Global markets are a sea of green this morning, with US index futures sharply higher to start the new week which sees the official start of Q2 earnings season on Friday the 13^th, following solid gains in Europe and Asia in the aftermath of Friday’s “goldilocks” jobs report whose strong payroll gains but weaker than expected wage growth further pressured the dollar and boosting Emerging Markets, while analysts said that traders took comfort in the lack of escalation in the trade war (although considering it only started on Friday, it is difficult to see just how it could escalate in following 48 hours).

As has often been the case in the past month, the market tone was set by China, whose Shanghai Composite index posted solid gains, led by insurers and banks, after Caixin reported that regulators may implement tighter regulations on wealth management products later than the market expected due to recent volatility. China’s regulator had imposed stricter rules on asset management industry in April, and new regulations on wealth management products – including on investment targets, leverage – were expected to follow. “The delay of new bank wealth management rule can be slightly positive for sentiment amid market panic, as economic growth becomes the top priority for regulators,” Huatai Securities analyst Shujin Chen writes in note.

As a result of the delay, and following a note from local investment bank CICC which said that “A-share valuations and sentiment have hit the bottom after the market’s recent rout, offering medium- to long-term opportunity”, the Shanghai Composite surged by 2.5%, its biggest one day jump since February 22.

Doubling down on the all-clear signal, the Shanghai Stock Exchange issued a strange statement which said that Shanghai-listed companies’ valuation is “at relatively low level, compared to that of stock markets in other major economies”  and that valuation is becoming attractive after the latest round of sell- off. It added that the Shanghai exchange will continue to support qualified listed companies to buy back shares, as that can help boost investor confidence and stabilize market expectation. In short, the jawboning brigade was unleashed and the result may have helped Chinese stocks set a bottom for now, which was hit on July 6 when the SHCOMP dipped briefly below 2,700. In addition to verbal intervention, the lack of new trade war actions by either the US and China was seen by some as a reprieve to the recent tit-for-tat escalation, also helping boost sentiment.

The solid Chinese performance lifted the MSCI Asia Pacific Index which was up 1.2%, and on course for the biggest jump in a month.

Positive sentiment from Asia flowed through into the European session, if amid reduced liquidity and market activity, with the Euronext suffering a trading pause for some stocks after two market orders got stuck in the order book.

The Stoxx Europe 600 index was up 0.6%, headed for a fifth consecutive advance – the longest winning streak since March – led by miners and energy companies – as investors set aside concern about escalating trade tensions to focus instead on the upcoming earnings season. Citi strategists said European bank stocks offer a good buying opportunity as the sector is set to benefit from macro data stabilizing in 2H, political risk remaining at current levels and interest-rate expectations holding.

Commenting on Monday’s equity bounce the head of Asia research at ANZ Banking Group, Khoon Goh, said that “despite tariffs on China imports into the U.S. now being officially implemented, markets have started the week on a better footing thanks to the absence of further escalation for the time being,” and added that “the U.S. payrolls report on Friday, while strong, did not see any significant rise in wage growth, which was a relief to a market that was worried about the potential for a more aggressive Fed hiking path.”

In the US, futures on the S&P 500, Dow and Nasdaq all pointed higher and commodities and emerging-market equities found support from the weakening dollar, which dropped for the fifth day, the longest losing streak in nearly five months, following key technical breaks versus major peers.

Adding to the positive sentiment, the Chinese yuan which had been battered in recent days, jumped after the PBOC reported that China’s foreign currency reserves rose $1.51 billion to $3.112 trillion in June, rising by more than the highest Wall Street estimate, and easing fears that China has been selling reserves to stem the recent slide in the Yuan, and that there has been less intervention than expected as the yuan slid last month.

“So for now, no new U.S.-Sino trade news is good news for … EM in general,” said Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney, however adding that “our base case remains for trade tensions to get worse before they get better.”

Elsewhere, after diving in early trading following news of the dramatic resignation of Brexit minister David Davis, the British pound climbed as on optimism Theresa May can contain the latest government crisis over Brexit. “David Davis resigned as Brexit secretary and the pound is holding up relatively well on the back of it,” CMC market analyst David Madden wrote in note. “This will put severe pressure on Prime Minister May, and there are questions being asked about how long she will last in the top job.”

The the euro climbed to its strongest level since June 14 after German industrial production beat all estimates for May while the ECB’s Coeure said existing trade risks don’t have the potential to derail euro-zone recovery.

