After a historic two-day selloff, which as shown yesterday slammed European banks by the most on record…

… the wildly oversold conditions, coupled with hopes for yet another global, coordinated central bank intervention, coupled with modest hope that David Cameron’s trip to Brussels today may resolve some of the Article 50 gridlock, have been sufficient to prompt a modest buying scramble among European stocks in early trading, with the pound and commodities all gaining for the first time since the shock Brexit vote.

“Stocks are rebounding on the expectation that there will be a coordinated intervention by central banks,” John Plassard, a senior equity-sales trader in Geneva at Mirabaud Securities told Bloomberg. “What central banks can do is put confidence back in the market by telling everyone that they are here and ready to act. If we don’t get that sort of support, we’ll see further declines.”

Needless to say, there is a way to go to recover recent losses: the following chart courtesy of Jonathan Ferro shows that there is a ways to go:

The Stoxx Europe 600 Index and sterling both rebounded after tumbling 11% in the last two trading sessions. A gauge of the dollar’s strength snapped its steepest rally since 2011 as futures indicated that the next move in U.S. interest rates is now more likely to be a cut. The Bloomberg Commodity Index climbed from an almost four-week low as oil rose to about $47 a barrel and industrial metals gained. Spanish and Italian bonds gained.

As also shown here first over the weekend, any speculation of a Fed rate hike is now dead and buried, and instead the market is now pricing in higher odds of a December rate cut than a rate hike.

And while the BIS has loudly warned that expectations of a major central bank intervention are overblown, for now there is a global relief rally, which has seen European stocks advance, snapping their worst two-day losing streak since 2008. All 19 Stoxx 600 sectors rise, with insurance, banks outperforming and chemicals, oil & gas underperforming. Trading volume was twice the 30-day average. The U.K.’s FTSE 100 advanced 2.3 percent, recovering some of its 5.6 percent slide over the previous two days. Italian banks including Mediobanca SpA were among the biggest gainers after the European Commission said it was in touch with Italian authorities over possible support measures following the recent selloff.

S&P 500 jumped 1.1%, recouping some of the market’s worst loss since March. Shares in Japan were buoyed by a Nikkei newspaper report saying a 20 trillion yen ($196 billion) stimulus proposal has been submitted to Prime Minister Shinzo Abe by a senior official in his party.  The MSCI Emerging Markets Index gained 0.8 percent after falling as much as 0.3 percent. Eastern Europe and Africa led the advance, with benchmarks in Poland, South Africa and Turkey climbing at least 1.3 percent.

EU leaders will gather in Brussels on Tuesday for the start of a two-day European Council summit to discuss Britain’s decision to leave the bloc. U.S. data are forecast to show that consumer confidence held close to a six-month low this month, while China’s central bank Governor Zhou Xiaochuan is due to speak at a forum being hosted by the European Central Bank. Bank of England Governor Mark Carney is scheduled to chair a meeting of financial stability officials.

Global Market Wrap

• S&P 500 futures up 1.1% to 2007
• Stoxx 600 up 2.3% to 316
• FTSE 100 up 2.2% to 6111
• DAX up 1.9% to 9446
• German 10Yr yield up 2bps to -0.1%
• Italian 10Yr yield down 7bps to 1.44%
• Spanish 10Yr yield down 9bps to 1.37%
• S&P GSCI Index up 1.3% to 368.7
• MSCI Asia Pacific down less than 0.1% to 126
• Nikkei 225 up less than 0.1% to 15323
• Hang Seng down 0.3% to 20172
• Shanghai Composite up 0.6% to 2913
• S&P/ASX 200 down 0.7% to 5103
• US 10-yr yield up 3bps to 1.46%
• Dollar Index down 0.47% to 96.09
• WTI Crude futures up 1.8% to $47.15
• Brent Futures up 1.5% to $47.89
• Gold spot down 0.9% to $1,313
• Silver spot down 0.2% to $17.68

