LIVE MARKETS-Volatility's back, but it's normal

* European stocks choppy as investors worry about trade dispute, global recession * STOXX 600 -0.3%, DAX -0.6%, FTSE 100 -1.2% * London lags due to ex-divs * Defensives, utilities and consumer staples, only sectors in positive territory * ICA Gruppen soars after Q2 beat Welcome to the home for real-time coverage of European equity markets brought to you by Reuters stocks reporters and anchored today by Thyagaraju Adinarayan. Reach him on Messenger to share your thoughts on market moves: thyagaraju.adinarayan.thomsonreuters.com@reuters.net VOLATILITY'S BACK, BUT IT'S NORMAL (1532 GMT) European volatility has spiked higher today, with the Eurostoxx 50 volatility index hitting its highest since December last year, as investors have traded on headlines, largely ones about the U.S.-China trade dispute, while worries about a U.S. recession rattle confidence. But on an historical basis, it's largely inline with what's normal for this time of year. At just over 22.6, it's also well below the August 2015 levels of just under 50. (See chart below) The ten-year chart shows volatility typically jumps in August and September is one of the most volatile months of the year. The U.S. equivalent and a measure of market fear has also jumped this month, but in contrast with Europe, it's well above historic averages. (See below) "Higher volatility and bigger intra-day moves should be expected as the political and geopolitical picture remains complex and littered with risks," says Esty Dwek, head of global market strategy, Dynamic Solutions, Natixis Investment Managers. (Josephine Mason) ***** HOW TO DEAL WITH THE NEXT DOWNTURN (1335 GMT) Ahead of the U.S. Federal Reserve's annual symposium at Jackson Hole, Wyoming, next week, Blackrock Investment Institute's research team has looked at the future of monetary and fiscal policy and how the U.S. central bank could deal with the next downturn. Here's a summary of the report's findings: * Monetary policy is almost exhausted as global interest rates plunge towards zero or below, leaving little space to deal with a significant, let along a dramatic, downturn. * Fiscal policy should play a greater role, but will struggle on its own to provide major stimulus in a timely fashion given high debt levels. With global debt at record highs, major fiscal stimulus could raise interest rates or stoke expectations of future fiscal consolidation, undercutting and perhaps even eliminating its stimulative boost. * An unprecedented response is needed when monetary policy is exhausted and fiscal space is limited. That response will likely involve "going direct", which means the Fed will have to find ways to get central bank money directly in the hands of public and private sector spenders. That bypasses interest rate channel when the traditional toolkit is exhausted and enforcing policy coordination so that the fiscal expansion does not lead to an offsetting increase in interest rates. * An extreme form of "going direct" would be an explicit and permanent monetary financing of a fiscal expansion, or so-called helicopter money. That would push up inflation. * Without a clear framework in place, policymakers will inevitably find themselves blurring the boundaries between fiscal and monetary policies to fight the next downturn. This threatens the hard-won credibility of policy institutions and could open the door to uncontrolled fiscal spending. (Josephine Mason) ***** CHOPPY, ERRATIC, WILD, SKITTISH ..... OR JUST NERVOUS (1259 GMT) We're struggling to find ways to adequately describe the whipsawing market, which has seen the pan European STOXX 600 swing between +0.2% and -0.5% in the past hour and that's after falling as much as 1.4%, and traders are finding it tough to identify specific reasons. The index is now down 0.1%. In late morning, investors were worried by comments perceived to be sabre-rattling from the foreign ministry. And those worries were then soothed by a report the ministry said it hoped the U.S. would meet it halfway, which was interpreted as conciliatory. What may surprise some is that this doesn't appear to be summer holiday induced volatility - the euro zone blue chip index volumes are already close to the long-term daily average and there are still 2-1/2 hours of trading left. (Josephine Mason) ***** MARKET