LIVE MARKETS-See that? That's the chance of a UK snap election rising!

* European stocks rise

* Sainsbury (Amsterdam: SJ6.AS - news) 's falls 15 pct as Asda deal doubts mount

* Swedbank (LSE: 0H6T.L - news) hit by money laundering allegations

* Salmon farmers slip on EU cartel inquiry

Feb 20 - 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

SEE THAT? THAT'S THE CHANCE OF A UK SNAP ELECTION RISING! (1710 GMT)

It's been another busy day of Brexit news/noise and while it's tricky to know what it

ultimately all means for the end game, one thing seems pretty clear.

If you look at the online betting markets, chances of a snap election in the UK have risen,

meaning that it could be the end for PM Theresa May who has said she won't fight the next

election.

"In prediction markets, the risk of an election this year has risen from an already elevated

level of 36 percent to a record 44 percent (green line in the chart)", wrote RBC Capital

Markets' chief currency strategist Adam Cole.

Berenberg's Kallum Pickering agrees. "The prospect of a snap election now looms larger than

before", he reckons, pushing the chances up to 30 percent from 25 percent.

And this is Malcolm Barr at JP Morgan's take on it all: "We have had a number of questions

on whether the establishment of ‘The Independent Group’ will impact the Brexit process.... The

short answer to the question is no, not at this stage."

Check out our latest wrap on the ever unfolding Brexit drama:

UK's May back in Brussels, hit by defections over Brexit

Here's the RBC/Betfair chart:

(Julien Ponthus and Marc Jones)

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EUROPE IS THE NEW JAPAN! (1547 GMT)

At first, it may looks like a very good deal for France: its government just raised 7

billion euros over 30 years at a 1.6 percent yield, which is like, when you think of it yep,

super low.

But the good news for France has rather grim longer-term implications for the euro zone.

"You're betting that now, Europe is Japan", argues Charles St-Arnaud, senior investment

strategist at Lombard Odier Asset Management.

The 1.6 percent yield means investors are comfortable with growth and inflation being taken

out of the picture for the next 3 decades, he says. Such a scenario would look like the low

growth, low inflation registered by Japan in recent decades.

"It's scary", he comments, and not only for European investors yearning for growth.

Economic stagnation will no doubt be a challenge for the long term social cohesion of the

continent, which already looks a bit uncertain with the yellow vests protests in France or the

rise of populism on the continent.

As you can see below from the Agence France Trésor statement, very little demand came from

outside Europe:

(Julien Ponthus and Abhinav Ramnarayan)

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UBS (LSE: 0QNR.L - news) ' RECORD FINE FAILS TO KNOCK OFF EUROPEAN BANKS (1415 GMT)

It already wasn't a great day for European banks with Swedbank pulling the sector down after

allegations of links to the Baltic money laundering scandal. The Swedish lender is set for its

worst day since 2009.

But then things got worse with news a French court slammed a 4.5 billion euro fine on UBS

for illegally soliciting clients in France and laundering the proceeds of tax evasion. UBS

shares dropped after the ruling, and are now down 3.5 percent though the bank has strongly

refuted the verdict.

Overall, though, European banks haven't been overly sensitive to these developments: the

index is just barely underperforming the STOXX 600 with a 0.1 percent gain against the

main index's 0.3 percent rise. Lloyds' 5.6 percent jump after results is certainly helping.

However, year to date banks are still among the laggards in Europe: their performance is the

second worst after telecoms, as you can see below.

Gary Waite, a portfolio manager at Walker Crips Investment Management, told us this morning

"We don't believe European banks are really investable on the whole." He doesn't see Friday's

comments by the ECB's Coeure about a new TLTRO being "possible" as a turning point for the

sector.

Indeed, today the ECB's chief economist Peter Praet said the central bank would soon discuss

new multi-year loans to banks, but the market didn't really blink an eye.

(Julien Ponthus and Helen Reid)

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COLLATERAL DAMAGE? U.S.-CHINA TRADE DEAL COULD HURT EUROPE, BRAZIL, SOUTH KOREA (1337 GMT)

Very few concrete details on the deal likely to come out of the ongoing U.S.-China trade

talks have emerged so far, but reports do indicate that China may agree to buy more products

from the U.S..

