MORNING BID EUROPE-Worries are building about the world economy

* A look at the day ahead from EMEA deputy markets editor Sujata Rao-Coverley. The views expressed are her own.

Aug 28 - The U.S. yield curve inverted further last night -- the two-year yield was five basis points above the 10-year for the first time since 2007. Growth data for the second quarter is trickling in from around the world, and we are likely to see concern building about the world economy, especially after data showed the German economy contracted 0.1% in the second quarter. Pain is growing across emerging markets, too. Brazil’s economy narrowly skirted recession in the second quarter, according to a Reuters poll, and Indonesia has hinted at downside risks to its 2020 growth forecast. The United States looks in better shape, with the Conference Board numbers yesterday indicating a still- robust consumer. On the trade war front, however, there were confusing signals. China denied any phone calls had recently taken place (despite President Donald Trump’s assertion at the G7). It’s noteworthy the Federal Reserve said it would not heed any calls to deny Trump the rate cuts he has called for. Former Fed official Dudley argued against cuts in a Bloomberg op-ed piece, arguing that its decisions could not be influenced by politics.

After last night’s Wall Street selloff, things looked slightly more cheerful at first. U.S. stock futures pointed to a stronger open in New York, Asia enjoyed a relatively encouraging session and European futures were up. That’s turned tail. European markets now down. The 2-10 inversion still stands at 4.3 bps and the yuan (down 3.6% this month for its biggest monthly fall since 1994) has had its first higher fixing in 10 days in what’s seen as an effort to slow the depreciation. But measures such as the possible removal of restrictions on auto purchases and the prospect of September rate cuts have failed to lift China’s blue-chip shares, which are down 0.5%.

The yen has held on to most of its gains and is close to 28-month highs against the euro; the Aussie and kiwi dollars are still under pressure. Markets will continue to focus on Italy and Britain. Italian 10 year yields have opened at two-and-a-half-year lows around 1.14%, after touching 1.8% earlier this month. Expectations are for good news from efforts to form a coalition and avoid an autumn election after talks between the anti-establishment Five Star Movement and the Democratic Party. However, President Sergio Mattarella has said he will call elections if the two sides are not able to agree forming a government today. The leadership of the two parties meet again this morning. The pound has dropped from a one-month high reached after Britain’s opposition parties agreed a united front to stop a no-deal Brexit.

Euro zone stocks are a bit of a mixed bag. France's CAC 40 futures are down 0.3%. Other major indices are flat to slightly lower. But in Italy, stocks have rallied 2.5% in the past two days. Oil and mining stocks are expected to rise this morning after a rally in crude and iron ore prices overnight.

In corporate news, BP plans to sell all its Alaskan properties, and the British oil major's shares are expected to rise 2%. Merger talks between Philip Morris and Altria are expected to hurt shares of British American Tobacco and Imperial Brands. Adyen shares could get a boost from its partnership deal with Alipay, under which the Dutch payments company will support payments outside the Chinese mainland for AliExpress, Taobao, Tmall and Alibaba.com. Struggling British package tour operator Thomas Cook Group agreed commercial terms of a rescue package with investor Fosun Tourism, its banks and a majority of its bondholders.

In emerging markets, Chinese blue-chip stocks fell 0.5% while emerging-market stocks inched up 0.1%. However, South Korean stocks rose 0.9%, their biggest daily gain in a week, as investors hunted for bargains amid changes in the MSCI index. But the won fell 0.2% after South Korea summoned Japan's ambassador to protest a decision to remove Seoul's fast-track export status, which took effect on Wednesday. Global index provider MSCI will start on Wednesday the last phase of the upgrade of Saudi Arabia to emerging-market status.

Argentina's central bank on Tuesday exceeded for the first time a guideline on reserve sales agreed as part of its $57 billion standby agreement with the International Monetary Fund. Brazil plans to sell up to $1.5 billion in the spot market on Wednesday after the real slumped to its weakest level against the dollar, within sight of its record low. SCHEDULED EVENTS AND DATA Minneapolis Fed’s Kashkari speaks 1700 German Gfk consumer sentiment Iceland central bank US 2-year and 5-year auction; Germany to sell 10-yr bunds

(Editing by Larry King)