In a quiet overnight session, S&P 500 futures are fractionally in the green (2,426, +0.2%) with European and Asian stocks as oil drops second day after an initial ramp higher amid speculation that LIbya and Nigeria may be asked to cap their production. Nasdaq 100 Index are again higher, following the biggest daily advance in more than a week, up 0.4% as of 6:20 a.m. in New York.

With Friday’s jobs data seen as largely favorable, and the lack of wage growth expected to keep the Fed subdued, focus is turning to Janet Yellen’s semi-annual testimony on monetary policy and a meeting of Canada’s central bank on Wednesday for the latest policy signals from the world’s major central banks.  Over the past two weeks, markets have reassessed the outlook for tighter monetary policies from major central banks following a string of hawkish remarks. “We’ll see just how much substance there is to these comments on Wednesday, when the Bank of Canada announces its latest decision, with investors now expecting a 25 basis point increase,” said Craig Erlam, senior market analyst at OANDA. A rate rise from Canada’s central would be its first interest rate rise in nearly seven years

Global macro markets have traded with a cautiously positive tone as weekend’s G-20 meeting ended without market-moving surprises, while continued hawkish sentiment has pushed benchmark yields modestly higher. The yen slipped to fresh 2-month low against the dollar, trading at 114.22, after trade deficit data and BOJ Governor Haruhiko Kuroda reiterated that policy could be adjusted as needed. In Asia, stocks rose in Tokyo and Sydney, with the MSCI Asia Pacific Index rising 0.3% after hitting a five-week low Friday. MSCI’s broadest index of Asia-Pacific shares outside Japan advanced 0.4 percent while Japan’s Nikkei rose 0.8 percent to a one-week high helped by weakness in the Japanese currency; the Topix Index added 0.5% . Australia’s S&P/ASX 200 Index gained 0.4 percent. Hong Kong’s Hang Seng Index rose 0.7 percent, while shares on the mainland declined 0.2% after the PBOC drained net 30 billion yuan in liquidity after withholding open market operations for the 12th consecutive day even as the yuan strengthens for first time in six days. Dalian iron ore reverses early loss to gain for fourth day.

The big macro news overnight came out of China which reported inflation data, all of which was in line with expectations:

• Chinese CPI (Jun) Y/Y 1.5% vs. Exp. 1.5% (Prey. 1.5%)
• Chinese CPI (Jun) M/M -0.2% vs. Exp. -0.1% (Prey. -0.1%)
• Chinese PPI (Jun) Y/Y 5.5% vs. Exp. 5.5% (Prey. 5.5%)

China’s PPI rose 5.5 percent in June from a year earlier, in line with the estimate in a Bloomberg survey as well as the reading in May – but well off the 7.8 percent reading four months earlier that increasingly looks like a peak. Economists forecast factory inflation at 5.3 percent at the end of this year and 2 percent at the end of 2018. As Bloomberg writes, rising factory prices in the world’s second-biggest economy had been touted as a possible circuit breaker for anemic global inflation, which continues to defy accelerating economic growth. The thinking was that higher costs in China would drive up the price of everything from footwear to electronics which in turn would help lift profits and wages. Yet those hopes appear to be fading. While China’s producer price index held up in June, much of the support came from higher commodity prices as companies restocked their inventories. That support is already fading as activity in the property and construction sectors remains soft and oil and raw materials prices decline, keeping factory prices lower.

A move by China’s regulators to curb risk in the financial system by targeting leverage will also act as a brake on the economy. So instead of spurring price gains China could become a source of global disinflation, according to Michael Every, head of financial markets research at Rabobank Group in Hong Kong. “It’s inevitable that PPI will go off of a cliff in the second half and into 2018,” Every said. “This is a last hurrah before deflation raises its ugly head again.”

European stock markets followed Asia higher, with blue-chip stock markets in London, Paris and Frankfurt up 0.2 to 0.5 percent in early Monday trade. European bourses were led higher by real estate and food companies, following a similar advance across much of Asia. The Euro Stoxx 50 index was 0.3 percent higher as of 10:42 a.m. in London.

The dollar was steady against most major currencies and bond yields were little changed after a selloff last week. Oil retreated for a second day while gold and silver fell.

Brent trades near $46.40/bbl, torn between renewed growth in U.S. rig count and speculation that Libya and Nigeria may be asked to cap their production. WTI remains near $44/bbl.

