LIVE MARKETS-Tipping point: Time to switch back to emerging markets?

* STOXX 600 hits one-week high

* Telecoms extend gains on deal news

* Tenaris (Amsterdam: TS6.AS - news) weighs on Italy's FTSE MIB

Welcome to the home for real-time coverage of European equity markets brought to you by Reuters

stocks reporters and anchored today by Julien Ponthus. Reach him on Messenger to share your

thoughts on market moves: julien.ponthus.thomsonreuters.com@reuters.net

TIPPING POINT: TIME TO SWITCH BACK TO EMERGING MARKETS? (1542 GMT)

The storm engulfing emerging markets (EM) this summer was a rough one, with turmoil in

Turkey, South Africa and Argentina

It did seem at one stage that the new cycle of U.S. monetary tightening would trigger a

brand new EM crisis "98 style" but according to Fitch Solutions that's not going to happen,

quite on the contrary.

"Emerging markets could outperform developed markets (DM) over the short-to-medium term

horizon on the combination of fundamental and technical factors," analysts at the ratings agency

say in a note.

They argue that local currencies have stabilized thanks to rising local interest rates and

falling oil prices are giving a breather to challenged current accounts.

"Third, from a growth perspective, we expect a global economic slowdown in 2019 to 3.1% from

3.4% in 2018, but we believe that growth differentials will start to move in favour of EM

compared to DM".

Might be tricky however to make any bets before Donald Trump and Xi Jinping have their

Saturday (Shenzhen: 002291.SZ - news) night G20 dinner in Buenos Aires and decide whether to bury the made-in-China hatchet.

Looking back since the election of Donald Trump or since the beginning of the year, the S&P

500 reigns supreme.

(Julien Ponthus)

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TRUMP-XI G20 DINNER: FRAMEWORK RATHER THAN FIREWORKS (1439 GMT)

Worries over a slowdown in earnings growth may already be in prices and with the

third-quarter reporting season over, developments in the Sino (Dusseldorf: 1205802.DU - news) -U.S. trade dispute are most likely

the next key market mover -- Donald Trump and his Chinese counterpart Xi Jinping are due to meet

during a Saturday night dinner after the G20 summit in Buenos Aires.

So, what are people expecting?

They're not gearing up for any fireworks, it seems, but a framework deal looks possible.

"The meeting between Presidents Trump and Xi is an opportunity to avoid further escalation.

We expect the two to do no more than agree to a framework for talks," says UBS (LSE: 0QNR.L - news) economist Seth

Carpenter.

"We don't expect a rapid conclusion, but perhaps a postponement of 25% tariffs on USD 200

billion of Chinese imports," says Vincent-Frédéric Mivelaz at Swissquote Bank.

"While the White House economic advisor Kudlow signalled a possibility of a 'breakthrough'

in talks... and Chinese officials also appeared to be open to a compromise, the markets were

unsure if we'd be looking for some sort of temporary truce or a full-blown Sino-US trade

agreement," says Artjom Hatsaturjants at Accendo Markets.

That being said, it's always good to be prepared and in Europe, the exporter-heavy German

DAX index is on the watchlist. As you can see in the chart, courtesy of Barclays (LSE: BARC.L - news) , China

is a big export market for the euro zone's largest economy.

And here is the high-profile duo, pictured at a conference last year in Beijing.

(Danilo Masoni)

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DEBT IS "GUMMING UP THE WORLD'S ARTERIES" (1325 GMT)

Rising debt in governments, companies, and households, is an increasingly alarming aspect of

markets today, according to Mirabaud Securities strategist Daniel White who reckons we are

"addicted" to debt.

"Ten years on from the crisis, valuations and debt levels are both too high for comfort," he

writes in a note to clients.

That shouldn't be a problem in and of itself if the debt is financed responsibly, but White

points out that debt does not pack the punch it used to in terms of GDP generation capacity.

"The trouble with being hooked on anything is that it typically ends badly, after much

denial and a need for ever greater doses delivering vanishingly smaller 'highs'," White says.

What's caused these rising levels of debt? He points to five trends: the rise of China,

ageing populations, the European project, financial deregulation and the tech revolution.

Central bankers have been flagging high levels of corporate debt and consumer debt in

particular as a concern and a potential brake on monetary policy normalisation.

Indeed, White writes, "when you have so much debt of such poor quality bunging up the

world’s financial arteries, a bit of interest rate pressure can easily trigger cardiac arrest.

So out comes the QE defibrillator (or whatever great innovation they will come up with next) and

Debt fuelled Frankenstein economy is jolted back to its feet and staggers and lurches its way

onto the next crisis a few years down the road."

A lovely image...

In the next six months then, "dull and safe" stocks are the best bet, White says, pointing

to Carrefour (LSE: 0NPH.L - news) , Deutsche Post (IOB: 0H3Q.IL - news) , BIC (EUREX: 512380.EX - news) , Tesco (Frankfurt: 852647 - news) , Air Liquide (LSE: 0NWF.L - news) , and Sodexo, all of which have upward

earnings revisions currently.

(Helen Reid)

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EUROPEAN EQUITIES, WHAT TO DO NOW? (1155 GMT)

Barclays strategist Emmanuel Cau has just published his 2019 outlook for equities on the old

continent and while he's sounding all but bullish, he reckons there's room for some, limited,

upside.

