A look at the day ahead in European and global markets from Tom Westbrook

Liz Truss will see Queen Elizabeth at Balmoral Castle this morning to form her government. She does so with energy prices soaring and her narrow victory in the Conservative Party's leadership vote extending a record meltdown in the gilt market.

The next few weeks are crucial if Britain is to avoid "extreme macro outcomes," says Deutsche Bank strategist Shreyas Gopal, and the same may be said across the Channel.

Truss' plans for tax cuts and as-yet-unspecified support for households' facing huge power bills risk being inflationary, expensive and bad for the pound if the bond market is unwilling to fund it, or at least unwilling to do so at current prices.

August was the worst month since Refinitiv records began in the 80s for five and 20-year gilts.

Selling has extended and with Truss apparently "not for turning" on taxes - channelling one of her predecessors in office, Margaret Thatcher - it may have plenty of room to run.

It is scarcely different in Europe, where a German plan to spend 65 billion euros subsidising energy prices also stands little chance of reducing wholesale prices.

PMIs in Britain and Europe later today bring news on the scale of contraction so far. Then U.S. traders return from Labor Day.

The headlines, meanwhile, obscure deepening problems in China. A cut to the ratio of dollars banks need to hold is the latest signal of discomfort with the yuan's slide, and the latest to offer little relief. The yuan is at two-year lows.

Asian markets couldn't muster too much excitement at the latest promises of economic support in China, either, and MSCI's broadest index of Asia-Pacific stocks was flat.

And on top of all of this come rate hikes. The Reserve Bank of Australia raised its cash rate 50 basis points on Tuesday. Markets lean towards pricing 75 bp hikes from the European Central Bank and the Fed later this month.

Graphic: August was an awful month for UK gilts https://fingfx.thomsonreuters.com/gfx/mkt/movanejlnpa/gilts0502.png

Key developments that could influence markets on Tuesday:

UK, Germany, France, euro zone PMIs (August)

U.S. non-manufacturing ISM

(Reporting by Tom Westbrook; Editing by Shri Navaratnam)