Further helping sentiment, the start of earnings season this week may prove a helpful distraction and divert attention from the trade war that’s kept global stocks under pressure.

US Treasuries slipped in the absence of a fresh escalation of the U.S.-China trade conflict, with the 10Y yield rising 3bps to 2.85%; Germany’s 10Y bunds also climbed 2 bps to 0.32%, the highest in more than a week on the biggest surge in four weeks, while 10-year gilts rose 4 bps points to 1.267%, the largest climb in more than two weeks.

In Brexit news, following David Davis’ resignation,Brexiteer MP Jacob Rees-Mogg was said to vote against UK PM May’s Brexit plan, while there were also reports that Brexiteer MPs threaten to topple PM May and replace her with Jacob Rees-Mogg in anger at the PM’s Chequers deal. Furthermore, Jacob Rees-Mogg more recently commented that UK PM May’s Brexit plan must be bad if Davis cannot support it and that a serious mistake by PM May led to Davis quitting.

Oil traded mixed and WTI/Brent spreads widening, with Brent +0.75% and WTI -0.25%. WTI has broken through the USD
74/BBL & 200 DMA levels to the downside, with investors eyeing the 50 and 100DMA levels as key supports at USD 73.52/BBL and USD 73.49 respectively in the wake of increased supply form the US, as Baker Hughes noted an increased rig count for the first time in several weeks. Gold prices are up and being lifted to two week highs at USD 1,260/Oz by a  softer dollar and short covering. London copper has rebounded from a close to 1 year low in the previous session, and is up 1.8% on the day as a weaker dollar has also forced short covering for the construction material.

Looking ahead, highlights include, ECB’s Praet, Draghi and Fed’s Kashkari, and consumer credit data. Helen of Troy and Couche-Tard are among companies reporting earnings

Market Snapshot

• S&P 500 futures up 0.4% to 2,772.75
• STOXX Europe 600 up 0.6% to 384.53
• MXAP up 1.2% to 165.95
• MXAPJ up 1.3% to 540.29
• Nikkei up 1.2% to 22,052.18
• Topix up 1.2% to 1,711.79
• Hang Seng Index up 1.3% to 28,688.50
• Shanghai Composite up 2.5% to 2,815.11
• Sensex up 0.8% to 35,951.89
• Australia S&P/ASX 200 up 0.2% to 6,286.04
• Kospi up 0.6% to 2,285.80
• Brent futures up 0.7% to $77.65/bbl
• Gold spot up 0.4% to $1,260.92
• U.S. Dollar Index down 0.2% to 93.79
• German 10Y yield rose 1.9 bps to 0.311%
• Euro up 0.2% to $1.1773
• Italian 10Y yield fell 1.5 bps to 2.447%
• Spanish 10Y yield rose 0.2 bps to 1.311%

Top Overnight News from Bloomberg

• U.K. Prime Minister Theresa May was plunged into a crisis after Brexit Secretary David Davis and his deputy resigned over her plans to keep close ties to the European Union after the divorce. Dominic Raab, who campaigned for Brexit, will replace Davis, according to the government
• Britain’s financial-services industry is battling a drop in foreign investment while some of its European counterparts enjoy big gains, according to a new study. Investment in Britain’s financial-services firms from abroad fell 26% last year, EY said in a report Monday
• Recep Tayyip Erdogan will cap his years-long drive to transform Turkey’s government on Monday as he’s sworn in as an executive president with vastly expanded powers
• Benoit Coeure said the ECB is alert to risks from trade tensions that are rapidly escalating, but its current monetary-policy stance is working well
• U.S. Secretary of State Mike Pompeo summed up his 27 hours in the North Korean capital Pyongyang as “productive,” but no sooner had he left than local media published a statement saying the U.S.’s “unilateral and gangster-like demand for denuclearization” risked upending ties
• Bank of England policy makers are adjusting to an upheaval at the statistical office at the very point when they need as much clarity as possible to help decide whether to raise rates next month
• If a U.S. or global recession is looming, it’s time to own the Swiss franc, Singapore dollar, U.S. dollar and Japanese yen — and ditch emerging market currencies, according to analysts from JPMorgan Chase & Co.
• China’s foreign-currency holdings increased last month for the first time since March as the yuan slumped and trade tensions with the U.S. worsened
• Japanese investors pared holdings of German sovereign bonds in May by the most since June 2015, while selling the most Italian debt in a year amid the political crisis that gripped Rome during the month

