UK Markets closed

LIVE MARKETS-Replace the phrase "non-performing" with "subprime"

* European shares recover some losses

* STOXX set for third straight week down

* Deutsche downplays idea of Commerzbank (Xetra: CBK100 - news) deal

* BT CEO to step down, shares up

* Kering (LSE: 0IIH.L - news) recovers as analysts lift targets

June 8 (Reuters) - Welcome to the home for real-time coverage of European equity markets

brought to you by Reuters stocks reporters and anchored today by Danilo Masoni. Reach him on

Messenger to share your thoughts on market moves:


Offloading non-performing loans (NPLs) has been a key driver in the share price recovery of

Italian banks even if the latest political turmoil has recently blurred the picture.

In a report sent as feedback on the European Commission's plans to better regulate soured

loans, the NGO Finance Watch argues that selling NPLs spreads their toxicity through the

financial system rather than addressing the problem at its core.

"Replace the phrase ‘non performing’ with ‘subprime’ and we are back to the fatal and

discredited game of ‘pass the parcel’ that was at the root of the last financial markets

cataclysm," writes Finance Watch senior adviser Christian Stiefmueller.

"The financial crisis of 2008 should serve as a potent reminder of what happens when

unsuspecting investors were sold complex, non-transparent securities whose primary raison d’être

was to conceal the poor quality of the underlying assets they contain."

You can find the Finance Watch report here:

And here's a cool way to pass a parcel on:

(Julien Ponthus)



"Massive" outflows continue to bleed out of European equities, BAML's flow show notes today.

Some $4 billion was whisked out of the region while the U.S. and Japan continued to enjoy


Part of the reason could be that tech is still the hottest sector - drawing in its

second-largest ever inflows, at $2.3 billion (see chart below), and Europe is not the place to

be to get exposure to tech.

Here's a take from Charles de Boissezon, deputy head of global asset allocation and equity

strategy at Societe Generale (Swiss: 519928.SW - news) , on the dominance of tech - he's more bearish than most.

"People really underestimate more regulation and tax on tech. The tech sector could be a

source of volatility. If you look at big cycles the financial sector was the one with most

regulatory pressure and these days it's the tech sector. You can really envisage it's in the

cross-hairs of governments," he says.

"In Europe you don't have the convexity to these 'new economy' tech stocks, but the economy

is in good shape," he adds.

Overall the past 13 weeks have seen more than $33 billion of redemptions from European

stocks, BAML strategists note, making it one of the big four flow losers of the second quarter

along with high-yield bonds, investment-grade bonds, and emerging markets.

Here's our full take on today's flow show:

(Helen Reid)



While many have shed their holdings of Italian bank equity and Italian government bonds in

the past weeks, some are sticking with it, grinning and bearing it through volatile market


Liam Nunn, European equities fund manager at Old Mutual (Other OTC: ODMUF - news) , is one. While he tries to avoid

analysis of the macro picture, being more of a bottom-up investor, he invests in several

European banks which inevitably have heavy exposure to broader financial markets - including one

Italian lender.

"I do own Unicredit (EUREX: DE000A163206.EX - news) which has been painful," he says. "The reason why I continue to hold it

through this volatility is the capital situation is much much stronger than it has been, making

it more able to ride out financial volatility."

Nunn says the capital impact on Unicredit from the selloff in Italian bonds is

"manageable", but fee growth in the asset management arm could be hurt by more risk averse

sentiment making Italians less likely to invest.

The selloff in Italian banks was pretty indiscriminate, meaning some of the better quality

stocks could present opportunities now. Below you can see the price to book value of Italian

banks fell across the board, but actually declined more sharply for the higher-valued lenders

Intesa and Mediobanca (Milan: MB.MI - news) .

His other bank holdings include ING and DNB (LSE: 0O84.L - news) : "relatively well-capitalised

banks in Northern Europe, which have a good position in relatively oligopolistic markets and are

not so dependent on change in interest rate policy," he explains.

(Helen Reid)



Germany disappointed again this morning with weak industrial output and exports which are

weighing on the euro.

The data could very well signal that the euro zone's current "soft patch" is not that

temporary and lead the way to slower than expected growth.

Germany is supposed to be the powerhouse of the Euro zone but so far this year, it hasn't

much to show for it, ING argues.

"The German economy shows increasing parallels with the national football team, which

although entering the World Cup in Russia next week as defending champion, has not won a single

match this year," the bank's analysts write.

Another interesting read on the poor German statistics was from Oxford Economics for which

the word 'ouch' is becoming closely associated with German data. "This ('ouch') has become the

default reaction to the release of German high frequency business cycle data as a series of

gloomy data points since the end of last year."

Barclays (LSE: BARC.L - news) revised its Q2 growth expectations from 0.6 percent to 0.4 percent and gave a

bleaker outlook.

"With (Other OTC: WWTH - news) risks of trade protectionism crystallizing and fiscal stimulus slightly delayed, we

also change our H2 forecasts... these changes imply annual real GDP growth in Germany of 2% in

2018 and 2.1% in 2019, down from 2.3% and 2.4%".

Time (Frankfurt: A11312 - news) for German fans to manage expectations?