“The big story here goes back to Friday and the rise in rig count,” says Jens Pedersen, senior analyst at Danske Bank. “We really don’t have enough evidence yet to put the break on the expansion of U.S. production” On Friday, Baker Hughes reported that U.S. rigs again rose +7 to 763, after falling by 2 in previous week, the first drop since January. The big oil weekend news came out of Kuwait which said that Libya and Nigeria may be asked to cap oil output, prompting an initial push higher in crude. Pedersen says Kuwait comments were slightly bullish, with market torn between those remarks and rig count in early trading Monday.

With global stocks close to all-time highs, investors continue to shrug off political uncertainty and Fed warnings about frothy risk levels, and are placing their faith in a continued earnings expansion on broadening global growth. Germany’s trade surplus was higher than estimated as May exports beat forecasts, while U.S. employers added the most jobs in four months in June. PepsiCo Inc, JPMorgan Chase & Co, Citigroup Inc. and Wells Fargo & Co are set to report results this week.

“Solid employment growth without inflation is the ‘not too hot, not too warm’ mix that keeps the Fed normalising policy ever so slowly, equity indices marching ever higher and the economic cycle able to trundle on with no recession in sight,” Kit Juckes, a strategist at Societe Generale SA, wrote in a note to clients. Meanwhile, over the weekend, the G-20 summit made little headway on dominant foreign policy issues such as North Korea’s escalation of tensions. Meetings between U.S. President Donald Trump and the leaders of South Korea, Japan and China ended without a clear consensus about how to curb North Korea’s nuclear ambitions.

In currencies, the dollar rose almost 0.4 percent to 114.29 yen, a two-month peak, while the dollar index — which measures the dollar’s value against a basket of other major currencies — was a touch firmer at 96.071.  “The solid jobs report gives us more reason to expect the Fed to announce that it’s prepared to start trimming its balance sheet,” said Mitsuo Imaizumi, Tokyo-based chief foreign exchange strategist for Daiwa Securities. The Bloomberg Dollar Spot Index was unchanged.  The pound retreated 0.2 percent to $1.2861 and the euro was little changed at $1.1387. The Yen dipped to a fresh 2 month low above 114.20.

In rates, the yield on 10-year Treasuries was steady at 2.37 percent after rising 23 basis points in the past two weeks.

In commodities, WTI crude dropped 1.1 percent to $43.76 a barrel following its 2.8 percent slide Friday; Gold dropped 0.4 percent to $1,207.55 an ounce after touching its lowest level since March. Silver fell 2.2 percent.

Economic data includes Consumer Credit for May. Helen of Troy and Barracuda are among companies reporting earnings.

Bulletin Headline summary from RanSquawk:

• Asian equities have kicked the week off mostly higher with the Nikkei 225 lifted by a softer JPY. Chinese CPI prints in-line
• UK Press attention has been placed on reports suggesting that PM May will seek opposition support in pushing through Brexit legislation
• Looking ahead, highlights include Fed’s Williams

Market snapshot

• S&P 500 futures up 0.2% to 2,426.25
• Stoxx Europe 600 up 0.4% to 381.55
• MXAP up 0.3% to 153.20
• MXAPJ up 0.3% to 501.83
• Nikkei up 0.8% to 20,080.98
• Topix up 0.5% to 1,615.48
• Hang Seng Index up 0.6% to 25,500.06
• Shanghai Composite down 0.2% to 3,212.63
• Sensex up 1.1% to 31,697.52
• Australia S&P/ASX 200 up 0.4% to 5,724.44
• Kospi up 0.09% to 2,382.10
• German 10Y yield fell 2 bps to 0.553%
• Euro little changed at 1.1395/USD
• US 10Y yield down 2 bps to 2.37%
• Italian 10Y yield rose 7 bps to 2.05%
• Spanish 10Y yield fell 3 bps to 1.70%
• WTI futures down 1.1% to $44.76/bbl
• Brent futures down 0.4% to $46.35/bbl
• Gold spot down 0.4% to $1,207.90
• U.S. Dollar Index up 0.1% to 96.11

