LIVE MARKETS-What if tomorrow's U.S. CPI surprises to the upside?

* European stocks dip

* UK inflation close to highest in 6 years

* FTSE outperforms

Feb 13 (Reuters) - 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

WHAT IF TOMORROW'S U.S. CPI SURPRISES TO THE UPSIDE? (1623 GMT)

Today's directionless market may not surprise you considering tomorrow we have U.S. CPI

figures -- one of the most watched data points EVER according to various notes.

A strong figure could fuel another spike in rates and stocks volatility, mirroring the

tumultuous week that followed the U.S. Jan jobs report.

In the snapshot, charts tweeted by ING Foreign Exchange Strategist Viraj Patel that preview

the possible market reaction.

Fasten your seatbelts!

(Danilo Masoni)

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CONFUSION ON KERING (1612 GMT)

"Kering has confused a lot of people today," says a trader. "Massive beat at Gucci, and

called up 3 percent everywhere..." yet the stock is now down 3 percent going into the last half

hour of trading, and near its lowest level since October, having been clobbered in the recent

sell-off.

What went wrong? Some traders point to Kering's comments on the weaker euro

hurting sentiment.

In the news conference Kering's CFO Jean-Marc Duplaix said some of the group's labels could

adjust and raise prices on collections to counter the euro strength in some regions.

As well as potentially putting off buyers from overseas, the strong euro penalises revenues

when they are converted into the currency.

Duplaix said there would be pressures on revenues if currencies stayed as they were, but

added that operating margins would be spared much impact thanks to hedging by the group.

Others say the market is perhaps simply showing some fatigue with the seemingly relentless

Gucci growth story, with some questioning how long it can last as the favourite brand in the

famously fickle fashion industry.

Kering's shares are still leading the luxury sector by far, but they have lost steam

considerably over the past months:

(Helen Reid and Sarah White)

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STILL LOOKING FOR STOCK IDEAS? (1545 GMT)

We mentioned earlier some of Goldman's top stock-picking ideas but if you are looking for

more, here are the ones screened out by Morgan Stanley.

Among the stocks that offer attractive entry points following the sell-off, the U.S.

brokerage mentions SSE, St James' Place, CRH, BP, Deutsche Wohnen

, British American Tobacco, Royal Dutch Shell, Commerzbank,

Enel, Fiat, Norsk Hydro, Credit Suisse, Orsted

, DCC, LVMH, ArcelorMittal and BHP Billiton.

The screen is quite diverse and lists 17 companies that meet the following criteria:

1) seen a YTD derating in their relative 12m forward PE 2) a YTD rise in their relative 12m

forward EPS estimates and 3) have upside to Morgan Stanley analysts' price targets.

(Danilo Masoni)

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A TALE OF TWO CORRECTIONS (1533 GMT)

Goldman Sachs compare last week's correction to a similar drawdown in 2006, and find some

interesting differences:

- MUCH FASTER FALLS: "potentially reflecting a different market microstructure with a

greater presence of algorithmic trading"

- EM RESILIENCE: "EM equities, FX, credit and local rates have all fallen less versus the

mid-cycle correction"

- SHARPER FALL IN CRUDE and more resilient copper & bulk metals, which could be related to

strength of EM demand

- OTHER RISK-OFF PROXIES NOT IN LINE: Japanese Yen and Gold weakened less than in 2006

- CORE RATES GRINDING HIGHER: the mid-cycle correction caused core rates to move lower and

the curve to flatten, while today rates continue to move higher while the curve is steepening

All of these observations reinforce the widespread narrative that this correction is more

technical, and more US-centric. Goldman reckons the market is likely to stay focused on this

being a technical unwind, rather than based on fundamental concerns about growth.

JP Morgan also argued in a note that strong earnings forecasts should protect equities from

any significant drawdown due to rising bond yields and concerns over inflation. Below you can

see EPS revisions for the S&P 500 have been rising strongly along with 10-year Treasury yields.