SPOOKED BY CHINA COMMENT (0949 GMT) No, it wasn't a tweet from U.S. President Trump that just gave markets a jolt, but comments from China's finance ministry which warned that the world's No. 2 economy must take steps to counter the hefty additional tariffs on Chinese imports. Beijing doesn't have much room to retaliate in kind with extra tariffs on U.S. goods, but there are informal measures to inflict pain on corporate America. Anyway, the comment was enough to send Germany's DAX 30 to March 26 lows and the pan European STOXX 600 to Feb. 12 lows. The DAX is now down 0.9% and STOXX 600 down 0.7%. With Milan's bourse shut and Italy and France on holiday, lower liquidity will keep things volatile. But until about 40 minutes ago, markets had been pretty rangebound trading in a narrow 1.4 range on the day so far. The move lower illustrates the heightened anxiety among investors to headlines about the trade dispute - and shows that the calm across stocks earlier this morning was indeed very uneasy. The market has seen big daily swings since the start of August when Trump renewed his threat to impose more punitive duties on Chinese imports from Sept 1 (he backtracked on Tuesday). The average size of the swings between the highs and the lows each day has jumped this month to 5.6 points, compared with an average of 3.3 points for the year to date. With much of southern Europe on the beach, there is often much whipsawing in markets in August, but this year investors are more nervous than ever with uncertainties over the trade dispute and worries about a U.S. recession after the inversion of the U.S. bond yield curve yesterday. (Josephine Mason) ***** "CRAZY" INVERTED YIELD CURVE... (0919 GMT) Donald Trump described the inverted yield curve as "crazy" and indeed, markets did take fright from what is considered as a recession signal. After the 10-year U.S. treasury yield fell below the 2-year yield for the first time since 2007, markets panicked, seeing an imminent recession leading to bloodbath in global markets. But UBS' Chief Investment Officer Mark Haefele pegs the chance of a U.S. recession in 2020 at just 25%, saying "the U.S. economy remains well placed to withstand continued weakness in global manufacturing". There is a caveat of course: the trade war not escalating further. Given the recent --> escalation --> de-escalation --> escalation --> de-escalation (repeat) in trade and its impact so far on manufacturing and export-heavy economies such as Germany, it is one key risk to factor in. "Unlike trade conflicts, an inverted yield curve by itself has limited economic impact," Haefele says. "Instead, its signal about the health of the economy is what matters, and it is not as negative as some investors fear." (Thyagaraju Adinarayan) ***** OPENING SNAPSHOT: EUROPE JUST ABOUT POSITIVE (0732 GMT) European stocks are just about positive buoyed by some decent earnings, mainly from Denmark, with Maersk, Carlsberg and GVC topping the pan-European STOXX 600 index. Milan's stock exchange is shut and Italy and France both have bank holidays today. Stocks are coming off six-month lows, although only slightly as fears of a global recession are keeping investors away from risky assets. Miners, yet again, are the top sectoral losers hurt by slumping Chinese iron ore prices amid signals of pain in the Chinese economy. The STOXX Basic Resources index is a couple of ticks away from hitting December lows. "Markets look a little steadier at the start of trading today but days like today can be like the good old British weather, sunny in the morning and storms by lunch time. In these markets, I wouldn't be surprised to see a rollercoaster of a day and there's plenty of data coming throughout to provide the catalyst," Oanda market analyst Craig Erlam says. Meanwhile, FTSE 100 is the only major index in Europe to trade in negative territory, solely dragged down by more than a dozen stocks going ex-dividend. Among single stocks, Aegon is sliding 5% after the Dutch insurer's capital position weakened in the first half of the year on low interest rates. (Thyagaraju Adinarayan) ***** ON OUR RADAR: CHILLED BEER, CONTAINER SHIPS, WIND TURBINE, TELCOS (0653 GMT) European stocks are set to gain 0.5%, taking off from six-month lows, after some decent earnings updates and on rising hopes that central banks may