LIVE MARKETS-Report of Brexit talks setback sinks sterling, buoys FTSE

* European shares rise in morning trade

* Kingfisher (Frankfurt: 812861 - news) , Adecco (Swiss: ADEN.VX - news) fall after results

* Schaeffler (IOB: 0RBK.IL - news) sticks to sales target, stock gains

* Wall Street futures flat

Sept 19 (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: danilo.masoni.thomsonreuters.com@reuters.net

REPORT OF BREXIT TALKS SETBACK SINKS STERLING, BUOYS FTSE (1205 GMT)

It's been a rollercoaster day for the FTSE 100. Having stumbled through the morning session,

it is now up 0.3 percent after a Times report that PM Theresa May is set to reject an improved

EU offer on the post-Brexit Irish border problem sank the pound.

There's tension on another front too with UK treasury minister Mel Stride suggesting, on Sky (Amsterdam: BK8.AS - news)

News, that there could be another referendum if May's Chequers proposals are rejected by

Parliament.

You can watch the clip here: https://bit.ly/2PRhfSD

Interestingly that news gave the pound a bit of a boost, though it remains below its level

prior to the Times report. Before that it had been doing very nicely after higher-than-expected

inflation numbers.

"Seems from headlines everything agreed except Northern Ireland - the most hotly debated and

volatile issue for UK!" says a trader. "The issue is that the EU have to realise if they don’t

get this deal done, then PM May could go and that means either a hard Brexit or a second

referendum."

"They are still in negotiations - there is no way they walk into every meeting in total

agreement. But I think we are definitely getting closer to a result, hence GBP has been firmer

overall," says another dealer.

(Helen Reid)

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AUTOS? "THE SECTOR SHOULD RERATE MATERIALLY" (1102 GMT)

In our previous post we talked about banks but there's another unloved sector in Europe

that's very cheap and that periodically tempts bargain hunters: AUTOS.

Redburn analysts Ashlee Ramanathan and Charles Coldicott have taken a deep dive into the

industry and their main takeaway for investors is rather bullish.

"Despite taking a cautious view on the trajectory of world car sales and FinCo

profitability, and including our updated emissions cost estimates, we see sector profits easing

only 90bp by 2021 – the trough of profitability," they say in a 144-page long note, arguing that

these challenges can be offset via cost cuts and mix gains.

The key point here is that their trough forecast is a vastly more positive outcome than

investors expect -- this chart that combines a valuation metric with core profit margin trends

implies that the market thinks margins are poised to collapse in the order of 400bp.

Hence they conclude: "As confidence in the trough of margins appears and is combined with

compelling valuation and underweight positioning, the sector should rerate materially."

Today, the autos sector is up 0.9 percent at a three-week high.

PS: The rerating will take time and there could be further near term hits if the tariff war

turns for the worse, the analysts caution.

(Danilo Masoni)

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TIME TO BUY BACK INTO EUROPEAN BANKS? (1000 GMT)

With (Other OTC: WWTH - news) the sector down 14.9 percent year-to-date (16.8 percent for euro zone banks), Credit

Suisse's global equity strategist Andrew Garthwaite thinks it is.

The fall in PMIs, Bund yields and the euro were responsible for 10 percentage points of the

19 percent underperformance of European banks since their mid-February peak, Garthwaite argues.

"From here we think these headwinds should stabilise," he says, adding credit spreads imply

a fall in loan loss provisions, and real estate prices are likely to continue to rise.

On EM Garthwaite says "we see very limited signs of contagion" despite GEM (Shenzhen: 002340.SZ - news) -related banks

making up 35 percent of European banks' market cap.

Risks remain, of course, among which Italian politics, credit spreads widening, and

disruption.

But investors may feel they're being compensated for the risk: the dividend yield of

European banks versus the market has been higher only once before, in the height of the 08/09

banking crisis when CDS spreads widened sharply. Apart from that period, previous occasions with

a similarly high DY saw banks outperform strongly over the subsequent 12 months, Garthwaite

says.

CS' banks team prefers Lloyds, UBS (LSE: 0QNR.L - news) and ABN, while they also recommend Spanish lenders

Caixabank (Amsterdam: CB6.AS - news) , Unicaja and Santander.

(Helen Reid)

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OPENING SNAPSHOT: TRADE HOPES HELP STOXX ADD TO GAINS (0735 GMT)

European stocks are trading higher this morning with trade-sensitive basic resources and

autos stocks, as well as banks, the top gainers.

Miners are driving the market, up 1.4 percent, after Shanghai copper prices rose

sharply to hit a one-month high as the metals market also shrugged off an escalation of the

U.S.-China trade row - focusing instead on hopes the intensity of the trade dispute is easing.