Top Global News

• Cameron Heads to Last Supper in Brussels Amid Impasse in London: two-day EU summit to consider 1st steps after U.K. vote
• Pound Heads for First Post-Brexit Gain as Dollar Demand Weakens: Yen lags as Japan officials repeat they are watching markets
• Carney’s Warnings Ring True on Brexit as BOE Meets on Stability: BOE panel meets as more cheap cash offered to lenders Tuesday
• Osborne Rules Himself Out of Race to Be Next U.K. Prime Minister: U.K. chancellor writes in the Times newspaper
• North Sea Oil Faces Worsening Investment Drought After Brexit: 2nd Scottish independence poll “very much on the table”
• Merkel Says EU Won’t Tolerate Cherry Picking in U.K. Exit Talks: comments in speech in German parliament
• Draghi Calls for Global Policy Alignment to Lift Economic Growth: ECB president speaks at ECB Forum in Sintra, Portugal
• Italy Ready for ‘Everything Necessary’ on Banks, Renzi Tells CNN: Italian PM says he’s confident about consumer security prospects in banking sector
• Rajoy’s Waiting Game Endures as Spanish Rivals Threaten Veto: prospect of 3rd election may boost prime minister’s leverage
• VW’s U.S. Tab Said to Grow to $15b in Diesel Scandal: $10b for car owners, $5b in fines and investment
• Nestle Shares Advance as New Outsider CEO Presages Shakeup: shares gain 2.7% as investors welcome Schneider’s appointment
• Monsanto Earnings to Weigh on Prospect of Higher Bayer Offer: 3Q profit seen falling amid lower farmer spending

Looking at regional markets, Asia equity markets traded mixed amid an improvement in sentiment as the region pauses for breath in the wake of the Brexit fallout. Nikkei 225 (+0.1%) opened negative but then rebounded after finding support at the 15,000 level, while a weaker JPY also underpins as Japanese officials continued to urge for additional stimulus. ASX 200 (-0.7%) is the underperformer in Asia as the Brexit-triggered weakness in Financials and decline in energy prices dragged the index lower. Elsewhere, Chinese markets were cautious although have recovered from worst levels with the Shanghai Comp (+0.6%) relatively flat for much of the session, while Financials in the Hang Seng (+0.3%) remain pressured.

Top Asian News

• Japan Yields All Drop Below 0.1% First Time in Global Bond Surge: Bond yields in Australia, U.K., Korea drop to record lows
• South Korea Plans Supplementary Budget, Cuts Growth Forecast: Stimulus package of >20t won ($17b) to cushion risks
• Japan’s Line Aims for $1.1 Billion IPO Amid Market Tumult: Line will debut in New York and Tokyo in rare dual IPO
• Hutchison, Tata Motors Bonds Among Asia’s Biggest Brexit Losers: Motherson Sumi Systems among bonds to fall on Europe exposure
• Brexit Market Meltdown Looks Like Overkill to Yen Guru Gyohten: No signs of Lehman-style credit crunch now, Gyohten says
• Indonesia Approves Tax Amnesty to Help Fund Widening Budget Gap: Central bank says tax amnesty can draw 560t rupiah

European bourses have calmed so far this morning, in the wake of a volatile few days in the wake of the UK’s EU referendum, with equities sharply rising after a historic selloff. Subsequently, the Euro Stoxx (+2.7%) is in the green led by financials names which has seen a mild reprieve with some of the worst impacted companies from the Brexit vote Lloyds and Barclays seeing gains of 6.5% and 5% respectively. Elsewhere, the FTSE MIB (+4%) has notably outperformed amid the gains in Italian banks with optimism rising on the fact that European institutions could possibly act in order to ensure security of Italian banks. In credit markets, Bunds have seen a pullback from elevated levels with the German yield curve seeing an unwind of its recent bull steepening while the 2y-30yr spread has widened by 4.2bps. While Italian and Spanish bonds rise amid the risk on sentiment with the latter seeing yields falling to its lowest level since April 2015.

Top European News

• Shawbrook Will Take Charge Tied to Lending Irregularities: co. sees $12m charge; CFO Tom Wood resigns, replaced by Minto
• Rolls-Royce Sticks to Forecast as No Brexit Ballot Effect Seen: 2016 outlook unchanged, with pickup seen in 2H
• RWE Split Favored Over EON’s in German Utilities Overhaul: German utilities splitting in riposte to nation’s green policy
• Adidas Extends China Sports Push in Agreement With Billionaire: to sponsor races and promote soccer
• RBS CEO Says ‘Day One’ Brexit Plan Worked, Uncertainties Ahead: Ross McEwan comments in memo to staff
• UBS CEO Says Some Bank Share Prices Are Reason for Concern: says some banks’ market value may be less than their book value
• Redrow Sees Pretax Beating Ests., Too Early to See Brexit Effect: saw no impact on house sales or visitor levels in run up to Brexit referendum
• Legal & General Names Treasury’s John Kingman as Group Chairman: Kingman was 2nd permanent secretary at U.K. Treasury

