LIVE MARKETS-Closing snapshot: Worst day of trading since Brexit vote

    * European shares fall to six-month low
    * Follows steepest declines on Wall Street since 2011
    * But European stocks stage partial recovery
    * Energy stocks see biggest rebound vs market open
    * Euro STOXX volatility set for biggest one-day gain since 2001

    Feb 6 (Reuters) - Welcome to the home for real time coverage of European equity markets
brought to you by Reuters stocks reporters and anchored today by Danilo Masoni. Reach him on
Messenger to share your thoughts on market moves:
    The sigh of relief is almost audible from trading desks all over Europe at the close after a
heavy day of selling, with the STOXX 600 suffering its biggest one-day loss since the
Brexit vote in June 2016. A more benign U.S. open didn't give European stocks much respite, and
they closed at their lowest level in five months.
    Europe's volatility gauge just posted its biggest daily jump ever, up 60 percent on
the day, as volatility across stock markets surged from historic lows and retail products
shorting the VIX were wiped out.
    The cost of buying options on volatility has hit an all-time high, according to UBS Wealth
Management, as investors rush to buy protection against further slides.
    But investors were already talking about buying the dip, saying this long-awaited correction
was healthy, and traders welcomed the spike in volumes. The STOXX 50 saw nearly three
times the average daily volume traded.
    "Phones were very active first thing, then it's just been calm and utter amazement," says a
trader. "Volumes higher, yes, and definitely some dip buyers, but I still think we go lower."
 (Helen Reid)
    The outperformance of European cyclical stocks against defensives during the latest rally,
and the sharp drop in defensives in the recent sharp sell-off, could have created an interesting
buying opportunity, says Toby Gibb, Fidelity International's investment director of European
    "Looking at some of those more stable sectors they are quite attractively valued," says
Gibb. "Healthcare looks very cheap compared to the market but with some very interesting
opportunities at the stock-specific level," he adds, citing Roche, Novartis and
    He points to some tech stocks that are trading on "very attractive valuations and with
strong installed bases of customers" such as SAP, Sage Group and Amadeus
    And Gibb says the competitive threat to European companies from may have
been overdone in some cases. He sees packaging distributor Bunzl as a good example --
the market appears to have overestimated the threat that Amazon will enter its market. He also
cites educational publisher Pearson. 
    "The stock has been very significantly sold off because the impact of Amazon, which rents
textbooks, rather than Pearson which sells the for the full profit. Shares in Pearson have been
very very weak so at some point that stock could offer value as well."  
    (Tom Pfeiffer)
    "WE'RE STARTING TO BUY..."(1550 GMT)
    Trevor Greetham, Head of Multi Asset at Royal London Asset Management in London, has already
started placing buy orders on the stock market but says any move will be gradual.
    "When you get these periods of intense panic it makes sense to be buying while others are
forced sellers but on the other hand you don't know that the negative mood will go away
quickly," he says while Wall Street attempts a bounce-back and European shares test their daily
    "The last time we had that degree of panic was August 2015 which was the first of the two
Chinese devaluations. At that time it took about eight weeks before the market digested the bad
news and started rallying again," he adds. "The trick is not to rush on both feet but to be
buying gradually during the more intense negative days."
    Greetham, who helps manage 113 billion pounds of assets, has been particularly adding to
emerging markets equities on expectations the world economy will remain strong but sounds less
upbeat on prospects for European stocks.
    "We see negative earnings trends in Europe partly driven by the euro strength. We are
suspicious that the growth we're seeing is not really domestically driven. If you look at credit
numbers in Europe they are quiet weak. We don't think it is a very sustainable story of growth."
    (Danilo Masoni)
    Most equity research notes piling up in our inbox take the view that "global synchronised
growth" and sound corporate fundamentals don't justify the violence of the melt-down and that
buying opportunities are out there.
    Many analysts therefore, be it from the sell-side or the buy-side, are in one way or another
advising to "buy the dip". Having a look at the market, it seems some investors have just about
decided to do exactly that.   
    Here are a few snippets of advice on whether it's time to #BTD: 
    *"It almost always pays to buy stocks during a panic. We lightened up equity exposure in our
funds last week, while remaining overweight. With markets at lower levels, we are looking to add
to these positions again as the sell off progresses" - Trevor Greetham, head of multi-asset at
Royal London Asset Management. 