Asian stocks began the week higher across the board as the region followed suit to Wall St’s performance on Friday after a Goldilocks US jobs report. The broad appetite for risk saw all majors gains from the open with the ASX 200 (+0.2%) led higher by mining stocks including BHP amid reports BP is front running the bidding for its US shale assets and with Nikkei 225 (+1.2%) supported by a predominantly weaker currency. Hang Seng (+1.3%) and Shanghai Comp. (+2.5%) conformed to the upside with broad gains across the sectors in both indices and which followed the PBoC snapping its recent streak of liquidity drains, while focus in Hong Kong also turned to Xiaomi which declined over 4% in early trade on its debut due to valuation concerns. Finally, 10yr JGBs were subdued as focus was centred around stocks and amid a lack of Rinban announcement, although downside was also stemmed as prices sat near their best levels since May and at close proximity to retest resistance around 151.00. China’s Cabinet has issued a statement on expanding agricultural and resource related imports, promoting trade balance.

Top Asian News

• HSBC Is Said to Poach BofA’s Top Asia Power, Utilities Dealmaker
• Goldman Sachs Hires Bank of America’s Naraghi for Asia ECM Role
• Bankers Quit Goldman, Citigroup for Biotech Riches in Hong Kong
• China Stocks Rebound With Biggest Gain Since 2016, Yuan Climbs

European equities are higher (Euro Stoxx 50 +0.4%), with the FTSE (+0.1%) underperforming due to a higher GBP, as investors monitor developments in the UK following the resignation of UK Brexit Secretary David Davis. The current outperformer is the AEX (+0.8%), which is being lifted by a broker upgrade for index heavyweight Altice (+3.3%) at RBC as well as Orange being open to a potential alliance within their home market. Air France (+4.0%) reported improved passenger numbers for June vs. May, easing investors’ concerns about strike action that has been hitting the company. Renault (-2.3%) are currently struggling on the back of emission measurement concerns at their partner co. Nissan.

Top European News

• Coeure Says Trade-War Challenge Isn’t Shaking ECB’s Path to Exit
• U.K.’s Aging Nuclear Fleet Offers Target for China’s Atomic Tech
• Daimler’s Emissions Issues Mount With Truck Engine Sale Stop
• PAI Partners Boosts Ontex Offer and Will Start Due Diligence

In FX, AUD was the top G10 performer on a mixture of better risk sentiment overall, short covering and stops on a break of technical resistance, with Aud/Usd up through 0.7440-50 to just over 0.7475 and bulls now eyeing a Fib level just shy of 0.7500. GBP: Cable has recovered well from a wobble and brief retreat through 1.3300 in wake of David Davis’ resignation due to what he perceives to be a too soft EU withdrawal White Paper from the UK Government, with market contacts noting stops on a break of 1.3330 on the way to a 1.3360 high, and also noting stops vs the EUR at 0.8800 in the cross that is currently towards the bottom of a 0.8850-15 range. However, the single currency is fairing much better vs a generally soft USD following the weaker than forecast elements of last Friday’s US jobs report, with a Fib breached around 1.1720 and peak around 1.1780, opening up scope to 1.1800, while the DXY has extended losses to just below 93.800. TRY: The Lira is firmer and back over 4.5500 vs. Usd as traders await an announcement at 18.00 from the Erdogan Government on their cabinet line-up.

In commodities, oil is mixed and WTI/Brent spreads widening, with Brent +0.75% and WTI -0.25%. WTI has broken through the USD 74/BBL & 200 DMA levels to the downside, with investors eyeing the 50 and 100DMA levels as key supports at USD 73.52/BBL and USD 73.49 respectively in the wake of increased supply form the US, as Baker Hughes noted an increased rig count for the first time in several weeks. Gold prices are up and being lifted to two week highs at USD 1,260/Oz by a softer dollar and short covering. London copper has rebounded from a close to 1 year low in the previous session, and is up 1.8% on the day as a weaker dollar has also forced short covering for the construction material. BP is in the lead to acquire the U.S. onshore shale oil and gas assets of BHP submitting an offer worth over USD 10bln; according to sources.

Looking at today’s calendar, we’ll get May consumer credit data in the evening. Away from that, ECB President Draghi speaks to the European Parliament’s Committee on Economic and Monetary Affairs in Brussels, BoJ Governor Kuroda will speak overnight at a Branch Manager’s meeting, while the BoE’s Broadbent will speak at a conference in London and the ECB’s Nowotny will speak in Zurich. German Chancellor Merkel and Chinese PM Li Keqiang are also due to chair a meeting of cabinet ministers from both countries.

