MORNING BID EUROPE-May faces down hard Brexiters for now

* 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, July 10 (Reuters) - British PM Theresa May holds the first meeting of her new-look cabinet today following the resignations of Boris Johnson and David Davis. Over the next few days we shall see play out the next acts of this long-awaited showdown between her and the hard Brexit wing of the ruling Conservative Party. One reading is that May has the upper hand - for now at least. Neither Johnson nor Davis were able to come up with a serious alternative to her Brexit plan as set out and agreed at Friday's Chequers meeting of senior ministers. Moreover the hard Brexit side now look in some disarray, with Johnson first calling on colleagues to get behind May's plan only to walk out himself. And despite wide speculation that he will be next to go, Environment minister Michael Gove for now remains in government and publicly backs May's proposals.

If the Brexiteers wanted to trigger a leadership fight, they might well be able to get backing from the 48 Conservative lawmakers needed to trigger one; but given that there is no clear majority within the parliamentary party for a hard Brexit, it is less certain they would score the 159 needed to actually win it. For now at least, many Conservatives will conclude that there is still no viable alternative to May.

That said, and as toxic as his public image is becoming, Johnson has clearly not resigned just to allow himself more time for jogging and reading up on Winston Churchill, his hero. The risk of further ructions is high and May will likely spend much time and effort behind the scenes ensuring her parliamentary party is behind her - if only by default, and if only for a few months more. If she succeeds, investors may start to conclude that the direction of travel is towards a softer Brexit: May's plan is still far away from the basic negotiating position of the EU which is pretty much duty-bound to demand further concessions. If she fails, all bets are off.

MARKETS AT 0655 GMT

World stock markets have surged into the new week and Wall St staged its biggest one-day gains in over a month on Monday ahead of this week’s start to the Q2 corporate earnings season. As positive economic signals trumped trade war fears, the mood stayed positive through Asia early on Tuesday and Tokyo’s Nikkei, Seoul’s Kospi and Hong Kong’s Hang Seng were all up for a second day. Shanghai underperformed but still closed in the black, with the yuan up for a second day following weekend news of an unexpected rise in China’s foreign currency reserves last month. China’s June producer inflation came in ahead of forecast, data on Tuesday showed, but consumer inflation remained subdued below 2 percent. European stocks are expected to open higher too. German stocks were likely to be in the spotlight after Germany signed trade deals with China involving Siemens (BSE: SIEMENS.BO - news) , BASF, Volkswagen (IOB: 0P6N.IL - news) among others, as the exporting giants’ leaders committed to free trade in an increasingly protectionist world. Investors will also be watching Germany’s ZEW economic sentiment indicators, hoping for signs the fears around Europe’s biggest economy are overblown. MSCI’s all-country global index is back in positive territory for the year-to-date.

The two big political stories capturing market attention continued to be in Britain and Turkey. Sterling’s weekend rally against the dollar on UK PM May’s relatively soft Brexit negotiating proposals were reversed late on Monday by two high-profile resignations of “hard Brexit” supporters from her cabinet, especially foreign minister Boris Johnson. The pound has basically returned to Friday afternoon levels, with markets still broadly assuming May will survive and restart negotiations with Brussels but with risks to leadership heightened by the departures. In Turkey, the lira recorded its biggest one-day fall against the dollar since July 2016’s failed coup after President Erdogan assumed new powers under constitutional changes and promptly appointed his son-in-law Albayrak to head a new combined economics and finance ministry as well as making changes to the tenure of the central bank chief and appointment procedures. The absence so far of more well-known finance officials long respected by investors has also unnerved markets. The lira has been plummeting all year, losing almost a fifth of its value, on concerns about the independence of the central bank under Erdogan’s new presidential powers as inflation soars and the President urged lower interest rates as a way of combatting it. It recovered some of Monday’s heavy losses first thing today, but will remain on edge over how the new economic leadership now sets out its stall. * Europe corp events: Ocado HY, Tryg Q2. Lufthansa (Xetra: LHAB.DE - news) traffic

* France, Italy, UK May industrial output

* UK may trade

* Germany July ZEW

* ECB board member Lautenschlager and ECB’s Angeloni speak in Frankfurt

* US Q2 earnings: Pepsico (NYSE: PEP - news)

* Canada June housing starts

* Argentina monetary policy statement

* US Treasury auctions 3-year notes

(Editing by Andrew Heavens)