Top Overnight News

• Villeroy says ECB likely to adapt policy intensity in the fall, winding down QE is not a present debate; Coeure says eurozone experiencing strong recovery; Knot says ’close to point’ where QE running for too long; Praet calls for patience, persistence in ECB monetary policy as underlying inflation pressures remain subdued
• Merkel’s CDU/CSU bloc 38%, SPD 25%, Left Party 9%: Emnid poll in BamS
• EU parliament may veto U.K. citizens’ rights offer: Guardian
• China June CPI 1.5% vs 1.6% estimate; PPI 5.5% vs 5.5% estimate
• Kuroda: Core CPI uptrend likely to continue, will adjust policy as needed
• Japan PM Abe to keep Aso, Suga in August cabinet reshuffle: NHK
• Sunac to Pay $9.3 Billion for Wanda Assets in Record Buy
• ClubCorp Agrees to Be Bought by Apollo for $1.1 Billion
• Norsk Hydro Agrees to Buy Out Orkla From Sapa Joint Venture
• Bain, Cinven to Renew Stada Pursuit With $6.2 Billion Offer
• Tesla Rolls Out Its First Model 3, and It’s Elon’s
• China Takes Lead in Pacific Shipping After $6.3 Billion Deal
• Cincinnati Bell Is Said Close to Deal for Hawaiian Telcom, OnX
• Senate Health Bill Fails to Pick Up Support After Week of Recess
• U.S. News Outlets Seek Rights to Bargain With Facebook, Google
• Google, Amazon, Facebook Must Pay EU taxes, French Minister Says
• Worldpay Is Unlikely to See a Counter Bid, Berenberg Says
• Apple to Build Second Data Center in Denmark, Govt Says
• Libya, Nigeria May Be Asked to Cap Oil Output, Kuwait Says
• GE’s Baker Hughes CEO Says Oil Lower for Longer Is New Normal
• Recent Bond Slide Isn’t ‘Start of Anything Big,’ BlackRock Says

The start of a new week saw Asian bourses broadly in the green with exception of China. Much of the positive tone stemmed from the firmer close on Wall Street, where equities were buoyed by Friday’s NFP release. Broad based gains in Australia led by financials and tech names kept the ASX 200 (+0.6%) in the green, while Japanese exporters benefitted from the softer JPY, which subsequently supported the Nikkei 225 (+0.7%). Chinese equities traded in a mixed fashion (Shanghai Comp -0.2%, Hang Seng +0.1%) with the latest inflation data holding no surprises as the release came largely in line with expectations and as such will unlikely have an impact on monetary policy. Additionally, the PBoC continued to skip open markets operations for a 12th consecutive session, resulting in a net drain of CNY 30bIn. In fixed income markets, JGB yields are ticking higher with the 10Y eying 0.1 % having inched higher by 0.3bps, while the curve is showing a steepening bias. Additionally, the JGB prices have been hampered by the risk tone with flow in equities. BoJ Governor Kuroda stated that economy is turning toward moderate expansion and will keep YCC as long as necessary, while also adjust as required. PBoC refrained from conducting open market operations for the 12th consecutive session and stated that liquidity in the banking system is moderate.

Overnight China reported inflation data, all of which was in line with expectations:

• Chinese CPI (Jun) Y/Y 1.5% vs. Exp. 1.5% (Prey. 1.5%)
• Chinese CPI (Jun) M/M -0.2% vs. Exp. -0.1% (Prey. -0.1%)
• Chinese PPI (Jun) Y/Y 5.5% vs. Exp. 5.5% (Prey. 5.5%)

Top Asian News

• Abu Dhabi’s Oil Producer May Sell Shares in Units to Expand
• Seiko Epson to Replace Toshiba in Nikkei 225 Index on Aug. 1
• Chinese Insurers Advance on Solid Earnings Growth Expectations
• China Producer Price Inflation Steadies as Demand Remains Robust
• Japan Stocks to Watch: Seiko Epson, Toshiba, Retailers, Shipping
• Sovereign Wealth Fund GIC Warns Investors Aren’t Fearful Enough
• NetLink NBN prices Singapore Public Offering at S$0.81/Unit
• Iron Ore’s Set Fair Until Mills’ Profits Drop, Barclays Says
• China Brokers Rally After June Earnings Surge From Month Earlier

European equity markets opened marginally higher amid the risk on tone, with 9/10 of the Stoxx 600 sectors trading in the green. Outperformance has been seen in the IT sector in early trade — a follow up to US trade, as the tech sector led into the US close on Friday. Fixed income markets have been dictated by the end of the belly of the curve, particularly German paper. Bunds have seen some buying early in the European session, breaking through the 160.84 level ahead of 161.00. Many analysts have stated that the recent bullish pressure is due to short covering, with 20k contracts traded over a five-minute period.