In FX, the pound strengthened as high as $1.3360, rising nearly 200 pips overnight supported by technical indicators that suggested the record two-day loss since Thursday’s vote was excessive. The move comes even after the U.K. was stripped of its top credit grade by S&P Global Ratings. Fitch Ratings also lowered the country’s rank.  “There’s a bit of a temporary reprieve after days of volatile and adverse market moves,” said Viraj Patel, a foreign-exchange strategist at ING Groep NV in London. “Today’s EU talks could provide some new news and hence some direction to markets.” The yen weakened 0.2 percent, after surging more than 4 percent over the last two sessions. The Bloomberg Dollar Spot Index retreated 0.4 percent, following a two-day jump of 2.7 percent. The currencies of commodity-exporting nations rallied, with South Africa’s rand leading gains among 31 major currencies, climbing 1.6 percent. Russia’s ruble and Mexico’s peso advanced at least 1 percent as oil rose.

In commodities, the Bloomberg Commodity Index gained 1.2 percent. Crude oil added 2.2 percent to trade at $47 a barrel in New York, while copper and nickel were up more than 1.5 percent in London. Gold slipped 0.7 percent to $1,314.90 an ounce on speculation that recent gains have been overextended. In the previous two days, prices jumped 5.4 percent, the most since 2009. “Those sorts of spikes tend to be followed by a form of retracement, and that’s what we’re seeing,” said David Lennox, a resource analyst at Fat Prophets in Sydney. “We’re not saying that the uncertainty and the safe-haven aspect of Britain pulling out of the EU is over yet. So there’s still going to be some potentially good upside for gold.”

Looking at the day ahead, the main focus for the market and investors will be the EU leader’s summit in Brussels (a two-day event) where we’ll be awaiting further newsflow with regards to Friday’s referendum result. In the US the third revision to Q1 GDP is due out (which is expected to revised up by two-tenths to +1.0% qoq) along with the S&P/Case-Shiller house price index, consumer confidence reading for June and Richmond Fed manufacturing activity index.

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Bulletin Headline Summary from RanSquawk and Bloomberg

• Markets are provided with a post-Brexit reprieve, as profit taking is seen, with GBP/USD back above 1.3300
• Equity markets also remain calmer today, trading in the green across the board as financials outperform after their recent significant downside
• Highlights today include final reading of US GDP, API crude oil inventories and comments from ECB’s Draghi, Coeure, Praet and Knot

DB’s Jim Reid concludes the overnight wrap

Risk assets in Europe, after initially opening up relatively OK, declined in a fairly orderly fashion as the day progressed although the closing levels still made for pretty eye opening reading. The FTSE 100 finished -2.55% taking its two day loss to -5.62%. It’s the FTSE 250 mid cap index which has clearly been at the centre of the pain however. That index closed -6.96% yesterday which comes on the back of a -7.19% fall on Friday. The -13.65% two-day loss as a result is the biggest fall since 1987. While Banks in particular have taken the brunt of the pain so far we’re also starting to get the early round of cautious commentary at a corporate level. Indeed yesterday EasyJet (which tumbled 22%) issued a statement citing that second half revenue will likely be ‘down by at least a mid-single digit percentage’. That follows similar comments from IAG on Friday while homebuilders (Barratt -19.42%, Travis Perkins -16.79%, Taylor Wimpey -14.92%) have also been front and centre in the selloff.

Elsewhere, the Stoxx 600 finished -4.11%, the DAX -3.02%, CAC -2.97% and FTSE MIB -3.94%. The Euro Stoxx Banks index plummeted another -6.23% following the staggering 18% fall on Friday. That index is now only a shade above the 2012 lows. Meanwhile across the pond the S&P 500 closed -1.81% and is now at the lowest level since March. All things considered the relative outperformer yesterday was Spain where the IBEX closed ‘just’ -1.83% lower and 10y Spanish yields rallied 17bps (other peripherals were 4bps lower and Bunds were 7bps lower) following those election results from Sunday which we highlighted yesterday. Staying with bonds, 10y Gilts closed below 1% yesterday (at 0.931% to be precise) for the first time ever. The irony was that this also coincided with a double downgrade to UK’s sovereign rating. S&P was the first to act, cutting the rating by two notches to AA (with a negative outlook) before Fitch then cut by one notch also to AA (and also on negative outlook).