(Helen Reid)

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"INVESTOR FOCUS WILL SOON RETURN TO BOND YIELDS" (1518 GMT)

Bond yields have been creeping higher in February. And Mark Haefele, global chief investment

officer WM at UBS, says concerns around higher bond yields are "resurfacing".

But Haefele also notes that equities are still more attractive compared with bonds.

"Higher yields need not prompt investors to rotate en masse into bonds," says UBS WM's

Haefele.

Haefele does sound a note of caution, however.

"While we keep an overweight in global equities over our six-month investment horizon, we

note that bond market uncertainties look set to make the ride up bumpier than we've become

accustomed to."

(Kit Rees)

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WHO SAID MARKETS NEVER LEARN? HEDGING SPIKES AFTER CORRECTION (1450 GMT)

Who said markets never learn? BAML's European fund manager survey shows investors took

"above-average levels of portfolio protection against a sharp drop in equities" after the

correction hit stock markets on February 2. You can read the global fund manager survey's

findings here:

Another sign that cautiousness is on the rise is the fact European investors increased their

cash allocation to 3.6 percent from 3.4 percent.

(Julien Ponthus)

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DISLOCATION, DISLOCATION, DISLOCATION (1426 GMT)

Naturally thoughts are turning to the aftermath of last week's sell-off and where the

dislocations in equity markets might be.

So here's a little graphic from Morgan Stanley's strategists, analysing the moves over the

past two weeks in equities.

Morgan Stanley highlight three "odd" occurrences: 1) both growth and value sectors sold off,

2) global energy saw one of the biggest declines, despite being one of the cheapest sectors, and

3) the drawdown in global large caps has been more extreme than for small caps.

(Kit Rees)

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EARLY AFTERNOON SNAPSHOT: EUROPE WITHOUT CONVICTION (1402 GMT)

Here's where we stand on European equity markets less than 30 minutes before Wall Street

opens. There is still no clear trend driving markets, as you can see, while U.S. stock futures

are pointing to a dip at the open after two sessions of gains.

(Danilo Masoni)

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RESCUING "BABIES THROWN OUT WITH THE BATH WATER" IN EU STOCKS (1307 GMT)

While investors don't seem to be enthusiastically buying the dip today with indices still

lacklustre, there are increasing calls for specific stock picking in order to benefit from a

broad-based fall in valuations.

Goldman Sachs makes an interesting observation on the European stock market: correlations

shot up when the stock market sank. The three-month realised correlation of the STOXX 600 jumped

to a one-year high, opening up opportunities in some names which perhaps were hit more than they

deserved.

Last week's weakness has also left European equities at valuations in line with their

20-year average, around 14.1 the next 12 months' estimated earnings, GS strategists say.

They asked their sector specialists to identify "babies thrown out with the bath water" in

their areas, and found 22 stocks down around 10 percent on average over the past month, for

which they see more than 30 percent upside to price targets.

Their picks include Tesco, Glencore, Shell, BNP, ABB

, Vinci, Brunello Cucinelli, and ASML.

(Helen Reid)

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WHY A VODAFONE-LIBERTY DEAL MATTERS FOR TELCO INVESTORS (1235 GMT)

Telecoms have been out of favour for more than two years now but signs of a pick-up

in M&A activity are starting to fuel hopes the sector may have reached the bottom.

But what could actually restore investor confidence?

JP Morgan says an agreement between Vodafone and Liberty will be key.

"A deal may trigger broader industry consolidation and in turn restore interest in the

sector following two years of heavy underperformance," it writes in a note.

Telecoms are by far the biggest underperformers in Europe, as you see in this 3-year chart,

and are also the biggest sectoral faller today, down 0.7 percent.

And here's what JPM expects from the Vodafone-Liberty saga.

