MORNING BID EUROPE-Markets steady, but risk lies ahead

* A look at the day ahead from Sujata Rao-Coverley, EMEA markets editor. The views expressed are her own.

Aug 21 - Investors are getting jittery before Federal Reserve Chair Jerome Powell's speech on Friday. U.S. stocks ended a three-day rally yesterday with falls of 0.6% to 1.4%. The Treasury yield curve has reversed its inversion for now, as talk of more stimulus efforts in China and Germany have soothed recession fears and markets seem to want to move higher – U.S. futures are up 0.3% and European shares are higher after a lacklustre session in Asia. A lot of event risk lies ahead, though, starting with tonight’s Fed meeting minutes, followed by Jackson Hole on Friday and then a G7 summit this weekend in France that will be watched for any signs policymakers are contemplating measures to tackle the world growth malaise. The news on the Sino-U.S. trade front isn’t great either – U.S. President Donald Trump’s latest comment being that it was necessary to "take on" China even if it harmed the U.S. economy in the short term. Well, the U.S. decision to sell Lockheed Martin fighter jets to Taiwan is sure to stir things up in Beijing. Then there’s the news that Chinese tech giant Alibaba has postponed a $15 billion share listing in Hong Kong because of the protests there.

Bond markets have benefited from safe-haven flows, though long-dated yields remain off last week's lows and are more or less around flat this morning. The greater focus is on Germany's upcoming auction, where it will sell 30-year debt with negative yields for the first time. The sale is expected to go smoothly. Bond markets are also watching the developments in Italy, where PM Giuseppe Conte has resigned and President Sergio Mattarella has started two days of talks in Italy to see if an autumn election can be averted. Italian yields fell yesterday on hopes a caretaker government will be formed, but they are up 2 basis points this morning – still not far off two-and-a-half-year lows as promise of European Central Bank stimulus underpins the market. In some rare good news, easing political tensions between Japan and South Korea gave Seoul stock markets a 0.3% lift and the boosted the won as much as 0.8% at one point.

The bond yield bounce had taken the dollar to three-week highs, but it’s now down to six-day lows. Sterling could be more interesting, as PM Boris Johnson prepares to head to France for the G7; the European Union is unlikely to give any ground on the Irish backstop issue despite Johnson’s threat to leave the EU with no transition agreement in place. Instead, Brussels is waiting to see if the UK parliament can force the prime minister into delaying or halting the exit process. Sterling has ticked a quarter-percent lower before Johnson meets with German Chancellor Anglea Merkel today and French President Emmanuel Macron tomorrow.

European stock futures point to a higher open today, a small relief as endless trade war worries, fresh political turmoil in Italy, Brexit and slowing economic growth have discouraged investors from making risky bets. The corporate front is quiet, but we're watching out for the usual market-movers -- trade-related sectors and Italian banks.

Philips shares might come under pressure after Reuters reported it was warned of suspicious sales of its medical equipment to the Brazilian government nearly a decade before an alleged bribery racket was exposed in Brazil.

British drugmaker AstraZeneca is expected to open lower after it said immunotherapy treatment Imfinzi did not meet the main goal of a late-stage study for advanced non-small cell lung cancer.

Italian media report that talks between Fiat and Renault never stopped could give the battered auto sector some relief.

In emerging markets, Chinese shares edged down 0.2% Trump showed no sign of backing down in his trade war with China.

Emerging-market currencies are up the most in nine days as the U.S. dollar slipped from a three-week peak. South Africa's rand has risen 0.4% and Turkey's lira 0.2%. Russia's rouble has recovered from a six-month low.

Argentina’s central bank on Tuesday poured $112 million of its reserves into dollar auctions, helping to boost the peso about 0.5% after its recent heavy fall. SCHEDULED EVENTS AND DATA Sri Lanka central bank policy decision Europe corp events: Mowi Germany auctions 30-year bunds UK July public sector borrowing Belgium Aug consumer confidence Poland July Industrial output South Africa July inflation US July existing home sales Canada July inflation Mexico June retail sales Fed publishes policy meeting minutes (Editing by Larry King)