"Fundamentals call for caution as headwinds from softer growth, EPS downgrades, reducing

excess liquidity and messy geopolitics are rising, but stocks are not priced for perfection

anymore and sentiment is bearish," Cau and team write in a note titled "Late Cycle Blues".

They predict the STOXX 600 will rise in 2019 to 375 points, up 5 percent on the

year, and pretty much bang in line with the findings of a Reuters poll, which you can find here:

In regional allocations, they're overweight euro zone vs UK.

"Political newsflow remains the key driver of investor sentiment on UK equities, but our

base case is still for an orderly Brexit. If this materialises, it would likely avoid economic

damage and materially reduce uncertainty; however, the range of potential outcomes is still wide

at this stage," they say.

Elsewhere, they keep their preference for France and Spain over Germany and Italy.

"We expect the softening global growth backdrop to remain a problem for German equities

given their cyclical nature, alongside uncertainty from political leadership change. Within the

periphery, we believe that the risk-reward for Italian equities remains poor given the ongoing

political situation and the sharp weakening in activity momentum," they add.

(Danilo Masoni)

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OPENING SNAPSHOT: MOSTLY HIGHER AS TELECOMS CONTINUE TO SHINE (0841 GMT)

The pan-European STOXX 600 is at their highest in a week in the opening 30 minutes, with all

the major bourses up between 0.1 and 0.5 percent in the opening 20 minutes. Italy's the

exception, falling 0.2 pct as Tenaris sinks.

Telecoms continue to shine with the sector index up 0.8 percent hitting their highest since

mid-May amid renewed hopes of M&A after Brussels gave the all-clear for Deutsche Telekom (IOB: 0MPH.IL - news) 's

takeover of Swedish peer Tele2 (LSE: 0QE6.L - news) . The sector's also in focus after New Zealand's intelligence

agency rejected the domestic telecom industry's request in the country to use 5G equipment

provided by China's Huawei.

Last week, WSJ reported that Washington is trying to persuade wireless and internet

providers in allied countries to avoid equipment from the Chinese company.

Here are snapshots of the indices and top movers on the STOXX 600:

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EUROPEAN FUTURES POINT TO HIGHER OPEN (0737 GMT)

European share futures are putting in a pretty strong show this morning, with the four main

bourses all up between 0.4 and 0.6 percent, lifted by gains in Asia overnight.

Check out the European stock market team's survey of investors who give their forecasts for

equity markets for the year-end and heading into 2019 - you'll not be surprised to hear that

slowing growth, political risks and worries over Washington's protectionist policies loom large.

POLL-FTSE 100 set for hesitant recovery in 2019 amid Brexit crunch

POLL-Growth and trade worries to keep a lid on European stocks in 2019

Other headlines this morning:

Old habits die hard: European equity traders still prefer the dark, defy Mifid

Nestlé, Unilever (NYSE: UL - news) in pole position for GSK's Indian Horlicks business - reports

BMW (EUREX: BMWE.EX - news) chief says considering second U.S. manufacturing plant

LafargeHolcim (LSE: 0QKY.L - news) sees slower 2019 sales growth but higher profitability

Deutsche Bank (IOB: 0H7D.IL - news) mulls shake-up of high-level executives - WSJ

Milan prosecutors wrap up Gucci tax probe, trial likely - source

Court rejects Vivendi (LSE: 0IIF.L - news) trust move to suspend Mediaset AGM decisions

Britain eyes large-scale CO2 capture and use by mid 2020s

(Josephine Mason)

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A NAIL-BITING SESSION FOR BREXIT WORRIERS (0711 GMT)

This is a big day for investors worried about the consequence of Brexit as the British

government and the Bank of England are likely to step up their warnings against a no-deal

Brexit.

Later this morning, an assessment of the impact of different Brexit outcomes will be

published and then, at 1630 GMT, the BoE (Shenzhen: 000725.SZ - news) will publish the results of its 2018 stress tests and

its assessment of the implications of different Brexit scenarios.

"Banks will be in focus across the session, as traders await the release of the BoE’s stress

test results", wrote LCG's Jasper Lawler.

"As all banks passed the Brexit doomsday scenario last year and have also since boosted

their balance sheets; the expectation is that they will pass it again", he said.

The BoE's stress tests were initially scheduled to be published early this morning which is

good thing, or a bad thing, depending on your sleeping habits.

Here's our Financial regulation correspondent's take:

And here's some reading:

UK government, Bank of England to spell out no-deal Brexit risks for economy

(Julien Ponthus)

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MORNING CALL: A TENTATIVE REBOUND FOR EUROPEAN SHARES (0631 GMT)

Indications from financial spreadbetters point to European shares making a slight rebound

this morning after ending the previous session in the red due to trade war jitters.

While the mood has improved from the European close, there are conflicting signals on the

prospects for de-escalating the Sino-U.S. dispute, which could still spill over to Europe.

White House economic adviser Larry Kudlow did offer some hope by confirming a dinner powwow

between Trump and his Chinese counterpart Xi Jinping at the coming G20 gathering in Argentina

but there are fears at the same time that the U.S. President could impose tariffs on imported

cars from the European Union.

U.S. monetary policy will also be on investors' mind while waiting for a speech by the Fed's

Powell who Trumps wants to go easy on tightening amid recent market volatility and signs of a

global slowdown.

(Julien Ponthus)

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