(Julien Ponthus)



It looks like some appetite for risky assets has returned with the STOXX 600 last

trading down just 0.1 percent, having fallen as much as 0.8 percent in morning trading.

In the snapshot you can the stocks that are contributing most points to the pan-European

index. Leading them is Kering, up as several price target upgrades helped shares in

the luxury group recover from a heavy drop suffered yesterday on worries that margins and growth

in the sector may have peaked.

(Danilo Masoni)



Next (Frankfurt: 779551 - news) week's ECB meeting is going to be a "live" one but whether policymakers will indeed

deliver a hawkish surprise on their massive bond buying programme cannot be taken for granted.

What looks certain instead is that the European Central Bank is keeping its options open as

its moves towards policy normalisation. And that may well prompt some investors to start

reconsider their sectoral allocations.

Much in focus will be sectors highly sensitive to the direction of interest rates - bond

proxies and banks.

Over the last four months, utilities and real estate, which tend to benefit from lower bond

yields, have clearly outperformed banks, which instead benefit when rates increase.

For Deutsche Bank strategists, however, the days of this outperformance may be numbered and

say it's time to position for higher bund yields. Here's what they recommend:

* Upgrade banks to small overweight from benchmark

* Downgrade real estate to underweight from overweight

(Danilo Masoni)



The market is selling off pretty sharply this morning with the DAX and FTSE MIB both falling

as much as 1.2 percent at the open, and the STOXX down 0.5 percent.

Every stock on the German index is in the red, and overall it's financials that are taking

the brunt of the selling. Meanwhile German Bund yields are falling as investors turn back to

safer assets.

Looks like there is more than just a bit of anxiety in markets ahead of the G7 leaders'

summit which starts today. Here's our latest on the build-up to that:

"I am going for a big sell-off," says one trader. "Way too much complacency."

France's Eutelsat (Paris: FR0010221234 - news) and SES are some of the only silver linings, up 6 and

3.6 percent after the U.S. Federal Communications Commission expanded market access for SES' O3b

satellite constellation.

Ingenico (Paris: FR0000125346 - news) is also getting a boost from Barclays' upgrade to "overweight".

(Helen Reid)



European shares are expected to open lower today with futures pointing to declines of

0.6-1.1 percent. The STOXX 600 regional benchmark is on track for its third weekly loss in a row

as expectations of tighter monetary conditions, renewed strength in the euro and growing

political worries take their toll.

Expectations the ECB could signal plans to wind down its bond buying programme as early as

next week could continue to support banking stocks, as well as fresh reports about possible

dealmaking in the sector.

Shares (Berlin: DI6.BE - news) in Deutsche Bank (IOB: 0H7D.IL - news) and Commerzbank are seen rising as much as 2 percent after Bloomberg

reported that top shareholders had been consulted about a potential tie-up between the two

German lenders.

Other stock movers: BT's CEO Gavin Patterson to step down (+1% pre-mkt); Hermes to replace

LafargeHolcim (LSE: 0QKY.L - news) in France's CAC 40 stock index from June 18 (+1% pre-mkt); Thyssenkrupp (IOB: 0O1C.IL - news) examines

sale of naval vessels business - source (+0.5% pre-mkt); Sports betting passes New Jersey

legislature, moves to governor; Novo Nordisk (LSE: 0QIU.L - news) considers laying-off up to 3,000 staff - Danish

paper Borsen; Lloyds sells Standard Life Aberdeen stake

(Danilo Masoni)



Deutsche Bank sounds out investors about Commerzbank deal-Bloomberg

Deutsche Bank says chairman sees no need to bring up Commerzbank deal [nL5N1T96HL

Novo Nordisk considers laying-off up to 3,000 staff - Danish paper Borsen

Hermes to replace LafargeHolcim in France's CAC 40 stock index from June 18

Sports betting passes New Jersey legislature, moves to governor

RBS CEO says wants to buy bank's shares back from UK government

Lloyds sells Standard Life Aberdeen stake

Thyssenkrupp examines sale of naval vessels business - source

Bosch (BSE: BOSCHLTD.BO - news) might sell packaging technology unit - FAZ

BPER CEO says fighting pressure to cut bad debt with collection unit sale

Julius Baer (LSE: 0QO6.L - news) looks to fixed price system to bolster returns

MEDIA-SocGen (Paris: FR0000130809 - news) executives ordered Libor rigging, US prosecutors believed- FT

BP complains to Canada regulator about Enbridge (Dusseldorf: EN3.DU - news) oil pipeline actions

Ex-Volkswagen CEO summoned to testify in emissions lawsuit-Bild

Geordie Greig named as neweditor of Daily Mail

(Danilo Masoni)



European shares are expected to start the session in the red with financial spreadbetters

expecting London's FTSE to open 24 points lower at 7,680. Frankfurt's DAX is set to open 98

points lower at 12,713 and Paris' CAC to open 30 points lower at 5,418.

Over in Asia, shares stepped back from a 2-1/2 month high as risk appetite soured on bets

that Europe's massive monetary stimulus was nearing an end, compounded by uncertainty over trade

relations ahead of a key meeting of global leaders.

(Danilo Masoni)