US event calendar:

• 3pm: Consumer Credit, est. $12.0b, prior $9.26b

DB’s Jim Reid concludes the overnight wrap

The most common 3 words heard in England over the last few days have been “It’s coming home” as people who previously thought the team would get knocked out around the quarter-final stage now suddenly think we’re world beaters. The truth is probably somewhere in the middle (and nearer to the former) but England’s remarkable World Cup adventure continues into the semi-final this week. England’s only two major semi-finals in my lifetime occurred at the World Cup of 1990 and the Euros in 1996. The former occurred the day before my last GCSE exam at school and I remember sitting in the exam hall devastated. I went to the latter game and enjoyed the pre-match entertainment too much to remember much about England’s early opening goal but had a sore head by the time of the German win on penalties. This time I think England will win the semi and lose in the final to France this coming Sunday where ironically I’ll be on holiday at the time! It could be unbearable.

So a busy finale to the World Cup but a fairly quiet week ahead for data. Indeed, the week following payrolls is normally quiet for data but US PPI (Wednesday) and CPI (Thursday) will ensure that attention on markets is kept elevated ahead of the summer holiday season commencing. For CPI, the consensus for the core reading is for yet another +0.2% mom reading – the 33rd month in a row that we’ve had such a consensus (of which 18 have proven to be correct). The annual rate is also expected to rise one-tenth to +2.3% yoy which would be the highest since January 2017. Headline CPI is expected to come in at +0.2% mom and +2.9% yoy. Outside of this its mostly second tier US data this week. Staying with inflation, China’s CPI (1.9% expected – up 0.1%) and PPI (4.4% expected – up 0.3%) are due tomorrow and will be a focus. On Friday China’s trade number will be worth a second glance as well given all the focus on trade at the moment

The Fed will also get a bit of attention this week too with the semi-annual Monetary Policy Report to Congress due out on Friday afternoon. It’s worth noting however that Fed Chair Powell won’t testify until the following week. Elsewhere US Q2 reporting season kicks into life on Friday with bank earnings from Wells Fargo, JP Morgan and Citigroup. The S&P banks index has fallen -4.7% in the past month and -12.6% from its January highs, partly due to yields stalling and the yield curve flattening so it’ll be interesting to see if this has impacted the hard numbers. Prior to that there is only a small smattering of other earnings releases this week including PepsiCo on Tuesday and Delta Airlines on Wednesday.

As for politics, President Trump has a busy week ahead, starting with his participation at the NATO summit on Wednesday and Thursday, before travelling to the UK to meet PM May on Friday. The full day by day week ahead is at the end.

Turning to the weekend news, after securing cabinet approval for her proposal for a softer Brexit on Friday, PM May is  expected to address Parliament today to reaffirm that “this is the right Brexit” plan. In terms of initial reactions, Trade Secretary Fox has publicly supported the plans and Foreign Secretary Johnson indicated he will stay on the Cabinet. However overnight, the Brexit Secretary Davis, his deputy Brexit Department Minister Baker and Junior Brexit Minister Ms  Bravermann have all resigned, with the former indicating he could not be a “reluctant conscript” to PM May’s plans. Later  on, PM May said she was “sorry” Mr Davis decided to quit while noting that “Parliament will decide whether or not to back the (Brexit) deal the government negotiates…”. This is an important couple of days for Mrs May as there is a chance that she will face a leadership battle which could throw the Brexit negotiations into further turmoil.

Elsewhere on the European side, the Irish PM Varadkar noted the proposal marked “real progress” but cautioned there are still many difficulties while the Austrian Chancellor Kurz noted the UK made an “important, positive step” forward”. This morning, Sterling pared back early gains on Davis’s resignation to be up c0.1%.

Now moving to some weekend trade rhetoric. On Saturday, China’s Premier Li has reiterated the country’s pledge to open up its markets, as he noted “opening up has been a key driver of China’s reform agenda, so we’ll continue to open wider to the world…” He added that “for foreign products which meet Chinese consumer needs, we would open the door wider…we would lower overall import tariffs to the Chinese market”. Back in Europe, French Finance Minister Le Maire warned that “if tomorrow there is an increase in (car) tariffs (by the US)… our reaction should be united and strong…” and that “let it be known that if we’re attacked, we’ll react collectively and…firmly”. Meanwhile, the FT reported Mexico’s incoming Economy Minister Marquez “sees a possibility (for a NAFTA deal to be signed) maybe late September, early October”. Although she noted the deal would probably be a slimmed down deal where it would lock in changes already agreed but leave much of the original NAFTA agreement unchanged.

