MORNING BID EUROPE-Factories battling economic headwinds

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

LONDON, Feb 1 (Reuters) - Manufacturing read-outs from key economies around the region this morning will show how factories fared in January under the clouds of trade tensions, Brexit uncertainty and volatile markets. Analysts expect the eurozone index to hold steady but see a marked (if not too dramatic) fall in the UK one. Ireland (Other OTC: IRLD - news) 's reading already out this morning slowed to its lowest in over two years in one of the first signs that Brexit and a loss of momentum globally may start to hurt its booming economy.

Specifically in the UK, some of the real-economy impacts of Brexit are hitting home, with an employers' group survey today showing almost a third of British companies - even smaller ones - are either moving some operations abroad or considering it. Meanwhile, anecdotes abound of consumers stockpiling food and medicine out of a fear that a no-deal Brexit will strangle supply chains. While such contingency planning may be very real, a cynical eye might also note that these are precisely the sort of dramatic headlines that may help PM Theresa May focus the minds of lawmakers on securing some kind of deal and to ready public opinion for a messy compromise. There will be many more to come in the weeks ahead.

Now (Frankfurt: 11N.F - news) in the twilight of her political career, German Chancellor Angela Merkel has signalled she intends to use her remaining clout to rescue the world system of rules and governance from the likes of Donald Trump and Vladimir Putin. That was the main thrust of her stout defence of the post-war multilateral order in Davos last week and it will be a big theme when she heads to Japan this weekend. She (Munich: SOQ.MU - news) will be holding talks with PM Shinzo Abe, an ally in the drive for rules-based geopolitics. While the rhetoric around this push is inspiring, it is not yet clear whether it is backed by a detailed game plan.

MARKETS AT 0755 GMT Oh dear. After MSCI world stocks’ best-ever January, we get a reminder of why the Fed, PBOC and others are backtracking on policy tightening. The Caixin/Markit (NasdaqGS: MRKT - news) index showed Chinese manufacturing at its lowest since February 2016 - more downbeat than the official version of the index. Then we got Korean export data, a bellwether for world trade, and that was weak, too. It’s a reminder of February 2018, which saw January gains evaporate amid a sudden volatility spike.

Still, it’s not looking to bad. World stocks are down just a bit from near two-month highs touched yesterday, European markets are opening higher and Wall Street futures have crept back into the black, with the S&P500 having enjoyed best monthly performance since late 2015 and its strongest start to a year since 1987.

Possibly markets are choosing to focus on U.S. President Donald Trump’s promise to meet with Chinese President Xi Jinping to try to seal a comprehensive trade deal; U.S. negotiators report "substantial progress" in the talks and Beijing's trade delegation said the talks made "important progress". There is also the Fed’s signal that would pause its interest rate increases and slow the rundown of its balance sheet. And 71 percent of U.S. companies have beaten earnings forecasts this season, including the tech giants – the latest being Facebook (NasdaqGS: FB - news) , whose shares climbed 11 percent on Thursday.

Risky assets will get a boost from the fall in U.S. yields following the Fed’s dovish pivot – 30-year yields fell below 3 percent and 10-year yields are at 2.63 percent, a three-week low. On currency markets, the Aussie dollar, a proxy for China risk, is the main victim of the Caixin data, falling half a percent while the dollar is set to end the week in the red, losing 0.6 percent. But it is not the only victim of a dovish central bank – the euro fell after the normally hawkish Bundesbank chief Jens Weidmann admitted growth in Germany was likely to undershoot expectations. The unexpected winner of January has been the pound, which rose 3 percent in January, though it will remain hostage to Brexit noise. The emerging currency index is near two-month highs with banks falling over each other to recommend long positions in the sector.

What next? The European PMIs will be watched to see if the poor data continue. Then there are U.S. non-farm payrolls – they are forecast to rise 165,000 in January and wage growth likely picked up 0.3 percent, Reuters polls predict Manufacturing PMI from around the world, including China’s Caixin index South Korea Jan trade balance, inflation Japan Dec jobless Europe corp events: Banco de Sabadell, BBVA (LSE: 931474.L - news) , CaixaBank (Amsterdam: CB6.AS - news) , Danske Bank, Deutsche Bank (IOB: 0H7D.IL - news) , Electrolux, Fortum (LSE: 0HAH.L - news) , Glencore (Amsterdam: GX8.AS - news) (Sales), Novo Nordisk, Signify, Stora Enso (LSE: 0CX9.L - news) , Weatherford International (Frankfurt: A116P6 - news) . Swiss Q1 consumer, Dec (Shanghai: 600875.SS - news) retail sales France Dec budget balance EZ Jan flash inflation Turkey Jan trade balance US Q4 earnings: Exxon, Chevron (Euronext: CHTEX.NX - news) , Merck (LSE: 0O14.L - news) , Aon (NYSE: AON - news) , Honeywell, Weyerhaueser, Mattel (Hamburg: 950108.HM - news) US Jan employment report, Jan ISM and PMI manufacturing indices, Jan UMich sentiment Brazil Dec industrial output Sovereign credit rating reviews – S&P: Mozambique, DRCongo, Israel, Albania/Moody’s: Finland, Kenya, Moldova/Fitch: Czech, Finland, Malta/DBRS: Ireland

(Editing by x x)