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MORNING BID EUROPE-Tanker geopolitics in the Med

* 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, Aug 16 (Reuters) - Gibraltar's chief minister has indicated the detained Iranian tanker Grace 1 could set sail from the UK territory as early as today, de-escalating a row with Tehran that has assumed much wider geo-political proportions. Looming in the background, however, is a U.S. legal bid to halt the tanker that could still prevent the vessel from leaving. The episode is being watched for signs that the UK is bringing its foreign policy more closely into line with that of Donald Trump's America as it leaves the European Union. It all takes place as Trump said overnight that progress is being made on a "fantastic and big" post-Brexit trade deal between the U.S. and UK, stating that he and UK PM Boris Johnson are "very much aligned".

MARKETS AT 0655 GMT Markets seemed to have calmed down a bit into the weekend as the trade warriors finally take notice of the financial stress and recession warnings and tone down their rhetoric. Even though China on Thursday threatened retaliation for the incoming U.S. tariffs on about $150 billion of their goods on Sept. 1, it also urged the United States to meet it "half way". U.S. President Donald Trump subsequently sounded less bellicose too, talking up phone-based negotiations and formal meetings next month and saying he expected the dispute to be short-lived. We’ve been here before, of course, only for the whole situation to break down again. But it calms the horses for today at least. Markets were also helped higher by further indications from Beijing about fiscal stimulus to boost disposable incomes.

With eyes now drifting to next month’s expected monetary easing by the U.S. Federal Reserve and European Central Bank, futures markets are already pricing in one chance in three of a half-point Fed rate cut and more than fully priced for both a 10-basis-point cut in the ECB’s main deposit rate and a resumption of bond-buying stimulus. Next week’s annual Fed symposium in Jackson Hole, Wyoming, are likely to cement those expectations. That said, the latest batch of U.S. economic numbers were less than clear-cut. U.S. industrial production disappointed again, but retail sales surprisingly picked up – contrasting yet again the trade war's damage to manufacturers and industry with the performance of consumption and services. The overall picture stalled the headlong rush to long-dated bonds and the U.S. two- to 10-year yield curve. After inverting on Wednesday for the first time in 12 years -- a clear recession warning -- the curve has righted itself by about 3 basis points. Ten-year Treasury yields, which briefly dipped to a three-year low below 1.5% on Thursday, rose again today. The yield curve between three months and 10 years, however, remains inverted by about 38 basis points.

Wall Street stocks closed higher overnight and Asian markets were mixed to positive, despite the latest suspected North Korea missile launch. South Korea’s Kospi did underperform, dropping 0.6%. U.S. and European stock futures are both up about 0.6%. The dollar’s DXY index was higher. Japan’s yen and China’s offshore yuan were flat. Euro/dollar was lower. Sterling was the G10 out-performer over the past 24 hours, after the opposition Labour Party proposed holding a vote of no-confidence in PM Boris Johnson’s government and forming a coalition government to stop a no-deal Brexit. Whether Labour will get support for its plan from the anti-Brexit Liberal Democrats is still uncertain. The pound, which is partly unwinding extreme short positioning, gained to about $1.2124 and euro/sterling also fell back to about 0.91255.

European stocks are bouncing back this morning as hints about more stimulus measures in China and decent results from U.S. companies overnight, including gaming chip-maker Nvidia , chip-gear maker Applied Materials and Walmart soothe worries about the slowing global economy.

* Europe corp events: No major companies scheduled.

* Turkey June industrial production, July budget

* EZ June trade report

* SAfrican Reserve Bank governor Kaganyago speak in Pretoria

* US earnings: Deere

* US July housing starts/permits, Aug UMich sentiment

* Sovereign credit rating reviews – S&P Global reviews Hungary. Moody’s reviews The Netherlands, Bosnia; Fitch reviews Hungary, Georgia. DBRS reviews Austria, Belgium (Editing by Larry King)