Welcome to the home for real-time coverage of European equity markets brought to you by Reuters stocks reporters and anchored today by Helen Reid. Reach her on Messenger to share your thoughts on market moves: helen.reid.thomsonreuters.com@reuters.net

WHICH WAY OUT OF THE BREXIT IMPASSE (1123 GMT)

The question of the Irish backstop remains the key obstacle between Prime Minister May and approval of her deal, as she enters talks with European Commission chief Jean-Claude Juncker in Brussels today.

As EU diplomats ramp up the pressure, saying the UK has until mid-March to secure a deal, foreign secretary Jeremy Hunt said the British government can secure parliamentary backing if a "simple and important" change to the backstop can be made. 

Sterling's retreat today reflects increased scepticism about how likely such a breakthrough is, after the currency jumped above $1.3 yesterday. 

Besides changes to the backstop, assurances that May will depart soon could help foster cooperation on her deal, according to JP Morgan.

"The prospect of the Conservatives selecting a new leader for phase two of the Brexit negotiations might be enough to convince some Brexiteers to tolerate the deal," writes JP Morgan economist Malcolm Barr, saying May could make a commitment to resign shortly after Brexit occurs.

According to RaboBank, the easiest way to get the current deal through Parliament is for Conservatives to cooperate with Labour and endorse their preference for a permanent Customs Union with the EU - but May unsurprisingly doesn't want to go down this path, which is why she is likely to take Brexit "down to the wire".

"This is a risky approach that maintains the odds of a no-deal (hard) Brexit almost as high as those of an orderly one," Rabobank analysts write.

"We continue to think that May will be pushed to extending Article 50 next week to avoid losing control of the process and avoid a string of ministerial resignations," JPM's Barr adds.

The latest news of three pro-EU lawmakers defecting from the Conservative party over the government's "disastrous" handling of Brexit only accentuates the pressure on May. 

(Helen Reid)

*****

 

0.4 PCT TRADE TALK OPTIMISM (0941 GMT)

Stock indexes have lately become gauges of the Sino/U.S. talks more than anything else, let alone blue-chips' future earnings, it sometimes feels.

So what are the STOXX 600 and the EURO STOXX telling us this morning about Xi and Trump's ability to strike a deal Well 0.4 percent probably best translates "cautious optimism".

That's right now but no doubt there will be plenty of mood swings and price swings moving forward.

"Global equity markets are likely to be mostly dictated by US - China trade developments for the rest of the trading week," writes Lukman Otunuga, an analyst at FXTM.

Anyhow, at the moment the darlings of the trade play are up: Germany's DAX is rising 0.7 percent, autos 1.6 percent and miners 0.7 percent.

In London, Sainsbury's is the main mover of the day, sinking 13 percent after the UK competition regulator raised big objections to its merger with Asda - saying it should either be blocked or require the sale of a significant number of stores, or even one of the brands.

It could arguably be seen as good news for UK consumers but other supermarkets are also losing ground with Morrisons down 4.5 percent. The retail index is also falling 2.1 percent.

Another big mover is Swedbank, falling over 7 percent as reports suggest links to the money laundering scandal involving Denmark's Danske Bank.

Here's an illustration of the gauge theme with a photo of a pressure gauge. Talking about pressure, can you hear the Queen/David Bowie earworm creeping in

 

(Julien Ponthus and Helen Reid)

*****

WHAT'S ON THE RADAR: SAINSBURY'S, GLENCORE, AIR FRANCE (0749 GMT)

Signs of progress in U.S.-China trade talks, and President Trump saying the March 1 deadline is not “magical”, boosted Asian shares to 4 ½ month highs overnight and were set to drive European shares up in early deals too.

Results from UK lender Lloyds, miner Glencore, German healthcare group Fresenius, and French airline Air France would dominate trading as the European earnings season continued.

Fresenius said it expects earnings to stagnate this year due to investments to improve its German hospitals and scale up its home dialysis business. But its shares are seen up 1-2 percent as news of faster earnings growth from 2020 and a 1 billion euro share buyback was well received.

Sainsbury’s shares are expected to slide as much as 5-10 percent after Britain’s competition regulator said the supermarket chain’s merger with Asda could be blocked. The share price fall could spill over into Morrisons and Tesco – indicated down 2 to 3 percent - as investors reset their expectations of M&A in the food retail space.

Strain in UK retailers is again front and centre with both household furnishings firm Laura Ashley and professional cleaning retailer McBride indicated down 15 percent after profit warnings.

French flag carrier Air France will fall 2-3 percent, traders said, after reporting weaker than expected unit revenue.

Glencore, meanwhile, is seen gaining 3 percent after announcing a new $2 billion share buyback scheme.

(Helen Reid)

*****

TRADE TALK PROGRESS BOOSTS EUROPEAN FUTURES (0720 GMT)

Futures have opened up higher as traders bet on progress in U.S.-China trade talks, while results from UK lender Lloyds Bank and miner Glencore have come in. Sainsbury's shares could be hurt by Britain's competition regulator saying its merger with Asda could be blocked.

(Helen Reid)

*****

EARNINGS: FRESENIUS, SCOR, TELEFONICA, AIR FRANCE (0654 GMT)

Besides the encouraging noises from Washington on trade negotiations, results are likely to drive the day today with French reinsurer Scor, airline Air France, and Spanish telecoms firm Telefonica among those reporting.

There's also a bit of M&A with Dubai-based port operator DP World buying the UK's P&O Ferries for 332 million pounds ($421 million).

Here's a roundup of the headlines so far:

(Helen Reid)

*****

GOOD SIGNS FROM U.S.-CHINA NEGOTIATIONS TO PUSH EUROPEAN STOCKS UP (0636 GMT)

Signs of progress in deputy-level talks, which began yesterday, helped push Asian shares up overnight and spreadbetters see that optimism seeping over into European trading.

Trump said on Tuesday that trade talks with China were going well and suggested he was open to pushing off the deadline to complete negotiations, saying March 1 was not a "magical" date. 

Higher-level talks involving Mnuchin and led by USTR Robert Lighthizer are expected to begin on Thursday.

Asian stocks advanced to 4-1/2-month highs on Wednesday as investors bet that Chinese and U.S. trade negotiators would be able to secure a deal to de-escalate their year-long tariff war. 

The FTSE 100 is expected to open 2 points higher at 7,181, the DAX is expected to open 4 points higher at 11,313, and the CAC 40 is expected to open 8 points higher at 5,168, according to spreadbetters CMC Markets.

(Helen Reid)

*****

(Reporting by Helen Reid, Danilo Masoni, Julien Ponthus) ((+442075420402; helen.reid@thomsonreuters.com; Twitter: @helenmariareid))