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MORNING BID EUROPE-Sort your side out, EU to tell May

* 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 (Shenzhen: 000069.SZ - news) 17 (Reuters) - European Union leaders will firmly tell Theresa May it is up to her to sort out divisions in her own government over Brexit when she addresses them before their summit dinner in Brussels tonight. Officials said they expect the leaders to tell May they have little more to offer since talks stalled on Sunday and they will step up preparations for Britain to drop out of the EU with no deal. That being said, media reports suggest EU negotiator Michel Barnier has said he is ready to offer Britain a one-year extension of the transition period due to end in December 2020 if it helps seal a post-Brexit trade deal between the two sides. That of course does not address the current sticking point of talks - the Irish border wrangle - but will be held up by the EU side as proof of its flexibility. Trade Minister Liam Fox also argues a longer transition period will be required, The Times reports this morning.

The EU's efforts to get a new all-encompassing treaty on its ties with Switzerland look to be heading for failure, meanwhile. Negotiations have in many ways mirrored those with the UK - in Switzerland's case, labour rules protecting its high-wage model from outside competition have rubbed up against the bloc's internal market rules, notably on the free movement of people. Four years of negotiations have failed to produce a breakthrough by the EU's mid-October deadline, with yesterday's talks also ending in stalemate. A final failure to strike a deal would mean no increase in Swiss access to the single market, dashing hopes for a new electricity union. It could also endanger unfettered EU market access for Swiss makers of products such as medical devices, if pacts on mutual recognition of standards lapse. Throughout the talks the EU has insisted on a strict interpretation of its rules, aware that any concessions it makes to Switzerland could weaken its position in the separate Brexit negotiations.

MARKETS AT 0655 GMT Earnings to the rescue. World stock markets have staged a powerful rally over the past 24 hours, offsetting the gloom of the past week as the first sweep of third-quarter U.S. earnings eases concerns about any imminent slowdown in punchy U.S. profit growth, still running at annual clip in excess of 25 percent. Not only have the major banks such as JPMorgan (LSE: JPIU.L - news) , Citi, Bank of America, Goldman Sachs (NYSE: GS-PB - news) and Morgan Stanley (Xetra: 885836 - news) come in ahead of forecasts, but Netflix (Xetra: 552484 - news) stock surged more than 10 percent after the bell on Tuesday as it reported subscriber growth well ahead of expectations during the quarter. Leading the rest of the so-called FANG internet stocks higher – Facebook (NasdaqGS: FB - news) , Amazon and Google-parent Alphabet (Swiss: GOOGL-USD.SW - news) – the Netflix update helps soothe nerves that the leading tech sector was about to roll over. Despite trade war jitters, U.S. industrial production grew faster than expected last month – countering the soundings from an underwhelming retail sales report earlier in the week. U.S. Treasury yields, which raced to seven-year peaks last week, have also remained calm this week. They hovered close to 3.16 percent again overnight despite U.S. President Donald Trump’s latest broadside against the Federal Reserve’s monetary policy.

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The positive earnings and economics twist, helped by some calming of relations between Western countries and Saudi Arabia over how Riyadh plans to handle the disappearance of dissident journalist Jamal Khashoggi in its Istanbul consulate, saw all three U.S. equity benchmarks jump more than 2 percent on Tuesday. The VIX volatility gauge plunged below 20 percent to as low as 17.5, almost half the peaks of last Thursday. MSCI’s all-country index of world stocks rose 1.7 percent on Tuesday, its biggest one-day gain since June 2016, and extended that move this morning. It’s now re-captured about a quarter of the points loss it suffered over the past month. The return to risk lifted Asia bourses too, with Tokyo and Seoul gaining more than 1 percent but Shanghai underperforming with a more modest 0.6 percent rise as the U.S. Treasury report on currency manipulation around the world is still awaited. The overall mood shift has also helped emerging-market currencies regain some lost ground against the dollar. A monthly survey of fund managers conducted by Bank of America Merrill Lynch showed investors viewing emerging-market currencies as being at their most undervalued in the history of the poll. Although the dollar was firmer first thing on Wednesday, some of the worst-hit emerging-market currencies – such as Argentina’s peso, Turkey’s lira, Brazil’s real, India’s rupee and Indonesia’s rupiah – all regained some lost ground over the past day or so.

The earnings-driven Wall Street bounce is set to help lift European shares further from the 22-month low hit last week with futures up 0.4 percent, as investors digest Europe's own set of corporate updates including from semiconductor bellwether ASML (Milan: ASML.MI - news) and drug giant Roche. Overall, European third-quarter earnings are expected to rise 13.6 percent, down from the 14 percent growth expected last week, according to Refinitiv IBES. * Europe corp events: ASML Q3, Akzo Nobel Q3, Roche Q3, Carrefour (LSE: 0NPH.L - news) sales, Castellum (LSE: 0GT1.L - news) , Danone (LSE: 0KFX.L - news) sales, Investor AB (LSE: 0NC5.L - news) , Segro (LSE: SGRO.L - news) trading, Temenos. European Sept car registrations

* Germany auctions 30-year bunds

* UK Sept inflation

* Bank of England Financial Policy Committee meeting minutes

* EZ Sept inflation

* ECB chief economist Praet speaks in Madrid; Bundesbank chief and ECB policymaker Weidmann speaks in Berlin

* Bank of England deputy governor Cunliffe testifies in parliament

* Germany sells 1.5 billion euros of 30-year bund top-up

* Sweden auctions government bonds

* German Chancellor Merkel speaks to German parliament on Brexit progress

* Russia Sept jobless, wages, retail sales

* UN 2018 global population report

* US Q3 earnings: M&T Bank, Northern Trust, Abbott Labs, U.S. Bancorp

* US Sept housing starts/permits

* Argentina Sept inflation

* Fed minutes of latest policy meeting

* Leaders of the 28 EU countries talk to journalists after a dinner during which they discuss Britain's withdrawal agreement (Editing by x x)