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LIVE MARKETS-Saddle up for more UK political upheaval

* European shares rise slightly after heavy drop * FTSE falls as sterling rallies after UK Supreme Court rules PM Johnson acted unlawfully * German business morale bounces as "downturn takes a breather" * US Treasury's Mnuchin: trade talks to resume next month * Wall Street opens higher 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 SADDLE UP FOR MORE UK POLITICAL UPHEAVAL (1515 GMT) Britain was bracing for a general election but now people are betting on the country having its third PM resign over its tortuous Brexit process in as many years. Following the Supreme Court ruling this morning, the odds on Boris Johnson leaving Downing Street by the end of the year narrowed to 10/11 from 2/1 yesterday and even wider at 11/4 last week, according to Betfair Exchange. London stock markets don't appear quite so certain - the domestically focused FTSE 250 is down 0.6% even as sterling has rallied. (Josephine Mason) ***** A SURPRISING TALE OF TWO MARKETS (1458 GMT) A glance at the Citigroup Economic Surprise Index, a barometer for economic sentiment in a country, this week provides a stark example of the diverging fortunes between the U.S. and euro zone. The euro-zone reading tanked yesterday after dismal manufacturing and service PMIs - it went from a reading of minus 26 to sub-60, its weakest since February. Extending a months-long rise that saw it return to positive territory for the first time in almost six months, the U.S. index hit its highest since April last year. A tale of two markets indeed. Expectations for the United States now appear to be too bearish hence the bounce back as relatively upbeat data flows in. "The U.S. economy has been ticking along fine despite the trade war. It was unnecessarily bearish so concerns about the trade war hasn't come through to the economy. It (CESI) is rebounding from that," says Hetal Mehta, Legal & General Investment Management (LGIM) senior European economist. In contrast, the euro zone is enduring a long and painful period of disappointment as carmakers struggle with tough new emissions laws, the U.S.-China trade dispute inflicts pain on the region's top economy, Germany and uncertainty over Brexit weighs and companies are in recession. Legal & General hasn't been this bearish since the sovereign wealth crisis, says Mehta, who see sees a 40% chance of recession in the region in Q4/Q1. Paul Robson, head of G10 FX Strategy, EMEA, at NatWest Markets, says the widening gap in the two indices highlights the difference in the two economies - the euro zone relies on demand from Asia and the U.S. economy is much more about domestic demand. That's also why higher oil prices would also rattle markets in Europe more than the United States - soaring crude prices spur investment in the vast U.S. energy sector, boosting the economy where as it hits consumers' wallets in Europe. (Josephine Mason and Juice Elves) ***** ENGLISHMAN IN NEW YORK (WAKING UP TO ANOTHER BREXIT BLOW) (1035 GMT) It's early morning in New York and PM Boris Johnson, attending the UN, is waking up to the UK Supreme Court ruling that he acted unlawfully when he advised the Queen to suspend parliament just weeks before Brexit and that therefore the legislature had not been prorogued. Sterling rallied and the blue-chip FTSE 100 fell to a day low as is typical for any news that on the surface eases worries about a no-deal Brexit and now investors have to wait for the government to respond. Opposition Labour leader Jeremy Corbyn has called on him to consider his position and call a new election. In the meantime, a fragile calm is hanging over the market. "It's extremely difficult to say whether the ruling will be a game changer or nothing more than a headline maker but it will certainly ramp up the Brexit theatrics, just over five weeks ahead of the end of October deadline," says Craig Erlam, senior market analyst at Oanda. "Sterling is probably an accurate reflection of the news, with it initially spiking on the defeat for Johnson's pro-no deal government, before settling back around pre-ruling levels." The fact the midcap FTSE 250 didn't benefit from the rise in the sterling highlights the level of disquiet in the market. "I think the downward move in the FTSE 250 is due more political uncertainty, the chatter of a general election is going the rounds, which has chipped away at equity market sentiment," says David Madden, market analyst at CMC Markets UK. The FTSE 100 is now down 0.1% and FTSE 250 is down 0.3%. (Josephine Mason) ***** DATA GLOOM SENDS AUTOS INTO REVERSE (1003 GMT) Autos are leading fallers in Europe and this time tariff war headlines can't be directly blamed. The auto industry is at the core of Europe's manufacturing sector and data this week has painted a rather grim picture, especially for export-oriented Germany, where big car makers are based. PMI data out of Europe's No.1 economy were a big disappointment yesterday and the Ifo today provided little comfort. "Anyone looking for a bit of shiver these days only needs to take a look at German macro data - a series of horrific macro news. This morning's Ifo index brought some relief but as in tunnels of horror, there is no guarantee that the next monster isn't round the corner," say economists at ING. "The likelihood of another contraction of the German economy in the third quarter and hence a technical recession increases almost by the day. While a 'light' technical recession is not the end of the world... it is the lack of any signals of an imminent rebound which is more concerning," they add. Euro-zone auto stocks have fallen as much as 1.1% to a two-week low earlier today before paring some losses to trade down 0.4%. "It is a second day in a row that the European auto sector is trading in negative territory on the back of yesterday's below-than-expected German PMI datapoint which ... was clearly bad omen for German