Top European News

• Bernstein Said to Quote $150,000 for Basic Research Under MiFID
• Bund Futures Jump as Friday’s High is Broken, Volumes Spike
• Credit Suisse Names Michael De Guzman Philippines Country Head
• Spanish Socialists Surge in Opinion Poll in Publico Survey

Currencies markets have followed the day’s subdued trade with the data slate light. JPY has been the noticeable mover over the weekend, with some volatility pulled into the Asian session following comments from BoJ’s Karoda highlighted overnight, stating that the BoJ will continue to tweak policy as needed. The USD has been under focus this European morning, with many stating the NFP report to be a `Goldilocks’, not too good, not too bad. The Greenback has seen gains against GBP and CAD this morning however marginally so, as NFP Monday trade is clear across markets. A brief attack on the 1.29 handle was evident as a result of the unification from the UK, however, the level continues to hold, with many still believing GBP still has some lower legs left. The concern of a lower GBP continues, and an attempt in protection from the BoE further supports this, August’s BoE will be the most watched in years, with a first hike in ten years now a firm possibility.

In commodities, light conditions have been evident in oil markets in early European trade, with an ‘air pocket’ seemingly forming in WTI, spiking the future contract 40 cents prior to the European cash open before WTI slid lower by 0.7%. Gold saw overnight selling pressure, as the yellow gold was weighed upon by the strong US and Canadian data, with hawkish central banks the clear theme of the summer. Precious metals re-found their tandem price action overnight, with silver and platinum following the bearish push seen in Gold.

Looking at the day ahead, we kickoff the week today in Germany where we got the latest trade data, which came at €20.3BN, in line with expectations, and up from €18.1BN. We also got the latest Sentix investor confidence reading for the Euro area, which dipped modestly from 28.4 to 28.3. It’s a typically quiet post-payrolls day for data in the US this afternoon with the June labour market conditions index and May consumer credit reading the only data due.

US Event Calendar

• 10am: Labor Market Conditions Index Change, est. 2.5, prior 2.3
• 3pm: Consumer Credit, est. $13.5b, prior $8.2b
• 11:05pm: FRB’s Williams Gives Speech to Australian Business Economists

* * *

DB’s Jim Reid concludes the overnight wrap

Markets that were in perfect harmony just two weeks ago are certainly a little on edge at the moment. It will be fascinating to see whether Mrs Yellen chooses this week’s semi-annual testimony to Congress on Wednesday and the Senate on Thursday to reinforce the recent more hawkish global central bank speak or whether she tries to pull things back a little. DB expect her to reinforce the message from the June 14 post-FOMC press conference and continue to guide the market towards an announcement of the beginning of balance sheet normalisation at the September 20 meeting as well as a rate hike by year-end.

Friday’s employment report neatly sums up the same old issues for central bankers though. Decent employment growth (222k vs. 178k expected) but relatively subdued earnings growth (+0.2% mom vs. +0.3% mom expected). Central bankers are trying to talk things up of late but they’ll probably need earnings/inflation to firm for them to be able to follow through on this. For this week the most interesting evidence to add to this debate will likely come from US CPI (Friday) and US PPI (Thursday). We’ll also receive the final German and French CPI numbers (also Thursday) although they are expected to be a rubber stamp of the initial flash estimates. The other main release will likely be US retail sales on Friday which coincides with the first of the major US banks to report Q2 earnings. Full details of the week ahead at the end today.

Equity markets in the US finished last week on the front foot, choosing to focus on the solid payrolls print rather than some of the other mixed elements of the report. The S&P 500 closed +0.64% and actually nudged into a positive return for the week (+0.07%) with tech stocks leading the charge (Nasdaq +1.04%). In contrast to the moves over the two weeks prior, sovereign bond markets were a lot more subdued with 10y Treasury yields closing up a more modest 2bps at 2.386% – albeit nudging one step closer to the May highs. The Greenback firmed +0.22% while Gold (-1.04%) rolled over to the lowest since mid-March. Silver (-2.68%) also collapsed and was a down an impressive -6.12% over the week to the lowest since April last year. It was also a day to forget for Oil too with WTI (-2.83%) edging back down towards $44/bbl again having traded over $47/bbl at the start of the week.

Closer to home, European equity markets were a bit of a sideshow with the Stoxx 600 closing -0.07%. However for the week the index did end the five days slightly higher (+0.21%) and so snapping a run of four consecutive weekly declines. Bond markets were a bit more mixed. Bunds (+1.2bps to 0.570%) took a bit of a breather but the periphery was 6-9bps higher in yield, led by Portugal after pushing back a bond auction to this week.