come to the rescue as recession fears grip investors. In corporate news, big moves are expected in Copenhagen with Carlsberg seen rising 3% after the Danish brewer's "blowout" operating profit, according to one dealer, and Vestas' could come under pressure as tariffs and higher raw material costs bite into profits which were weaker than expected. The world's largest container shipping company Maersk also warned trade war and tariffs could hurt the container sector, but reported better-than-expected results. Shares are seen rising 3-7%. Dealers expect Ericsson and Nokia shares to slide 2% after U.S. rival Cisco slumped 7% in the U.S. after-close, as impending U.S. tariffs and Chinese customers shun the networking company's gear hit their business. In Germany, fertilizer maker K+S' strong outlook is boosting shares 3% higher in early Frankfurt trade, while German telcos Drillisch and United Internet are down 3% after they slashed their outlook. German small-cap stock SGL Carbon is down 19% after it said the outlook beyond 2020 was not "sustainable" and that its CEO resigned. In the UK, GVC is seen rising 5% after the Ladbrokes owner raised its full-year outlook and said it expects to shut fewer shops. With more than a dozen blue-chips are going ex-dividend today and that's seen taking 30 points off Britain's FTSE 100. More headlines (see earlier blog for others): GVC raises full-year outlook, expects to shut fewer shops Maersk Q2 beats expectations, warns trade war may hurt container business SGL Carbon SE Says CEO Jürgen Köhler Has Resigned (Thyagaraju Adinarayan) ***** FUTURES SLIGHTLY HIGHER; EARNINGS BACK IN FOCUS (0609 GMT) European stock futures point to a slightly higher open after yesterday's massive sell-off amid hopes that the U.S. Fed would come to the rescue as rising recession fears prompted investors to flee risky assets. In corporate news, it's earnings Thursday here and so far reports paint a mixed picture: strong numbers from beer maker Carlsberg, an outlook lift by fertilizer maker K+S and a weak update from plumbing supplies firm Geberit on tough construction markets. K+S shares are rising 3% in premarket trade. German telcos in focus after both Drillisch and United Internet cut their profit outlook, citing regulatory effects and the initial costs of a planned 5G network. Both firms are trading 2% lower in early Frankfurt trade. In dealmaking, Osram and AMS said on Wednesday that their deal talks were progressing, calling the negotiations "constructive". Apple component supplier AMS trumped a private equity bid by Bain and Carlyle offering 4.3 billion euros ($4.8 billion) for the German lighting group. Meanwhile, it's a bank holiday in Italy and France and the Milan stock market is shut. Key headlines: K+S lifts core profit outlook on higher prices, volumes Drillisch, United Internet, trim guidance as 5G challenge looms Geberit says construction market still tough as Q2 sales dip Carlsberg half-yearly sales rise 6.5% Novartis replaces top scientists at Avexis after drug data manipulated Osram and AMS say takeover talks are constructive Dutch insurer NN Group second-quarter operating profit falls (Thyagaraju Adinarayan) ***** TENTATIVE GAINS AFTER YESTERDAY'S ROUT (0525 GMT) European stocks are expected to bounce back, only slightly, after yesterday's recession-fear driven rout as expectations are running high that the U.S. Fed will cut rates sharply. U.S.-China trade war, Brexit woes and geopolitical tensions led to dire economic data from China and Germany, suggesting a faltering global economy. The pan-European STOXX 600 slumped to six-month lows yesterday after yields on U.S. 10-year treasuries dropped to 1.55%, taking them under two-year paper -- such an inversion was last seen in 2007 and correctly foretold the great recession that followed a year later. "In this risk toxic enviornment, the only thing that could help shift equity sentiment is if the Fed pulls back to back 50's (rate cuts) out of their hat," Stephen Innes, managing partner at VM Markets says. Financial spreadbetters IG expect London's FTSE to open 52 points lower at 7,096, Frankfurt's DAX to open 19 points lower at 11,473, and Paris' CAC to open 10 points lower at 5,241. (Thyagaraju Adinarayan) ***** ($1 = 0.8971 euros) (Reporting by Danilo Masoni, Josephine Mason and Thyagaraju Adinarayan)