MORNING BID EUROPE-Brexit smoke and mirrors

* A look at the day ahead from European Economics and Politics Editor Mark John and EMEA markets editor Mike Dolan. The views expressed are their own.

LONDON, Aug 23 (Reuters) - Is Brexit all smoke and mirrors? Certainly a fug of vagueness persists over much the British government's negotiating stance on the issues so far on the table, while its position papers this week on those coming up have in many cases looked at how to "mirror" existing arrangements with the EU (it even used the term explicitly in yesterday's contribution).

Today its critics say there will be further sleight of hand as the government tries to finesse Prime Minister Theresa May's forthright pledge that Britain will escape the clutches of the Luxembourg-based European Court of Justice. It will outline its plan to skirt the "direct jurisdiction" of the ECJ, a careful formulation that acknowledges that even if alternatives are found, ECJ rulings will likely continue to hold sway in a number of areas. For most pro-Brexit campaigners the main question, however, is whether London's Supreme Court will be the highest court in Britain or not.

As previously trailed here, France's Emmanuel Macron embarks on a tour of central and eastern Europe today, with a first stop in Austria. With (Other OTC: WWTH - news) his popularity waning at home after some early presentational mis-steps, Macron will be eager to press his case for a tightening of EU rules on how labour moves around the bloc. Paris has long complained that central and eastern Europe gains an unfair advantage from the "social dumping" of cheap labour, arguing the posting of low-paid workers hurts local jobs and erodes labour protections in higher-wage member states. Raising this issue will go down well at home but may be sensitive with some of his eastern hosts - among them Romania and Bulgaria.

A macabre tale worthy of a Stieg Larsson novel is playing out in Denmark. A local inventor-cum-artist suspected of killing a journalist on board his home-made submarine initially insisted he had dropped her off alive in Copenhagen - only to change his story to say that he had "buried" her at sea after she died in an accident. Now (Frankfurt: 11N.F - news) the headless torso that washed to shore in the Danish capital on Monday has been identified from DNA (Frankfurt: 24D.F - news) as that of the journalist. More details to follow at a police press conference this morning.

MARKETS AT 0655 GMT U.S. President Donald Trump’s comment that he was prepared to risk a government shutdown to secure funding for his proposed wall on the Mexican border pushed the dollar slightly lower against the yen, although most of the move was later reversed.

Otherwise, markets remain focused on what some of the world’s major central bankers might say at their Jackson Hole retreat beginning on Thursday.

Ahead of that, European Central Bank President Mario Draghi -- who sources have told Reuters will not deliver a new policy message in Wyoming -- speaks in Germany. Any words he might have on the euro could be market-moving. Flash PMI data on global business activity will be the day’s main economic indicators.

European stock futures were not giving much of a clue how markets would open, teetering between positive and negative territory. Slipping metals prices may remove a key support for benchmarks.

Earnings for the STOXX 600 are set to grow around 15 percent in the second quarter year-on-year, with nine of the 10 sectors expected to see an improvement in earnings in what analysts have called a “good, but not great” earnings season after the record-breaking first quarter. Energy stocks have seen the highest earnings growth rate of any sector, at 47.8 percent, while healthcare stocks have reported the lowest at -3.4 percent compared to the second quarter last year, according to Thomson Reuters data.

Strategists say the relative performance of European sectors this earnings season can mostly be explained by their relationship to the euro/dollar exchange rate. Pharmaceutical companies’ high exposure to the U.S. has made the stronger euro a particular headwind, and analysts have revised earnings estimates sharply down after a weaker Q2 (see below).

In other company news pointing to potential stock movers: Ad group WPP (Frankfurt: A1J2BZ - news) cuts sales forecast on weak client demand; Vedanta Resources records Q1 total group EBITDA of $777.8 million; Uniqa confirms outlook as net profit falls in line with guidance; London metals consolidate on stronger dollar ahead of Jackson Hole; EU starts in-depth probe of Bayer (IOB: 0P6S.IL - news) , Monsanto (Hamburg: 1132157.HM - news) deal; BHP Billiton to replace two directors in board shake-up; Ryanair's O'Leary would be interested in buying all of Air Berlin (LSE: 0GPE.L - news) .

MSCI’s main index of Asia-Pacific shares, excluding Japan, is a fraction down on the day, while Tokyo stocks closed up 0.3 percent. Investors were encouraged by all three main U.S. indexes chalking up their biggest one-day percentage gains in a week and by Toshiba (Swiss: TOSH.SW - news) saying it would prioritise talks with Western Digital (Hamburg: 985376.HM - news) on the sale of its memory chip business.

In currency markets, the dollar was down 0.2 percent at 109.37 yen, the euro was slightly lower at $1.1754 and sterling was down 0.1 percent at $1.2816.

Newspaper reports that German Finance Minister Wolfgang Schaeuble was working on a plan that would allow euro zone countries to tap the bloc’s bailout fund during recessions was eye-catching. German 10-year government bond yields were flat at 0.40 percent and Italian yields edged lower.

Oil prices dipped as U.S. inventories rose. Brent was down 17 cents a barrel at $51.70.

Mexico’s peso fell and emerging market stocks were forced to brake on Wednesday, after Trump revived a threat to terminate the NAFTA trade treaty. Pause in the metals rally also takes some of the steam out of stocks. Traders are squaring up ahead of Jackson Hole too.

China shares eked out a 5th straight day of gains though, and Indonesia shares rallied after a rate cut on Tuesday.

* Global flash August PMIs

* Europe corp events: Elekta (LSE: 0O5H.L - news) , WPP, Lenzing (IOB: 0NCV.IL - news)

* UK auctions 2013 gilts

* EZ flash Aug consumer confidence

* Sweden auctions government bonds

* SAfrica July inflation

* Turkey August consumer confidence

* US July new home sales

* Mexico June retail sales

* U.S. Treasury auctions 2-year FRNs

* Dallas Fed chief Kaplan speaks in Midland, Texas

(editing by John Stonestreet)