While this could be good news for markets overall in the short run, a deeper analysis

indicates several countries would be collateral damage in such a deal as China demand shifts

from them to the U.S.

"If such an agreement were based on a broad basket of goods, advanced European economies

could lose the most demand from China given their similar export composition to the US, implying

downside risk to the euro," write Goldman Sachs (NYSE: GS-PB - news) analysts (see chart below).

Interestingly, though, if the deal were more specific about the kinds of goods,

concentrating, say, on soybeans and semiconductors, the impact would be most keenly felt by

Brazil - a big agricultural exporter - and New Zealand, as well as small open economies in Asia.

South Korea and Taiwan (Taiwan OTC: 6549.TWO - news) would be the most vulnerable to a deal on semiconductors, Goldman's

Karen Reichgott adds, as they're currently the main source of China's imports of machinery and

electrical equipment.

(Helen Reid)

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WHICH WAY OUT OF THE BREXIT IMPASSE? (1123 GMT)

The question of the Irish backstop remains the key obstacle between Prime Minister May and

approval of her deal, as she enters talks with European Commission chief Jean-Claude Juncker in

Brussels today.

As EU diplomats ramp up the pressure, saying the UK has until mid-March to secure a deal,

foreign secretary Jeremy Hunt said the British government can secure parliamentary backing if a

"simple and important" change to the backstop can be made.

Sterling's retreat today reflects increased scepticism about how likely such a breakthrough

is, after the currency jumped above $1.3 yesterday.

Besides changes to the backstop, assurances that May will depart soon could help foster

cooperation on her deal, according to JP Morgan.

"The prospect of the Conservatives selecting a new leader for phase two of the Brexit

negotiations might be enough to convince some Brexiteers to tolerate the deal," writes JP Morgan

economist Malcolm Barr, saying May could make a commitment to resign shortly after Brexit

occurs.

According to RaboBank, the easiest way to get the current deal through Parliament is for

Conservatives to cooperate with Labour and endorse their preference for a permanent Customs

Union with the EU - but May unsurprisingly doesn't want to go down this path, which is why she

is likely to take Brexit "down to the wire".

"This is a risky approach that maintains the odds of a no-deal (hard) Brexit almost as high

as those of an orderly one," Rabobank analysts write.

"We continue to think that May will be pushed to extending Article 50 next week to avoid

losing control of the process and avoid a string of ministerial resignations," JPM's Barr adds.

The latest news of three pro-EU lawmakers defecting from the Conservative party over the

government's "disastrous" handling of Brexit only accentuates the pressure on May.

(Helen Reid)

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0.4 PCT TRADE TALK OPTIMISM (0941 GMT)

Stock indexes have lately become gauges of the Sino (Dusseldorf: 1205802.DU - news) /U.S. talks more than anything else, let

alone blue-chips' future earnings, it sometimes feels.

So what are the STOXX 600 and the EURO STOXX telling us this morning about Xi and Trump's

ability to strike a deal? Well 0.4 percent probably best translates "cautious optimism".

That's right now but no doubt there will be plenty of mood swings and price swings moving

forward.

"Global equity markets are likely to be mostly dictated by US - China trade developments for

the rest of the trading week," writes Lukman Otunuga, an analyst at FXTM.

Anyhow, at the moment the darlings of the trade play are up: Germany's DAX is rising 0.7

percent, autos 1.6 percent and miners 0.7 percent.

In London, Sainsbury's is the main mover of the day, sinking 13 percent after the UK

competition regulator raised big objections to its merger with Asda - saying it should either be

blocked or require the sale of a significant number of stores, or even one of the brands.

It could arguably be seen as good news for UK consumers but other supermarkets are also

losing ground with Morrisons down 4.5 percent. The retail index is also falling 2.1 percent.

Another big mover is Swedbank, falling over 7 percent as reports suggest links to the money

laundering scandal involving Denmark's Danske Bank (LSE: 0NVC.L - news) .

Here's an illustration of the gauge theme with a photo of a pressure gauge. Talking about

pressure, can you hear the Queen/David Bowie earworm creeping in?