    *"Often the greatest investment opportunities occur as a result of indiscriminate sell-offs,
so patience and a focus on fundamentals could serve long-term investors well" - Alex Morozov,
director of equity research, EMEA, Morningstar. 
    *"Given the unpredictable nature of what may happen over the next few weeks, we’re sitting
on the sidelines for now (...) we have the express intention of entering the stock market again
once things calm down a bit" - Lukas Daalder, Chief Investment Officer, Robeco 
    *"There is weakness across various equity sectors, but none so large the market is likely to
fall through them. My money remains on equities - but rotating (and buying on weakness) into
“value” areas of the market that have lagged in the recent momentum-driven rally" - James
Bateman, CIO, Multi Asset, Fidelity International. 
    *"There may be some non-fundamental drivers of this price action and our predisposition
would be to add equity exposure" - Steven Andrew, multi-asset fund manager at M&G Investments.  
    (Julien Ponthus) 
    If you're looking for proof the equity market rout is driven more by emerging inflation risk
than fears for the economy, look at the sectors that have performed worst in the past five
    European drugmakers and telecoms, whose profits tend to hold up best when
the economy is heading south, are down 6.2 percent and 5.6 percent respectively. 
    Those showing the smallest declines include media and tech stocks. 
    "You would traditionally expect telecoms to be one of the most defensive sectors in the
market and the fact they've been selling off in a risk-off environment suggests this is either
momentum or quant-driven selling," says Chris Dyer, Director of Global Equity at Eaton Vance. 
    With inflation risk ticking a little higher, Dyer says it's important to pick companies with
strong brands that can raise end-product prices in response to higher cost inputs. 
    "We do see an opportunity to reallocate as a stock picker within companies you like, but
this is not the time to change the shape of your portfolio and lean heavily into risk or take
significant risk off. 
    (Tom Pfeiffer)
    Here's how the stock markets in Europe look like just before Wall Street opens after posting
its steepest decline since 2011. The STOXX is down 2.4 percent, having earlier fallen as much as
3.2 percent.
    Meanwhile, the euro STOXX volatility has also come off highs. At its peak this
morning it was set for its biggest one-day rise since the September 11 2001 attacks.
    (Danilo Masoni)
    The market rout that has wiped trillions off equity markets began with last Friday's buoyant
U.S. wage data, which stoked inflation fears and increased the risk of a bond bear market. 
    But across the Atlantic, and in particular in the euro zone, investors don't see wages and
inflation getting out of control and are taking a 4.3 percent two-year pay deal for German
industrial workers in their stride. 
    For Frederik Ducrozet, senior economist at Pictet Wealth Management, there's little reason
to believe this could speed a return to monetary policy normalisation. 
    "I think it will increase the ECB’s confidence overall, but not to the point where they will
overreact to the data, if anything because core inflation remains weak at the euro area level",
he told us. 
    "In the broader European context, the fact that this wage settlement was agreed for a period
of 27 months underlines that it is not the start of an upward wage-price spiral in Germany", ING
wrote this morning. 
    (Julien Ponthus) 
    That's the message some commentary are conveying this morning: if gold prices did not see a
larger boost from tumbling markets, it's because consensus is we are not heading to a total
meltdown despite $4 trillion being wiped off since indexes hit record highs eight days ago.
    "We are yet to see a significant flight to safety – the yen and gold are barely moved by
events" said Neil Wilson from ETX. "That’s mainly because the geopolitical outlook is unchanged
and global economic outlook still very positive".  
    Gold is seen as a safe-haven investment due to its ability to retain value even at times of
financial or political uncertainty. 
    "Lack of movement in gold suggests no signs of panic yet", IG's Chris Beauchamp reckons
while Naeem Aslam from ThinkMarkets wrote: "another reason why we think that this is a healthy
correction is that we are not seeing any panic buying for safe haven-gold". 
    David Govett, head of precious metals at broker Marex Spectron, said share markets would
probably bounce back. 
    "I think this is a healthy, albeit rather vicious correction and we may see more over the
next week, but on the whole I really wouldn’t panic," he said in a note.
    "As such, I don’t think gold will go a lot higher." 
