MORNING BID EUROPE-Merkel-Hollande: covering each other's backs

* 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, Oct (HKSE: 3366-OL.HK - news) 7 (Reuters) - As Germany marks a quarter century since the reunification of East and West in October 1990, Angela Merkel and Francois Hollande make a joint address from 1300 GMT to the European Parliament that needs to provide convincing arguments on the future solidity of a bloc facing unprecedented crises.

A mass influx of refugees from a Syrian conflict, in which Western and Russian forces are rubbing uncomfortably close to each other, is not something their predecessors Helmut Kohl and Francois Mitterrand would have foreseen 25 years ago.

Domestically, high youth unemployment across much of Europe has led to a new generation of Europeans who do not automatically assume the EU is a good thing; and Britain is flirting with an EU exit which its government does not want but might not be able to stop.

French far-right leader Marine Le Pen (Other OTC: PENC - news) will relish the opportunity to attack Hollande full-on ahead of France's 2017 election; Merkel, no longer appearing quite so invincible, will face critics of her stance on the European economy and the migration issue.

Do not expect any major policy announcements from either but do expect the duo, from either side of Europe's political spectrum, to close ranks in a display of Franco-German unity.

MARKETS (at 0645 GMT)

Brent crude's big breakout back above $52 for the first time in a month has been the drama over the past 24 hours - partly, and rather flimsily, on Russia's reported discussions with Saudi Arabia on the state of oil market but another part of a more generalised world markets rebound that is gathering an impressive head of steam despite being devoid of any "good" fundamental news to sustain it.

That said, the October rally is starting to feed off itself, with a sixth straight MSCI World gain on Wednesday set to be the longest winning streak since April (LSE: 0N69.L - news) even though Wall St ebbed overnight as the Yum! Brands miss kicked off what is likely to be a fairly rough third quarter earnings season.

The falling dollar/firmer commodities/higher emerging markets recoil is also playing out, with the likes of Indonesia's rupiah and even Brazil's real jumping back.

Many are also talking about preparing for a big pent-up rebound in Shanghai when it returns from a week's break on Thursday.

So is the world all rosy again? Hardly.

The only arguments that do stack up are that lousy incoming macro news is less bad than feared and mostly discounted by the third quarter shakeout.

That is Citi's view at least, as it encouraged a return to beaten down equity even as its chief economist Willem Buiter forecast an impending effective world recession (defined by world growth coming in below potential of 3 percent and a significantly negative output gap).

The IMF global forecast downgrades yesterday of just 0.2 percentage points for this year and next were less than many feared, however, and the $43 billion drop in third quarter Chinese forex reserves was far less than forecast.

And while SocGen (Paris: FR0000130809 - news) strategists write of potentially a "lost decade" in emerging markets, Templeton's Michael Hasenstad talks of "multi-decade opportunity" in some of the more battered emerging securities.

Something for everyone perhaps, even though the incoming data continues to be horrible. A widening U.S (Other OTC: UBGXF - news) . trade gap in August has forced Deutsche Bank (Other OTC: DBAGF - news) to slash its third quarter U.S. GDP forecasts and German industrial production data for August this morning showed its steepest drop in a year.

Eurostocks are expected to rise for a fourth straight session. Euro/dollar is firmer and Treasury yields have ticked higher.

Emerging stocks rose for the sixth straight day on Wednesday to touch 1-1/2 month highs, tracking global shares as the dollar stayed near two-week lows.

The rouble leads emerging currencies higher with gains of almost 1 percent due to higher oil prices. Many currencies are at multi-week highs. The Malaysian ringgit rally in 2 percent on Wednesday.

Gazprom holds the London leg of its investor roadshow for a euro-denominated bond, a day after Norilsk Nickel became the first Russian company to issue a Eurobond for almost a year. Monitoring Russian Eurobonds for reaction. Record (LSE: REC.L - news) fall in Chinese FX reserves over the quarter. Ghana still looking to issue Eurobond, fund managers say, but unwilling to pay up.

EVENTS

Germany, Spain Aug. industrial output

French Aug. trade data

UK Aug. industrial production, RICS Sept. house prices

U.S. Aug. consumer credit

Brazil Sept. inflation

U.S. Treasury 10-year auction (Editing by Louise Ireland)