MORNING BID EUROPE-Trump to EU: you're a wonderful thing

* A look at the day ahead from European Economics and Politics Editor Mark John and EMEA markets editor Nigel Stephenson. The views expressed are their own.

LONDON, Feb 24 (Reuters) - Last month, Donald Trump contemptuously wrote off the European Union as a vehicle for German ambitions. Now (Frankfurt: 11N.F - news) , apparently revealing a Damascene conversion in his interview with Reuters, he declared himself in favour of the "wonderful" project. Sarcasm? The reporters who interviewed him said he sounded pretty sincere. Already the European Union officials who have read his remarks can't believe their ears. One interpretation is that Vice-President Mike Pence, who toured Europe last week, has managed to bend the ear of his boss away from his strategist Steve Bannon, an arch-critic of the EU. How long this lasts is another matter, but for now, the mood in Brussels is one of relief.

Extrapolating what English local by-elections mean for national politics is always tricky, but British PM Theresa May and her ruling Conservatives will be comfortable with the way yesterday's Stoke and Copeland votes turned out. Not only did they steal Copeland away from opposition Labour, but UKIP was soundly trounced there and also lost in Stoke. Labour and its leader, Jeremy Corbyn, will meanwhile take some consolation from the fact that they held onto Stoke. Roughly, the take-home is: UKIP -- flirting with irrelevance; Labour -- still struggling; Conservatives -- fully in control of the Brexit agenda.

Markets

Yields on German short-dated bonds hit another record low on Friday. As earlier in the week, no single factor seems to be behind the move; it’s still a combination of a scarcity of this high-quality debt, which is sought after as collateral in repo transactions, with ECB buying and reduced issuance contributing to the scarcity. Political jitters, particularly over the French presidential election, add to German debt’s appeal, even though Thursday’s revelation of a Macron/Bayrou centrist alliance pushed French yields down sharply. French 10-year yields are on track for their biggest weekly fall in two months.

European shares are ending the week on a downbeat note. Price action will be driven by more earning updates and some overall caution because of looming political risks. While futures on Europe's main equity indexes were trading between flat and a fall of 0.2 percent, the pan-European STOXX 600 index remains near its highest level since early December 2015 and is set for a positive weekly close for the third week in a row.

British banks will remain in focus after Royal Bank of Scotland reported a sharp rise in losses after higher misconduct charges and restructuring costs. RBS (LSE: RBS.L - news) , which has not made an annual profit since 2007, booked 6.96 billion pounds of losses for 2016, against a 1.98 billion-pound loss in the same period a year earlier. UniCredit (EUREX: DE000A163206.EX - news) said late yesterday that its record 13 billion-euro share issue had been 99.8 percent subscribed, a boost for new boss Jean-Pierre Mustier's plans to relaunch Italy's only global systemically important bank.

Shares (Berlin: DI6.BE - news) in Germany's BASF will also be in focus after the world's largest chemicals group by sales forecast it would return to earnings growth this year. Higher petrochemical prices bolstered fourth-quarter profit, with EBIT slightly beating a Reuters poll on analyst expectations. Baader Bank (Xetra: 508810 - news) said BASF delivered a low quality beat, its 2017 outlook was disappointing but the dividend was 3 percent ahead of consensus.

(Editing by Larry King)