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LIVE MARKETS-What about a short ETF?

* European stocks at lowest in over 1 month as gloom over economy deepens * STOXX 600 down 2.7%, worst drop since December 2018 * WTO decision on US aircraft subsidy retaliation exacerbates trade war fears * U.S. markets firmly in the red after European close Welcome to the home for real-time coverage of European equity markets brought to you by Reuters stocks reporters and anchored today by Josephine Mason. Reach her on Messenger to share your thoughts on market moves: WHAT ABOUT A SHORT ETF? (1608 GMT) Given the bloodbath on markets we've seen today many might have thought about going short, if they haven't already. While the European stock market was painted red at the close with losses of more than 2% across many country indexes, short ETFs were posting nice gains. Take, for example, the ProShares UltraShort FTSE Europe, - a double inverse ETF on the MSCI Europe index. It's now gaining 4.7% on the day and is set for its best two day rally since Dec 2018. (Danilo Masoni) ***** WELCOME TO THE SHOCKTOBER FEST! (1607 GMT) If anyone was wondering if yesterday's fall was just a one-off, today's session seems to be screaming quite the opposite. October and what is being dubbed a "shocktober fest", might very well be the turning point of what was once a very promising year. The STOXX 600 is done 2.7 percent, its biggest loss since December 2018 and is back to where it was at the end of August. "Macro is the game-changer", Stéphane Barbier de la Serre, a strategist at Makor Capital, said, making the point that Tuesday's gloomy U.S. manufacturing data had been a harsh reality call for arguably complacent investors. The afternoon WTO Airbus subsidies ruling which allows the Trump administration to set up tariffs on EU goods and brings yet a bit more of excitement to the trade war, clearly didn't help. "Still having nightmares over yesterday's manufacturing data, and worried by a lacklustre ADP nonfarm number, the Dow Jones began to properly gush blood after the WTO freed up the USA to impose tariffs on $7.5 billion in European goods", Connor Campbell, an analyst at Spreadex wrote to his clients. Prost! (Julien Ponthus, Marc Jones and Danilo Masoni) ***** OCTOBER-PHOBIA: IT'S ALL IN YOUR HEAD! (1344 GMT) For those superstitious traders who believe October is somewhat cursed, the first two trading days of the month sure validated their October-phobia after the shock contraction in U.S. manufacturing rattled markets with a handsome volatility burst. But here's the thing: while the 1907, 1929, 1987 and 2008 vintages have given the tenth month of the year a particularly bad rep, data shows the perceived October malediction is all but a myth. First of all, as you can see below, the worst trading month on the S&P is... September, followed by February and then only October which pulls in an average positive return of 0.4 percent. (Here's the link for an interactive chart: Second point, in terms of monthly moves, October posted 47 losses versus 44 wins since 1929, a performance which seems pretty average really as you can see thanks to these last two graphs. (check out and But hey, to paraphrase the saying: just because you're paranoid, don't mean October won't come after you. (Ritvik Carvalho and Julien Ponthus) ***** GUESS WHO'S BACK? VOLATILITY SURGES TO MONTH HIGH (1151 GMT) Hello old friend! Volatility is making a swift comeback on both sides of the pond and is hitting highs not seen for a month. Both the VIX and Europe's V2TX are back to areas not seen since early September/end of August as you can see below. Given that we're still expecting that WTO Airbus ruling this afternoon and possibly a Brexit showdown with the UK's latest take-it-or-leave-it stance, there's plenty of room for further action on the volatility front. (Julien Ponthus and Danilo Masoni) ***** DOUBLE WHAMMY: BONDS AND STOCKS BOTH FALL (1105 GMT) You know the market is worried when safe-haven bonds and riskier equities are both falling. The two markets are in rare correlation this morning, although stocks are bearing the brunt of the selling, with the pan European STOXX 600 and the euro-zone benchmark both set for their worst day since