    Here are gold prices in the last 10 days    
    (Julien Ponthus) 
    Systematic funds, which use computer models for their trading strategies, are being blamed
for the violent spike in volatility and the global equity sell-off we're seeing,
but fund managers that use their skills in finding good buying opportunities may eventually have
the upper hand, as confidence in the macro and micro fundamentals remains unscathed.
    Here's how a trader sees it: "It is going to be a battle in search of a new equilibrium
between deep pockets bottom pickers (rationale: macro/micro picture unchanged) and more
systematic supply (volatility shock driven) for at least a couple of days, maybe the rest of the
    (Danilo Masoni)
    Credit Suisse's Michael O'Sullivan says the worst U.S. sell-off since 2011 is not about
fundamentals, but is largely a "volatility" event: momentum investors who were short of
volatility were forced to cover those positions. 
    "So far the selling seems to be concentrated in quant-centric funds, and there are few signs
that more long-only investors are panicking," says O'Sullivan, Chief Investment Officer at
Credit Suisse's International Wealth Management division. 
    "Trading will be choppy for the next few days, but with volatility having gone from being
very low, it is already very high now and may soon be trading lower," he says. 
    CS has begun to position for a world where inflation is picking up due to strong growth, by
adding inflation-linked bonds to its portfolios, says O'Sullivan. CS is also underweight Italian
equities and government bonds ahead of a March election. 
    (Tom Pfeiffer)
    Natixis strategists are staying calm and maintain a positive stance on European equities,
saying the current correction is creating a buying opportunity and bigger volatility could lead
to a greater divergence with U.S. assets. 
    European shares have already narrowed opening losses with the STOXX 600 down 1.6
percent -- less than half the 4 percent declines seen on Wall Street yesterday.
    "It seems that the much-heralded interest rate rise has finally started. This is justified
in the United States, in view of the inflation news flow (given the acceleration in wages in
particular), the monetary policy tightening and the return of U.S. risk (increase in the fiscal
deficit). But it is less justified in the Eurozone, where interest rate levels seem excessive,"
Natixis says.
    "These developments are leading to a resurgence of volatility and point to greater
divergence between U.S. and euro assets," they add. 
 (Danilo Masoni)
    Big brokers are getting their head around the sell-off hitting world markets; here are a few
of their views.
    "We have not sensed panic among equity investors, but nervousness has been building for the
past few weeks," writes RBC, saying a pullback may have been overdue.
    Yet "For now, we are buyers on the dip," the Canadian bank's strategists say, adding their
constructive view on equities was not dependent on further multiple expansion.
    "Economic pessimism is not behind the selloff," write strategists at Bespoke Investment
    Pointing to the recent surge in EPS estimates, they argue "this is about fair value coming
down rather than earnings... that makes spillover effects (higher implied vol, implications for
rates) much less of a concern; asset prices can only get so disjointed from recent levels before
a bottom is found and equilibrium restored."
    JP Morgan's Marko Kolanovic points out a "massive divergence" between strong fundamentals
and equity price action. "Rapid sell-offs, such as the one today, can also be followed by market
bounce backs as liquidity gets exhausted by programmatic selling," he wrote. 
    Indeed, U.S. stocks futures have just turned higher and are trading up 0.5 to 1.1 percent,
indicating a potential relief bounce on Wall Street.
(Helen Reid)
    The plunge in U.S. stocks came mostly late in the day after Europe closed but right now the
Stoxx Europe 600 index is down 2.6 percent, less than the Dow's 4.6 percent
    A buy signal? 
    Unicredit strategists say the increased volatility in technology stocks - which have been
instrumental to the surge higher in U.S. equities - means euro zone equity indices, with their
higher weighting of traditional industrial stocks and financials, "should finally start to
significantly outperform the U.S. stock market". 
    They caution however that the "increasingly late-cycle environment", especially in the U.S.,
makes euro zone equities vulnerable to short-term shifts in sentiment.  
    (Tom Pfeiffer)
    Europe's main benchmarks are down 2.7 to 2.9 percent with the FTSE down 2.5 percent. They
are, however, holding up relatively well compared to the more than 4 percent slumps on Wall
Street yesterday. 
    The STOXX 600 is set for its worst day since the Brexit vote and its worst
seven-day fall in two years.