(Julien Ponthus and Helen Reid)

*****

WHAT'S ON THE RADAR: SAINSBURY'S, GLENCORE (Frankfurt: 8GC.F - news) , AIR FRANCE (Paris: FR0000031122 - news) (0749 GMT)

Signs of progress in U.S.-China trade talks, and President Trump saying the March 1 deadline

is not “magical”, boosted Asian shares to 4 ½ month highs overnight and were set to drive

European shares up in early deals too.

Results from UK lender Lloyds, miner Glencore, German healthcare group Fresenius (Swiss: FRE-EUR.SW - news) , and French

airline Air France would dominate trading as the European earnings season continued.

Fresenius said it expects earnings to stagnate this year due to investments to improve its

German hospitals and scale up its home dialysis business. But its shares are seen up 1-2 percent

as news of faster earnings growth from 2020 and a 1 billion euro share buyback was well

received.

Sainsbury’s shares are expected to slide as much as 5-10 percent after Britain’s competition

regulator said the supermarket chain’s merger with Asda could be blocked. The share price fall

could spill over into Morrisons and Tesco (Swiss: TSCO.SW - news) – indicated down 2 to 3 percent - as investors reset

their expectations of M&A in the food retail space.

Strain in UK retailers is again front and centre with both household furnishings firm Laura

Ashley and professional cleaning retailer McBride (LSE: MCB.L - news) indicated down 15 percent after profit

warnings.

French flag carrier Air France will fall 2-3 percent, traders said, after reporting weaker

than expected unit revenue.

Glencore, meanwhile, is seen gaining 3 percent after announcing a new $2 billion share

buyback scheme.

(Helen Reid)

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TRADE TALK PROGRESS BOOSTS EUROPEAN FUTURES (0720 GMT)

Futures have opened up higher as traders bet on progress in U.S.-China trade talks, while

results from UK lender Lloyds Bank and miner Glencore have come in. Sainsbury's shares could be

hurt by Britain's competition regulator saying its merger with Asda could be blocked.

Glencore announces $2 bln buyback plan, 2018 earnings rise

Sainsbury's-Asda merger could be blocked-UK regulator

Lloyds Bank posts 24 percent profit rise, unveils $2.3 bln buyback

(Helen Reid)

*****

EARNINGS: FRESENIUS, SCOR, TELEFONICA (LSE: 826858.L - news) , AIR FRANCE (0654 GMT)

Besides the encouraging noises from Washington on trade negotiations, results are likely to

drive the day today with French reinsurer Scor, airline Air France, and Spanish telecoms firm

Telefonica among those reporting.

There's also a bit of M&A with Dubai-based port operator DP World (Stuttgart: 3535769.SG - news) buying the UK's P&O

Ferries for 332 million pounds ($421 million).

Here's a roundup of the headlines so far:

Fresenius expects earnings to stagnate in 2019 as investments weigh

Telefonica sales up 3.2 pct in Q4, FY OIBDA up 5.3 pct

French reinsurer Scor's 2018 profit soars despite natural disasters

Air France-KLM (LSE: 0LN7.L - news) battles fuel costs with deeper integration

DP World buys Britain-based P&O Ferries for $421 mln

German regulator intervenes to halt cryptocurrency offering - source

Investor Cat Rock says Just Eat (Frankfurt: A1100K - news) shareholders back merger proposal

(Helen Reid)

*****

GOOD SIGNS FROM U.S.-CHINA NEGOTIATIONS TO PUSH EUROPEAN STOCKS UP (0636 GMT)

Signs of progress in deputy-level talks, which began yesterday, helped push Asian shares up

overnight and spreadbetters see that optimism seeping over into European trading.

Trump said on Tuesday that trade talks with China were going well and suggested he was open

to pushing off the deadline to complete negotiations, saying March 1 was not a "magical" date.

Higher-level talks involving Mnuchin and led by USTR Robert Lighthizer are expected to begin

on Thursday.

Asian stocks advanced to 4-1/2-month highs on Wednesday as investors bet that Chinese and

U.S. trade negotiators would be able to secure a deal to de-escalate their year-long tariff war.

The FTSE 100 is expected to open 2 points higher at 7,181, the DAX is expected to open 4

points higher at 11,313, and the CAC 40 is expected to open 8 points higher at 5,168, according

to spreadbetters CMC Markets (LSE: CMCX.L - news) .

(Helen Reid)

*****

(Reporting by Helen Reid, Danilo Masoni, Julien Ponthus)