This morning in Asia, markets are rebounding strongly following a positive US lead from Friday, with the Nikkei (+1.39%), Kospi (+0.61%), Hang Seng (+1.52%) and Shanghai Comp. (+1.65%) all up. Chinese bourses may have also been boosted by China’s securities regulator saying on Sunday that it plans to ease restrictions on foreign investment in stocks listed on the Shanghai and Shenzen exchanges to attract more foreign capital. Datawise, China’s June foreign reserves was slightly higher mom and above expectations at $3.11trn (vs. $3.10 trn expected) while Japan’s May trade deficit was narrower than expected at -304bn Yen (vs. -483bn Yen).

As for markets performance back on Friday. Risk assets were relatively calm and edged higher despite the formal implementation of higher US tariffs on $34bn worth of Chinese goods. European equities were modestly higher, with the Stoxx 600 (+0.20%), DAX (+0.26%) and FTSE (+0.19%) all up. The S&P rose +0.85% with all sectors up with gains led by the health care and tech sector (Nasdaq +1.34%). Meanwhile government bonds firmed slightly, with 10y bonds yields on treasuries and Bunds -0.7bp lower while Gilts underperformed following the Brexit uncertainties (+0.9bp). In FX, the US dollar index weakened for the fourth straight day (-0.46%) while the Euro and Sterling both gained c0.5%.

Quickly back onto trade, DB’s China economist Zhiwei Zhang noted China’s response to the US tariffs thus far signals a positive gesture. The statement released on Friday reiterated China’s commitment to reform and open up its market, improve protection of intellectual properties. Most importantly, it promised to develop a good business environment for foreign firms and signalled that China may not retaliate beyond trade and target US firms doing business in China. The team noted the next thing to watch is whether and how soon the US administration will initiate a second round of trade war.

Following on with geopolitics in North Korea, there seems to be a difference in perspectives on how the latest US / NK talks have gone. Bloomberg reported that North Korea released a statement describing the US demands as “gangsterlike” and “cancerous” while the US Secretary of State Pompeo noted “I was there for the event…..when we spoke to them about the scope of (nuclear) denuclearisation, they did not push back”.

We wrap up with other data releases from Friday. In the US, the June change in non-farm payrolls was above market (213k vs. 195k expected) with upward revisions to the prior month. In the details, growth in payrolls was broad-based, with the 365-industry diffusion index sitting at a solid 65.5 in June, while the average growth for total payrolls over the past six-months (215k) is modestly above last year (198k). Meanwhile the average earnings growth was below  expectations at 0.2% mom (vs. 0.3%), leading to a steady annual growth of 2.7% (vs. 2.8% expected). Elsewhere, the June unemployment rate rose 0.2ppt mom to a still low level of 4% (vs. 3.8% expected) as participation increased. The May trade deficit was slightly narrower than expected (-$43.1bn vs. -$43.6bn) and was the smallest nominal deficit since October 2016. Factoring in the above, the Atlanta Fed estimate of Q2 GDP growth is now at 3.8% saar while the NY Fed estimate closed unchanged at 2.8% saar. In Europe, Germany’s May IP was well above market at 2.6% mom (vs. 0.3% expected), leading to an annual growth of 3.1% yoy. Italy’s May retail sales rebounded to 0.8% mom (vs. 0.5% expected) while France’s May trade deficit was wider than expected at -€6.0bn (vs. -€5.1bn) as exports fell -2% mom while imports were little changed. Over in the UK, the June Halifax House prices index was above expectations at 1.8% yoy (vs. 1.6%) while the 1Q unit labour costs rose 3.1% yoy (vs. 2.9 previous), which was the largest increase since 4Q 2013.

Looking at today’s calendar, we’ll get May consumer credit data in the evening. Away from that, ECB President Draghi speaks to the European Parliament’s Committee on Economic and Monetary Affairs in Brussels, BoJ Governor Kuroda will speak overnight at a Branch Manager’s meeting, while the BoE’s Broadbent will speak at a conference in London and the ECB’s Nowotny will speak in Zurich. German Chancellor Merkel and Chinese PM Li Keqiang are also due to chair a meeting of cabinet ministers from both countries.