    Cyclical sectors are leading the plunge, with oil & gas, autos, and basic resources stocks
the worst-performing. Financials, the stars of the New Year rally, are the biggest weight on the
STOXX with Credit Suisse among the worst fallers, down 5 percent. 
    Some $4 trillion has been wiped off global equities in this sell-off, and counting:
    With the VIX shooting up in U.S. trading, its biggest one-day jump in more than two
years, investors are rushing to unwind big positions in ETF products shorting the VIX and take
out options protecting themselves against a further slide in stocks. 
    Our colleagues in New York reported overall VIX options volume hit 3.6 million contracts, or
about three times the daily average.
    The VelocityShares Inverse VIX short-term ETN sank 86 percent and the ProShares
Short VIX short-term futures ETF fell nearly 80 percent. Investors said the inverse ETF
products may be liquidated after suffering these heavy losses.
    Credit Suisse, the issuer of the VelocityShares inverse ETF, is seen down as much
as 10 percent at the open, according to a trader.
    The UBS VelocityShares VSTOXX inverse ETF, which shorts the European volatility
gauge, plunged 21 percent yesterday in New York. 
 (Helen Reid)
    As we've seen European stock futures are pointing to heavy losses at the open and investors
are trying to make sense about what could come next, as inflation worries have pushed Wall
Street's volatility index to its highest since August 2015.
    "Price action is clearly driven by technical factors, tied to a brutal awakening of stock
volatility," said Alessandro Balsotti, head of asset management at JCI Capital Ltd.
    "We are undoubtedly in uncharted waters," he adds.
    "The first instinct as an asset allocator is to take advantage of this dip to add equity
exposure. Also to exploit the decline in yields to further reduce duration... Ultimately I think
the robust economic phase will be able to withstand the bloodshed on volatility. The real danger
for 2018 remains that the transition from a deflationary mentality to an inflationary one
will... not be simple at all for the market and investors," he said.    
    (Danilo Masoni)
    European equity index futures have opened down sharply confirming earlier indications from
financial spreadbetters for declines of around 4 percent.
    Here's your snapshot:    
    (Danilo Masoni)
    Corporate news is unlikely to have much impact today as investors prepare for broad sell-off
at the open that could see top European stock benchmarks fall as much as 5 percent. Anyway here
are the main headlines we've seen this morning:
BNP Paribas Q4 profits dip, yet bank signals more confidence on 2020 targets
EXCLUSIVE-British wind project draws investment heavyweights - sources
Bayer offers to sell businesses to win EU approval for Monsanto deal
Swedbank Q4 net profit tops forecast
Activist Elliott steps up calls for BHP to scrap dual listing
Apple supplier AMS's Q4 profit soars thanks to sensor technology
Banks in Britain and U.S. ban Bitcoin buying with credit cards
Infrastructure fund GIP offers 1.9 bln euros to buy railway group Italo
Terra Firma kicks off sale of Italian solar assets - sources
MEDIA-Accor nears sale of stake in real estate arm- FT
BRIEF-Safran To Hold 79.74 Percent Of Zodiac Following Tender Offer - AMF
Brazil's EMS and India's Torrent Pharma vying for Sanofi's generic drugs -sources
Belgian business urges Lufthansa not to merge Brussels Airlines with Eurowings
Lockheed, Rheinmetall team up to bid for German helicopter order
Intesa Sanpaolo releases results, business plan; announces full conversion of saving shares

    (Danilo Masoni)
    Good morning and welcome to Live Markets. 
    European shares are set to fall sharply at the open after a rout in global equities deepened
in Asia on Tuesday and Wall Street suffered its biggest decline since 2011 as inflation worries
gripped financial markets in a vicious sell-off.
    "The weakness has continued in Asia with the Nikkei225 bearing the brunt with its worst fall
since 1990, and is set to spill over once again today into European trading with another sharply
lower open for European stocks, as nervous investors continue to bail out," said Michael Hewson,
Chief Market Analyst at CMC Markets UK.
    Here are your opening calls: 
    FTSE100 is expected to open 275 points lower at 7,060 -3.7%
    DAX is expected to open 682 points lower at 12,005 -5.3%
    CAC40 is expected to open 260 points lower at 5,025 -4.9%
    (Danilo Masoni)

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