* A standalone acquisition of Unity in Germany can be fully debt funded

* Even if Vodafone were to acquire Liberty's entire overlapping continental European

portfolio, equity funding is not inevitable

* All deal scenarios are heavily accretive and also significantly improve Vodafone's

dividend cover

* Vodafone would be well advised to hold off inking a deal until June. Newsflow in the

interim could impact deal attractions

(Danilo Masoni)

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FTSE FLITS AHEAD (1206 GMT)

The FTSE's dip was short-lived, and now at midday the British index is in positive territory

following the rise in sterling after the UK inflation data, outperforming European markets.

Ken Odeluga, market analyst at City Index, says that while the inflation data was

better-than-expected, it wasn't hugely so.

"It does make sense to think of this as the last gasp for highly elevated inflation on the

consumer side," Odeluga says, adding that a weaker path of inflation was being interpreted as

positive for business.

"I don't think the FTSE is seeing a paradigm shift today, but it is benefiting more because

of the expectations around the pound, and I think maybe there's a minor consolidation of

yesterday's gains across Europe," Odeluga concludes.

It's very much a cyclicals story on the FTSE today, with materials, financials and energy

collectively contributing around 17 points to the index.

(Kit Rees)

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WHO'S AFRAID OF THE BIG (BAD?) U.S. DEFICIT? (1149 GMT)

You would think that after a correction triggered by fears of inflation and higher rates,

investors would be showing signs of stress as Donald Trump and the U.S. Congress embark on a

major spending spree.

While markets are not yet waving red flags about the incoming binge of new debt, research

piling up in our inboxes suggests somewhat otherwise.

"The budgetary policy which is being implemented while the economy is in full employment

will trigger lasting imbalances which will lay the grounds for the next recession (2019/2020?),"

writes Natixis AM.

For LBPAM: "On the mid-term, and without wanting to be a party pooper, it's very worrying.

It is the inflation fears which have triggered the markets to fall in the first place and

pressures on rates are set to continue as the markets are more and more febrile."

"We could see net treasury coupon issuance more than doubling this year. It could also push

up inflation expectations and lead the Fed to hike rates faster," BlackRock says.

"Further loosening of the fiscal reins, adding to government debt, could put further upward

pressure on US yields," writes Rabobank.

However, some investors are not convinced.

As this Twitter user comments ironically: "One of my favorite jokes in financial/economic

research: "The deficit will drive up interest rates".

(Julien Ponthus)

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HOW LONG DOES A VOLATILITY SHOCK LAST? (1033 GMT)

If you were hoping that turbulence stemming from last week's volatility spike would subside

fast, think again. Deutsche Bank strategists say even though equity positioning has been cut

significantly, investors may need a few weeks of patience.

"Volatility shocks last a while, on average for 5 weeks as investors adjust positions

gradually," they write in a note.

"Past episodes when vol got elevated (>1.5 sigma moves) outside of recessions, they took on

average 5 weeks to subside as trailing vol is typically an input into risk management models...

On the upside, the resurgence of the corporate bid for equities post earnings season is imminent

and argues for a shorter period. On the down side, the greatest risk in our view is a sharp move

up in inflation that sustains volatility," they add.

(Danilo Masoni)

*****

STICKIER THAN EXPECTED INFLATION DENTS FTSE GAINS (0957 GMT)

Sterling rose modestly and dented the FTSE's gains after data showed British inflation

proved stickier than expected, close to its highest level in nearly six years.

Nothing dramatic though as you can see below:

(Julien Ponthus)

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OPENING SNAPSHOT: EUROPEAN SHARES IN CHOPPY WATERS (0821 GMT)

It's a choppy start to trading for European stocks, which opened flat, rose, and have now

turned lower as a fall among defensives takes its toll.

At the individual stock level it's all about results, with top gainers Ubisoft,

Randstad and TUI all rising after updates.

Kering is feeling the pressure, its shares down around 1.5 percent (even though

premarket calls had it down for a bounce), while Telenet is the biggest faller after

Q4 results.