Glancing over our screens this morning it’s another relatively mixed session in Asia currently, although the bulk of bourses have crept up off their early intraday lows. The Nikkei is currently -0.33% although did initially fall over 2%, while the ASX is -0.71% and Hang Seng -0.72%. Bourses in China are flat while the Kospi is currently +0.43%. That in part reflects the news out of Korea where a 20tn won fiscal stimulus package is said to be being planned. Meanwhile, the Pound (+0.69%) has rebounded a little this morning and is currently hovering at $1.3316 as we type.

Staying in Asia yesterday our Chief China Economist, Zhiwei Zhang, updated his macro forecasts for China for 2016 and 2017. Zhiwei has cut his GDP forecast to 6.6% in 2016 and 6.5% in 2017, from 6.7% for both previously. The downgrade to growth is mostly driven by domestic concerns. Zhiwei notes that he is particularly worried about the property market where property sales have already peaked. The rebound in the property market has been driven by tier 2 cities more than others which may not justify such rapid rises in land and property prices and a potential slowdown in the property market will likely lead to a negative fiscal shock in Q4 2016 and the first half of 2017. With regards to the policy outlook, Zhiwei continues to expect one more interest rate cut in Q4 2016. He notes that the policy outlook in 2017 faces greater uncertainty. While his baseline call is for no rate cut and a stable exchange rate, if downside risks to his growth outlook rise then he sees a greater chance of further policy easing through rate cuts in 2017.

Moving on. Unsurprisingly the bulk of yesterday’s newsflow was focused on events in the UK. PM David Cameron, speaking in Parliament yesterday, said that ‘the decision must be accepted and the process of implementing the decision in the best way possible must now begin’. Cameron is due to address EU leaders today in Brussels. Meanwhile, German Chancellor Merkel, Italian PM Renzi and French President Hollande confirmed that they will not hold formal or informal talks with the UK until Article 50 is triggered. While Merkel said that she has a certain level of understanding for the UK to analyze things, she also said that ‘we can’t afford an extended waiting game because that would be bad for both sides of the EU’. Hollande added that ‘our responsibility is not to lose time in dealing with the question of the UK’s exit and the questions’.

Also generating a few headlines yesterday was Italy, where the government is said to be considering measures for injecting funds into its domestic banks. After the EU failed to give approval for a bad bank a few months ago, a package of 40bn euros is said to be being considered according to reports on Bloomberg, although that amount is said to be still under discussion.

Wrapping up the price action yesterday, moves in the commodity market largely reflected the poor sentiment all round. WTI finished down -2.75% and back below $47/bbl, with the rest of the energy complex also under pressure. Base metals also edged lower although interestingly iron ore (+6.42%) continues to trade to its own beat. Meanwhile Gold rose another +0.67% to rise to the highest level since July 2014. Elsewhere, there was no hiding in credit markets. In Europe in particular we saw the iTraxx Main and Crossover indices finished 5bps and 26bps wider respectively, while the senior and sub financials indices weakened 10bps and 16bps respectively.

Staying with credit, yesterday we got the latest CSPP holdings data from the ECB (to last Wednesday). The data shows that total holdings now are €4,898m which implies that the latest weekly purchases amounted to €2,650m. As a result that puts the average daily run rate since the CSPP started at €445m.

Before we look at today’s calendar, the economic data is very much taking a back seat at the moment although in truth there wasn’t too much to report yesterday. In Europe the Euro area M3 money supply print increased by three-tenths in May to +4.9% yoy which was a little more than expected. Across the pond the flash June services PMI was unchanged for this month at 51.3 although that was a little disappointing relative to the consensus expectation for a rise to 52.0. Meanwhile the advance goods trade balance for May revealed a slightly widening in the deficit to $60.6bn (from $57.5bn), while the other data of note was the Dallas Fed manufacturing activity index which improved 2.5pts to -18.3 (vs. -15.0 expected).

Looking at the day ahead, the main focus for the market and investors will be the EU leader’s summit in Brussels (a two-day event) where we’ll be awaiting further newsflow with regards to Friday’s referendum result. As mentioned earlier PM Cameron is due to address various EU figureheads. Datawise, this morning in Europe the notable releases come in Germany – where the import price index is due – and in France and Italy where the latest confidence indicators are due out. This afternoon in the US the third revision to Q1 GDP is due out (which is expected to revised up by two-tenths to +1.0% qoq) along with the S&P/Case-Shiller house price index, consumer confidence reading for June and Richmond Fed manufacturing activity index.