Aug. 14 for a second day in a row. It's a double whammy in Europe because investors are worried the ECB has less firepower to shore up the euro-zone economy after its largesse in September and the decision to cut interest rates deeper into negative territory. That leaves the region more vulnerable to the slowing global economy than the United States, where the market is pricing in a 65% probability of another rate cut this month from the Federal Reserve. Stéphane Barbier de la Serre, macro strategist Makor Capital Markets SA, says weak Swedish manufacturing data and a contraction in Swiss factory yesterday were a harbinger of things to come yesterday afternoon. While not the largest in the region, a slowdown in two export-heavy economies was a particularly worrying sign even before the U.S. factory data yesterday afternoon, which was in itself "beyond belief", he says. "If you look at the macro picture, the market's just too high," he says. Signs that the manufacturing recession in Germany and elsewhere is spreading to the labour market and consumer spending will rattle markets further. "When spillover effects into the services sector are showing their ugly face then equities will begin to ruthlessly reprice to the reality of a recession," says Peter Garnry, head of equity strategy at Saxo Bank in a note this morning. Attention will now turn to the U.S. nonfarm payrolls due on Friday. "If non-farm payrolls are bad on Friday, can you imagine what will happen?" asks Barbier de la Serre. Below is a chart showing German government bond yields ticking up while the STOXX 600 dips: (Josephine Mason) ***** SAYING GOODBYE TO ROTATION INTO VALUE (0956 GMT) The gloom over a global manufacturing slowdown is creating an unpleasant mood as October kicks off with pessimism over the economic outlook and the unpredictable trade talks is leading some to doubt that the rotation into cyclical and value that shaped price action in September has more to go. Among them is Mark Haefele, chief investment officer at UBS Global Wealth Management, who expects stocks to remain range-bound and recommends a modest underweight to equities. "We don't expect the bounce in value relative to growth, and cyclicals relative to defensives, to last," he says. "Since the Global Financial Crisis in 2008–09, global value stocks have underperformed growth by 70%, including dividends. A significant driver of this trend has been the relentless decline in global bond yields... overall in the third quarter bond yields declined significantly, and we don't expect them to move much higher in the foreseeable future," he adds. His base case is that trade tensions will remain high with global growth slowing in 2020 to its slowest pace since the Global Financial Crisis. (Danilo Masoni) ***** OPENING SNAPSHOT: GLOBAL GLOOM KNOCKS EUROPE (0738 GMT) Renewed worries about a global manufacturing slowdown triggered by decade-low factory data from the United States have pushed European stocks to one-week lows in early deals, adding to the market's worst day in nearly two months yesterday. The numbers from the world's No. 1 economy extinguished the last bright spot in global manufacturing outlook so it's not that surprising to see another rout from riskier assets. The weak data and subsequent drop in copper prices are hurting mining companies, which are down 1.6% at their lowest since Sept. 4 and the weakest performing sectoral index. Travel & leisure is the only sector in positive territory, up 0.6%, due to dealmaking in the gambling sector. Paddy Power owner Flutter and Canada's Poker Star have agreed all-share tie-up that will create one of the world's top online betting companies. Flutter shares are up over 12% at their highest since June last year and the top gainer on the pan-European STOXX 600 and lifting European rivals GVC and William Hill with it. (Josephine Mason) ***** ON OUR RADAR: ATLANTIA, CAR SALES AND TESCO (0658 GMT) It's pretty gloomy out there. European stock futures are on the backfoot as the hangover from the dismal factory data and weak U.S. car sales continues to give investors a headache. London futures are lagging other major markets, down 0.5% in a sign that investors are growing nervous about PM Boris Johnson's talks