Here's your opening snapshot:

(Kit Rees)

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KERING, RANDSTAD, METRO SEEN RISING AFTER RESULTS (0756 GMT)

While stocks futures slip further into negative territory, three stocks in particular are

seen bucking the trend thanks to results - here are some more details.

Traders are calling luxury stock Kering 2 to 3 percent higher on the back of

forecast-beating sales in the fourth quarter.

This was thanks to a strong performance at Gucci, which saw revenues rise 27.4 percent

year-on-year on a comparable basis.

"Kering delivered an outstanding year, both in terms of sales growth and margin improvement

... We are continually impressed by the momentum at Gucci," analysts at Raymond James say in a

note.

Kering's shares are actually down around 3 percent year to date after a hitting a record

higher at the end of January.

Elsewhere staffing firm Randstad's shares are seen rising 2 to 5 percent after its

Q4 profit beat estimates, while retailer Metro is also seen gaining slightly after

confirming guidance.

(Kit Rees)

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WHAT'S ON OUR RADAR BEFORE THE BELL (0743 GMT)

Spreadbetters' indications were pointing to a second day of recovery for European stocks

after Wall Street and Asia bounced back, but futures are now painting a different picture with

the DAX, for example, which is set to open down 0.2 percent.

On the corporate front, a number of blue-chips have reported FY earnings such as Kering,

whose Gucci brand seems to be shining through the results.

Randstad, the world's second-largest staffing company and therefore a bellwether for the

economy, saw fourth-quarter core profit rise 15 percent, buoyed by a strong recovery in the

European job markets.

European travel group TUI said summer trading was very good with bookings for Greece, Turkey

and Cyprus all growing strongly.

In the telecoms sector, Belgium’s Telenet and Telekom Austria are publishing their results

while M&A is spicing up the sector with Danish telecoms company TDC urging investors to back a

$6.7 billion cash offer from Australia's Macquarie.

For basic materials, smelter Aurubis posted a more than fourfold surge in fiscal

first-quarter operating earnings while Standard & Poor's raised its credit rating on global

miner Rio Tinto for the first time since 2011.

Other movers could include BAE Systems which will provide Malaysia a UK government-backed

financing deal if it decides to replace its fleet of combat jets with the Eurofighter Typhoon,

and German retailer Metro which confirmed full-year forecasts.

In the UK, all eyes will be on UK inflation at 0930 GMT after the BoE surprised investors

last week when it said interest rates would probably need to rise sooner and by slightly more

than it had previously signalled.

(Julien Ponthus)

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NO CLEAR DIRECTION EMERGES AS FUTURES OPEN (0710 GMT)

While early indications from spreadbetters were pointing to an open in positive territory,

the picture is now far less clear with the futures trading. Is Europe about to end the positive

trend from Asia and Wall Street?

Have a look:

(Julien Ponthus)

*****

ALL EYES ON UK INFLATION (0632 GMT)

UK inflation is set to be today's most watched indicator after the BoE surprised investors

last week when it said interest rates would probably need to rise sooner and by slightly more

than it had previously signalled.

"Headline CPI is predicted to slip back to 2.9% for January, however we could see an upside

surprise given that January tends to be a month when travel fares see sizeable increases, rail

fares being one such example, while commodity prices are also higher than a year ago", says

Michael Hewson from CMC Markets UK.

The date will be published at 0930 GMT.

(Julien Ponthus)

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MORNING CALL: EUROPE'S BOUNCE BACK SET TO CONTINUE (0615 GMT)

Good morning and welcome to Live Markets.

European bourse are set to open in positive territory and enter a second day of recovery

after Asian stocks pulled further away from two-month lows, lifted by Wall Street's extended

rebound.

Financial spreadbetters expect London's FTSE to open 37 points higher, Frankfurt's DAX up

88 points and Paris' CAC to rise 35 points.

(Julien Ponthus)

*****

(Reporting by Danilo Masoni, Helen Reid, Kit Rees and Julien Ponthus)