Schaeffler is top of the STOXX after saying it would reach the upper end of its previous

guidance for its automotive aftermarket and industrial divisions. The big share price reaction

is evidence of the pessimism priced in to auto & auto supplier stocks such as Schaeffler - it's

up 5.4 percent and helping boost the autos sector up 1.5 percent.

In results, both Kingfisher and Adecco are falling after results. The home improvement

retailer reported a 15 percent fall in half-year profits after poor performance in France, while

the world's largest staffing company reported a slowdown in growth so far in the third quarter.

Here's your snapshot with Europe's top country benchmarks.

(Helen Reid)

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WHAT YOU NEED TO KNOW BEFORE EUROPE OPENS (0650 GMT)

Hopes that the US and China will return to the negotiating table after the latest tariff

round are set to further support European shares at the open today with futures last trading up

0.1-0.3 percent.

After hitting a five-month low earlier this month, the STOXX 600 is now back to

around 10-day highs and even though the region has seen continued fund outflows and

underperformance, its cheap relative valuations are starting to lure back some investors.

Credit Suisse (IOB: 0QP5.IL - news) said today its base-case scenario sees Washington and Beijing negotiating a

settlement in the next 6–9 months. Last week Deutsche Bank (IOB: 0H7D.IL - news) said it expected a compromise over

the coming quarters, saying that could result in an 8 percent outpeformance vs the market of its

European basket of trade proxy stocks.

Corporate news so far is thin although the session could be animated by some earnings

updates and some minor dealmaking activity. The world's largest staffing company Adecco said it

has seen a slowdown in growth so far in the third quarter, while home improvement retailer

Kingfisher reported a 15 percent fall in half-year profits. Also on the watchlist are consumer

groups Nestle (Swiss: NESN.VX - news) and Unilever (NYSE: UL - news) after a Reuters exclusive said they are among the bidders for

GlaxoSmithKline (Other OTC: GLAXF - news) 's Indian nutrition business.

And here are some more headlines: Danske Bank (LSE: 0NVC.L - news) revises outlook downwards, now expects net

profit for 2018 to be in range of dkk 16-17 bln; ; Sulzer (IOB: 0QQ9.IL - news) sells treasury shares bought from

Vekselberg; Bosch's car unit targets 4 pct revenue growth in 2018

(Danilo Masoni)

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HEADLINES ROUNDUP: ADECCO, CONSUMER STOCKS ON WATCHLIST (0543 GMT)

Shares (Berlin: DI6.BE - news) in Adecco are likely to be on today's watchlist after quarterly numbers from

the world's largest staffing company showed a slowdown in sales growth. Also in focus are

consumer giants Nestle and Unilever after a Reuters exclusive said they're

among the bidders for GlaxoSmithKline's Indian Horlicks nutrition business.

Here are the links to these stories and other possible stock movers:

Adecco sees slowdown in revenue growth so far in Q3

Nestle, Unilever, Coke make bids in $4 bln-plus GSK India sale-source

Activist investor pressures French reinsurer Scor on takeover

Deutsche Bank CFO says holding structure not high on agenda right now

Bayer (IOB: 0P6S.IL - news) 's Monsanto (Hamburg: 1132157.HM - news) asks U.S. court to toss $289 mln glyphosate verdict

KRUK eyes more Italian bad loans after Findomestic deal

Danske Bank set to shed light on Russian money flows to Europe

Britain's Tesco (Frankfurt: 852647 - news) takes on German rivals with new discount store format

Vivendi (LSE: 0IIF.L - news) 's reaches distribution agreement with Altice (Other OTC: ATSVF - news) 's SFR on Champions League matches

GSK grabs new drug development head from Boehringer

AstraZeneca (NYSE: AZN - news) plots China robot offensive to counter price cuts

Norway's Aker (LSE: 0MJX.L - news) bets on software engineers for its oil business

Ferrari (Xetra: 30092157.DE - news) plans 15 new models, SUV to deliver earnings growth

(Danilo Masoni)

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MORNING CALL: EUROPEAN SHARES SEEN HIGHER (0523 GMT)

European shares are expected to extend gains seen yesterday when sentiment remained positive

despite Beijing's prompt retaliation against US President Donald Trump's decision to impose

tariffs on more Chinese imports. Investors are still hoping the contenders would resume talks,

avoiding a further escalation.

Financial spreadbetters expect London's FTSE to open 11 points higher at 7,312, Frankfurt's

DAX to open 26 points higher at 12,183 and Paris' CAC to open 7 points higher at 5,370.

Over in Asia, stocks rose across the board and long-term U.S. Treasury yields hovered near

four-month highs, with investors looking past the latest escalation in the U.S.-China trade

feud, seen by some market participants as less severe than expected.

(Danilo Masoni)

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