with Brussels as he prepares to unveil his final Brexit offer later in the day. The index's miners may also feel pressure from falling metal prices following the U.S. data. The U.S. car sales data will likely pressure European car makers while the latest estimates for European companies to suffer their worst quarter in three years will also cast a pall over the market, underscoring worries about the health of Europe Inc as the trade war, the global manufacturing slowdown and Brexit bite. In corporate news, Italy's Atlantia is expected to fall 2% after Reuters reported Italian prosecutors have widened an inquiry into suspected safety breaches at subsidiaries the toll road and airport company to include more employees and viaducts than they identified last month. The resignation of Tesco CEO Dave Lewis after six years may offset the supermarket’s better-than-expected H1 results, according to dealers who see the shares down 2-3%, while German leasing company Grenke may get a lift after raising its 2019 forecasts. Credit Suisse could get a boost after saying it expects an estimated $250 million boost to 2020 profit from changes it is making to how it calculates risk-weighted assets and does hedging. Here are your early headlines: Credit Suisse says risk calculation, hedging change to reap $250 mln Italian prosecutors widen probe over safety of Atlantia-operated bridges - sources Tesco CEO Dave Lewis to step down in 2020 Grenke Reports 9M New Leasing Business Of 2.1 Bln Eur Austria's AMS faces wait to learn fate of $4.9 bln Osram bid EDF boss pledges action on nuclear delays and cost overruns IWG's Dixon sees rival WeWork's troubles as an opportunity Italy's Bio-on slashes 2019 sales forecast, blames U.S. hedge fund U.S. CFTC orders six financial institutions to pay fine for reporting failures French spirits maker Pernod Ricard plans to cut around 280 jobs UniCredit to sell 5 bln euros of soured home mortgages next month-sources Norway sovereign wealth fund to divest oil explorers, keep refiners CNH to invest 60 mln euros, cut 330 jobs in Italian plant overhaul BRIEF-Ryanair Sept Traffic Grows 8% To 14.1 Mln Customers BRIEF-Wizz Air Holdings Says Sept Load Factor Up By 0.5Ppts To 94.5% BRIEF-Qinetiq To Acquire Manufacturing Techniques For $105 Mln BRIEF-Inchcape To Sell 3 Retail Sites In Mainland China For 54 Mln Stg BRIEF-Naked Wines Sells Lay & Wheeler Business For 11.3 Mln Stg BRIEF-Hochschild Mining Acquires Rare Earth Deposit In Chile BRIEF-National Grid Confirms Massachusetts DPU Issued Rate Case Order For Massachusetts Electric Business BRIEF-Puretech Health Announces Acquisition Of Minority Interests In Internal Pipeline Platforms (Josephine Mason) ***** THE EXTENDED HANGOVER (0530 GMT) GMT) The decade-low U.S. factory data and weak car sales are expected to drag on European stocks again today, after suffering the worst day in nearly two months yesterday as investors fret about the slowing global economy and shun riskier assets for safe havens. Asian markets have taken their lead from heavy losses on Wall Street overnight. U.S. manufacturing had been the last bright spot in the global economy, but the contraction in the ISM manufacturing reading suggests the trade war is starting to bite in the U.S. industrial heartland, where U.S. President Trump enjoyed huge support in the 2016 election. "It is fair to say that the worldwide manufacturing sector is in trouble. The US-China trade spat is having a knock-on effect around the globe, hence why we saw a sharp move lower in stocks yesterday," says David Madden, market analyst at CMC Markets UK. "Trade talks between the US and China will continue next week, so traders will be paying close attention to any developments. The best dealers can hope for is a de-escalation in trade tensions, but it is obvious that the damage has been done." Adding to the gloomy mood will be data showing a further deterioration in Q3 earnings forecasts for Europe. IG financial spreadbetters expect London's FTSE to open 35 points lower at 7,325, Frankfurt's DAX to open 15 points lower at 12,249, and Paris' CAC to open 3 points lower at 5,594. (Josephine Mason) ***** (Reporting by Danilo Masoni, Joice Alves, Josephine Mason, Julien Ponthus and Thyagaraju Adinarayan)