids, saying "Just Eat's portfolio contains substantial value not currently reflected in the share price". A potential $27 billion deal seems to be in the making as LSE Group is in talks to buy financial data firm Refinitiv from Blackstone. But sources tell Reuters that the deal is expected to face a long and winding antitrust review before it goes through. In the U.S., Pfizer is in talks with Mylan to combine its off-patent drugs business with Mylan to create a generic drug giant. In corporate earnings, pharma giant Sanofi raised outlook after a strong set of Q2 numbers and medical device maker Siemens Healthineers Q3 profits comfortably beat estimates. Europe's largest low-cost carrier Ryanair warned fares would decline 6% in the key summer season due to overcapacity in Germany and Brexit fears in the UK. Major headlines: Takeaway.com in talks to buy UK's Just Eat in food delivery tie-up LSE-Refinitiv deal faces long antitrust review - sources Pfizer in talks to merge off-patent drugs business with Mylan - source Drugmaker Sanofi raises outlook after strong Q2 numbers Heineken half-year profit misses on higher costs Siemens Healthineers Q3 net profit jumps on higher sales of medical scanners Ryanair expects average fares to fall 6% in key summer season (Thyagaraju Adinarayan) ***** CAUTIOUS START AHEAD OF FED THIS WEEK (0528 GMT) European stocks are expected open flat to slightly lower ahead of Fed's policy meeting later this week and as U.S. and Chinese trade negotiators meet in Shanghai with expectations running low for a breakthrough deal. U.S. interest rate futures are fully priced for a quarter-point rate cut from the Fed on Wednesday. Financial spreadbetters IG expect London's FTSE to open 2 points higher at 7,551, Frankfurt's DAX to open 20 points lower at 12,400, and Paris' CAC to open 15 points down at 5,595. "The focus on central banks continues this week, as attention turns to the US Federal Reserve, the Bank of Japan, and the Bank of England, after last week's mixed messaging from the European Central Bank, which saw the euro, as well as bond yields across the region seesaw sharply," says Michael Hewson, chief market analyst at CMC Markets UK. Central banks aside, we have some M&A news with Blackstone Group expected to announce the merger of its majority-owned financial data firm Refinitiv with the LSE Group and European online food delivery firm Takeaway.com is in talks about a potential 9 billion pound all-share offer for Britain's Just Eat. (Thyagaraju Adinarayan) ***** ($1 = 0.8089 pounds) (Reporting by Danilo Masoni, Josephine Mason and Thyagaraju Adinarayan)