MORNING BID EUROPE-Spain vs Belgium, May vs Thatcher

* A look at the day ahead from European Economics and Politics Desk Chief Jeremy Gaunt and Mike Dolan, editor, EMEA markets. The views expressed are their own.

LONDON, Aug 2 (Reuters) - They are nowhere near beating Belgium's record-breaking 589 days without a government, but Spain's political parties are working on it. There has been no properly formed government in Madrid since December and hopes that the June election would solve the issue have not borne fruit. In fact, the conservative Mariano Rajoy and socialist Pedro Sanchez -- rival leaders of the only two parties capable of forming a coalition -- have barely met since the election.

The two will get together today, but nothing much is expected to come of it. This is difficult because the government should be producing a budget at the moment that it can deliver to Brussels for macro-approval in October. Chances are Rajoy may eventually have to have a minority government with Sanchez's socialists quietly keeping it in office, but a third election is no longer ruled out.

Can't get past the morning without mentioning Brexit, of course. Today's data is the relatively low-key construction purchasing managers' index. It sits between yesterday's (horrible) manufacturing survey and tomorrow's (more important) services one. Nearly all surveys to date are pointing to recession -- steepish to begin with and then "prolonged and shallow", according to Barclays (LSE: BARC.L - news) . These are surveys, though. Hard data may be less gloomy when it comes later in the month.

Shades of the past, meanwhile, from Prime Minister Theresa May, who will outline a new industrial policy. You've got to go back to Margaret Thatcher and Ronald Reagan to see one of those on Britain's shores.

MARKETS AT 0645 GMT

Global stock markets have taken a step back from recent highs, weighed down on Monday by a retreat of European bank stocks after last week's stress tests and a slide in U.S (Other OTC: UBGXF - news) . crude oil prices back below $40 for the first time since April. Sub-par July factory readings from the U.S. didn't help, reinforcing the surprise weakness in Q2 GDP there and keeping Fed rate hike expectations pegged back, with now only a one-in-three chance of a move before year-end. Australia reinforced the easy money tone overnight, with the Reserve Bank cutting its key interest rates by a quarter point to a record low of 1.5 pct. But perhaps the most eye-catching move of the day so far as been the continued rise in Japanese government bond yields -- the 10-year JGB yield rose 11 basis point points on Tuesday and has clocked up a rise of almost 25bps since Friday, the biggest three-day gain in three years. Japanese yields have backed up since the BoJ declined to increase JGB purchases in its latest easing of policy and ahead of the government's fiscal stimulus announcement. The Nikkei225 was down more than 1 percent, with other Asia bourses more mixed. Brent crude prices are hovering just above $42 after the lates shakeout in energy prices.

Upcoming events/data/themes for market reports on Tuesday:

- Europe corp events: Commerzbank (Xetra: CBK100 - news) , BMW (Swiss: BMW.SW - news) , Metro (Other OTC: MTRAF - news) , Infineon (Xetra: 623100 - news) , InterContinental, Intesa Sanpaulo, Ferrari (Berlin: 2FE.BE - news) , Koninklijke, Lufthansa, Travis Perkins (LSE: TPK.L - news) , Fresnillo (Other OTC: FNLPF - news) , Fresenius (Swiss: FRE.SW - news)

- Swiss June retail sales

- UK auctions 2022 gilts

- EZ June PPI

- Irish central bank chief Lane speaks in Dublin

- Brazil June industrial output

- US Q2 earnings: Ford, Pfizer (NYSE: PFE - news) , Aetna (NYSE: AET - news) , CVS, Proctor and Gamble, Molson Coors, Seagate

- US June personal income/consumption/PCE, NY business confidence (Editing by Sonya Hepinstall)