Over the weekend much of the focus has been on the G20 meeting. While the joint communique appeared to be unanimously agreed between nations it appears that this masked what were much deeper divides between the US and other G20 members, particularly around trade and climate change. Trump also met with Putin which both leaders described as “constructive” while Trump also said that it was “time to move forward” with Russia although few details have been released about the meeting. Elsewhere talks between Trump and leaders from South Korea, Japan and China also ended without a conclusion on how to deal with North Korea’s nuclear ambitions.

There hasn’t been too much of a reaction in FX markets this morning following those headlines. After Friday’s move by the BoJ the spotlight has remained on 10y JGB’s instead where yields are currently hovering around 0.091% and trending back to that 0.100% upper limit, having closed at 0.082% on Friday. We haven’t seen the BoJ move to cap yields again but you’d have to imagine that it’s beginning to test their tolerance levels again.

Away from that the latest inflation data has been released in China. Both CPI (+1.5% yoy vs. +1.6% expected) and PPI (+5.5% yoy vs. +5.5% expected) held steady in June with the former one-tenth softer than expected. China bourses are mixed following that data with the CSI 300 (+0.22%) a shade higher, but the Shanghai Comp (-0.08%) ever so slightly in the red. The rest of Asia is generally stronger however. The Nikkei (+0.68%), Hang Seng (+0.99%), Kospi (+0.35%) and ASX (+0.65%) are all currently up as we go to print.

Wrapping up the remaining data on Friday, in the US the other components of the employment report included a one-tenth increase in the unemployment rate to 4.4% (expectations were for no change) while the U-6 rate rose two-tenths to 8.6%. That follows a slight nudge up in the participation rate to 62.8% (vs. 62.7% expected) while average weekly hours ticked up 0.1 hours to 34.5 hours. The Atlanta Fed’s Q2 GDP Now forecast remained at 2.7% however is likely to be updated today to reflect the employment report. It’s worth noting that in the US we also got a first look at the Fed’s Monetary Policy Report to Congress however it was a bit of a non-event suggesting that markets will be focusing on Yellen this week instead.

In Europe on Friday the focus was on the various May industrial production reports where the data was particularly upbeat for the Euro area. Germany (+1.2% mom vs. +0.2% expected), France (+1.9% mom vs. +0.6% expected) and Spain (+1.2% mom vs. +0.5% expected) all surprised to the upside which was in stark contrast to the soft release in the UK (-0.1% mom vs. +0.4% expected). The latter also released the May trade balance where a bigger than expected widening in the deficit was revealed. Sterling (-0.62%) finished back down below $1.290 following that data.

Looking at the full week ahead now. We’re kicking off the week today in Germany where first out the gate we’ll get the latest trade data. Following that this morning we are due to receive the latest Bank of France business sentiment reading and Sentix investor confidence reading for the Euro area. It’s a typically quiet post-payrolls day for data in the US this afternoon with the June labour market conditions index and May consumer credit reading the only data due. Tuesday looks equally quiet with no releases of note in Europe and just the NFIB small business optimism, JOLTS job openings and wholesale inventories data due in the US. Turning to Wednesday, the early data is due out of Japan where PPI will be released. In the UK we are due to receive the May and June employment data while Euro area industrial production for May will also be released. In the US the Fed’s Beige Book, due to be released in the evening, is all that is due. On Thursday we’re kicking off in China with the June trade data. In Europe the final June CPI reports in Germany and France will be due. The BoE will also release its latest credit conditions and bank liabilities survey. In the US on Thursday we’ll get June PPI, initial jobless claims and the June monthly budget statement. We end the week in Asia on Friday with May industrial production data. In Europe we’ll get the May trade balance for the Euro area before we finish the week in the US with June CPI, retail sales, industrial production, manufacturing, July University of Michigan consumer sentiment and May business inventories.

Away from the data this week the main Fedspeak of note is Fed Chair Yellen’s testimony to Congress on Wednesday and the Senate on Thursday. Away from that Williams and Brainard speak on Tuesday, George on Wednesday, Evans and Brainard on Thursday and Kaplan on Friday. The ECB’s Draghi, Coeure and Nouy are due to take part in a Eurogroup meeting today. The other key event for markets this week is the commencement of earnings season in the US with Citigroup, Wells Fargo and JP Morgan all reporting on Friday. Also of note this week is UK PM Theresa May presenting the repeal bill to Parliament today. The CBO will also release its analysis of President Trump’s FY 2018 budget on Thursday.