MORNING BID EUROPE-Not so fast

LONDON, Nov 21 (Reuters) - Assuming away a year-long trade war can be dangerous. Much of the near 8% surge in world stock markets since the start of the fourth quarter, and broader rally in risk assets, has been predicated on at least a partial trade truce between the United States and China that at least stops the escalation of tariff hikes and staves off recession next year. Indeed most of the relatively benign 2020 investment outlooks are based on the same baseline assumption. Not so fast. The much-touted “Phase One” agreement that markets bet would in place by mid-November looks to have hit the rocks, according to Reuters reports overnight that knocked almost 1% off Wall St equity indices at one point late Wednesday. A deal could now be pushed into next year, leaving the prospect of another round of U.S. tariff hikes on Chinese goods kicking in on Dec. 15. The key sticking point is the extent to which China is willing to make further concessions to ensure rollback of existing tariff rises. Asked on Wednesday about the status of the China deal, U.S. President Donald Trump told reporters in Texas: "I don't think they're stepping up to the level that I want." And with U.S. House of Representatives voting in two bills overnight aimed at supporting Hong Kong’s ongoing pro-democracy protests and warning China about human rights, the mood between the governments of the world’s two biggest economies has soured on many levels.

What’s more, Washington remains in thrall to the impeachment proceedings against Trump and, while few expect the President to be ultimately removed from office, there is speculation about how much the revelations from the proceedings will damage his re-election chances next year. Wednesday’s testimony by the U.S. ambassador to the European Union described broad involvement at the upper levels of the Trump administration in a pressure campaign against Ukraine at the centre of the inquiry into the president’s alleged attempt to seek foreign interference in next year’s election by forcing Kiev to investigate the son of his main political opponent Joe Biden. Meantime, minutes of the Federal Reserve’s latest policy meeting showed the Fed on pause and comfortable with its existing interest rate structure, leaving futures markets pricing in zero chance of another rate cut next month.

The combination of the trade jolt and political proceedings saw Wall St’s S&P500 record its worst day in a month, even though it recovered some of the sharpest losses to end down about 0.4%. Ten-year U.S. Treasury yields skidded to as low as 1.7070% at one point overnight but have stabilised into early European trading at about 1.74%. S&P stock futures are down another 0.2% first thing, with European futures down about 0.6%. Asia’s main bourses fell through the night too – Hong Kong’s Heng Seng index and Seoul’s Kospi both lost more than 1%, with Tokyo’s Nikkei dropping about 0.6%. Shanghai stocks outperformed with losses of just 0.3%, helped by the overnight insistence from Premier Li Keqiang that Beijing would use all the monetary and fiscal tools at its disposal to support an economy that’s slowed to the weakest levels in three decades. China’s offshore yuan weakened to its lowest level against the dollar this month at one point before steadying. The dollar was a touch stronger more broadly, with emerging market currencies the main losers. Brazil’s real, as one example, is once again flirting with record lows set in 2015.

In Europe, sterling was steady amid the British election campaign and eyes were on the release of the opposition Labour Party’s manifesto later on Thursday. Euro/dollar was stable ahead of the release of minutes of the European Central Bank’s latest policy meeting, with new ECB chief Christine Lagarde due to give her first formal speech as president on Friday just as the global November business surveys from around the world are released. The OECD is due to give its latest global economic assessment later today. On the European corporate news front, Thyssenkrupp scrapped its dividend after its full-year net loss widened five-fold. Shares are expected to take a 5% hit. Royal Mail and Severn Trent both published trading updates, with the former taking a hit in pre-market indications while Severn Trent is expected to rise. French luxury group LVMH said it is entering due diligence with U.S. jewellery chain Tiffany after raising its bid to close to $16 billion. While the impact (if any) on the Fiat Chrysler/PSA planned merger is not clear at this point, news that General Motors filed a racketeering lawsuit against FCA, alleging that its rival bribed United Auto Workers (UAW) union officials, may scare some investors. Two different outcomes in financial services: CMC Market is seen rising after raising its guidance while Investec could disappoint with lower profits.

* Europe corp events: Thyssenkrupp, Seadrill; Trading statements from Centrica, Severn Trent, William Hill, Rotork, Johnson Matthey

* Swiss Q3 industrial production, Oct money supply

* France Nov business climate

* Turkey Nov consumer confidence

* Spain sells government bonds

* EZ Nov flash consumer confidence reading

* OECD publishes its latest global economic outlook

* UK Oct public sector borrowing requirement

* UK opposition Labour party to publish election manifesto

* European Central Bank releases policy meeting minutes;

* European Central Bank Vice President De Guindos and ECB bank supervisor Enria speak in Brussels, and De Guindos speaks again later in Madrid

* Greece submits final draft of 2020 budget to parliament

* Belgium Nov consumer confidence

* South Africa Reserve Bank policy decision

* US Nov Philadelphia’s survey of regional business confidence, Oct existing home sales, weekly jobless

* Argentina Oct trade balance

* Bank of Canada chief Poloz speaks in Toronto

* Cleveland Fed chief Mester speaks in Cleveland

(Writing by Mike Dolan; Editing by Alison Williams)