carmakers," says Stephane Ekolo, strategist at Tradition in London. (Danilo Masoni) ***** OPENING SNAPSHOT: BOUNCING BACK (0741 GMT) European shares are off to a positive start as they partly recover from yesterday's sell-off on renewed recession fears with gains across most sectors pushing the STOXX 600 regional benchmark up 0.3% in early deals. Defensive healthcare and rate-sensitive financials are providing the biggest uplift to the STOXX, while travel & leisure stocks are rising for a second day as investors eye short-term benefits from the collapse of Thomas Cook. Autos are a weak spot, down 0.4% with shares in Renault, Daimler and Porsche leading the pullback, while shares in truck and trailer components maker SAF Holland tanked 18% after a profit warning, which has further highlighted the challenges facing the sector. London's FTSE 250 index is lagging the rest of the market, down 0.2% with industrials and financial stocks leading the charge lower. Industrial machinery company Weir was down 4.1% at a 3-1/2-week low after a broker downgrade and the SAF Holland warning and accounted a third of the drop on the index. Here's your opening snapshot: (Danilo Masoni) ***** WHAT'S ON OUR RADAR (0657 GMT) European shares are expected to rise slightly at the open, partly recovering from the sell-off yesterday when disappointing business surveys deepened worries over a possible recession and fuelled talk that more stimulus may be needed. Those worries will be tested again today with the release of Germany's Ifo numbers, while the pound-sensitive FTSE could see some action following today's Supreme Court's decision on Johnson's suspension of parliament. Futures on Europe's main stock indexes are trading up around 0.1-0.2%. On the corporate front, a profit warning from truck and trailer components maker SAF Holland has further highlighted the challenges facing the sector. Its shares are down 14.3% in premarket trade after the German firm said it could no longer achieve its 2020 outlook, citing "continued deterioration in overall economic conditions - particularly in Europe, China and India". As repatriations of thousands of tourists continue following the collapse of UK travel group Thomas Cook, more signs of stress are emerging with Slovenia-based Adria Airways saying it would suspend all flights on Tuesday and Wednesday due to "unsecured access to fresh cash which the airline needs for further flight operations". TUI, whose shares rallied following the collapse of its top rival, confirmed its 2019 guidance of a fall of 26% in underlying core profits. Some traders expect TUI shares to fall at the start, highlighting that longer term challenges remain despite the short-term relief from Thomas Cook's demise. In other debt-related woes, troubled British lender Metro Bank said it would not proceed with a bond issue, blaming 'current market conditions'. Elsewhere, AB InBev is seen opening up 1%, per one trader. The company raised about $5 billion in a Hong Kong IPO of the brewer's Asia-Pacific unit after pricing it at the bottom of a marketed range. Chip makers will also be on the watch-list as shares in Apple rose overnight following some relief on tariffs by the U.S. government. Eyes also on Italian banks after Reuters reported that Italy will cut its target for economic growth next year to around 0.6%. Other stock movers: Aluminium maker Norsk Hydro aims to cut costs again; Italy looking at M&A options for bank Monte deil Pas chi - official; Evoke, Takeda Enter Collaboration Across Multiple Therapeutic Fields; Nord Awarded 110 MW Project In Turkey Here's your full headlines roundup: TUI says 2019/20 winter bookings in line with last year EXCLUSIVE-Allianz, Nippon in race to buy Aviv's Asia units for up to $2.5 bln-sources AB InBev Asia unit raises $5 bln in world's second-largest 2019 IPO Aluminium maker Norsk Hydro aims to cut costs again Software firm TeamViewer expected to price in upper half of range -bookrunner UBS, Banco do Brasil to create investment banking venture in South America MEDIA-Deutsche Bank top holder takes chairman search into own hand- Bloomberg Strains that sank Thomas Cook weigh on European airlines Slovenia's Adria Airways temporarily stops flying over debt French energy group Total to accelerate dividend growth Apple to make new Mac Pro PCs in U.S. after some tariff exemptions Italy looking at M&A options for bank Monte deil Pas chi - official Metro Bank ditches debt issue, blaming 'market conditions' Vivendi steps up legal fight after keeping Media set stake Output down 80% at Elf's Cattie 4 reactor due to strike BRIEF-Dassault Systems announces extension of CFIUS review process for Media acquisition ECB fines Greece's Piraeus Bank for funding share buys Irn-Bru maker A.G. Barr posts lower profit as higher prices dent sales (Danilo Masoni) ***** EUROPEAN SHARES SEEN BOUNCING BACK BEFORE GERMAN IFO (0534 GMT) European shares are expected to bounce back at the open with the German economy still in focus before the IFO numbers later today that follow disappointing PMI surveys that sent the DAX tumbling 1% in the previous session to post its biggest one-day fall in around one month. "Expectations for today's German IFO Business climate are for a slight improvement from August's 94.3 to 94.5, however yesterday's flash PMI numbers do rather cast that optimism into doubt," says Michael Hewson, analyst at CMC Markets. The FTSE is also seen higher ahead of the Supreme Court's decision on Johnson's suspension of parliament which could see the sterling rising if there is a verdict against the PM. Spreadbetters at IG expect London's FTSE to open 24 points higher at 7,350, Frankfurt's DAX to open 27 points higher at 12,369, and Paris' CAC to open 13 points higher at 5,644. Over in Asia, shares ticked up after U.S. Treasury Secretary Steven Mnuchin said U.S.-China trade talks will resume next month. (Danilo Masoni) ***** (Reporting by Danilo Masoni, Josephine Mason and Thyagaraju Adinarayan)