Following a rollercoaster night for the Japanese Yen, when following several media headlines Abe was said to have announced a stimulus package that would be more than JPY28 trillion, which however upon more careful reflection appeared less then met the eye (more in a subsequent post), Japanese stocks surged 1.7% while the USDJPY spiked but well off overnight highs, pushing risk assets higher.

Offsetting Japan's exuberance was a sharp drop in Chinese stocks, which tumbled the most in 6 weeks, however closing well off the lows, down -1.9% after the 21st Century Business Herald reported the country’s banking regulator is again considering cracking down on the $3.6 trillion market for wealth management products, however yesterday's AAPL earnings beat fueled optimism over the outlook for the global economy and served as impetus to push European stocks firmly in the green despite a collapse in Deutsche Bank (DB) profit and a drop in revenues across the board, which also helped push US equity futures higher, with the S&P set to open green for yet another session.

The Fed concludes its two-day meeting later today (no press conference), with Yellen widely expected to announce nothing, although questions remain if the recent onslaught of good economic news will not awaken the "hawkish" FOMC from a deep slumber and prompt the chairwoman to once again flip flop and hint at a September rate hike.

Apple and its suppliers in Europe and Asia rallied after the iPhone maker reported a smaller-than-estimated decline in revenue. Positive earnings by companies from LVMH Moet Hennessy Louis Vuitton SE to PSA Group helped lift the Stoxx Europe 600 Index to a third day of gains. Japan’s currency slid on speculation stimulus will boost demand for higher-yielding assets at home and abroad. The yield on two-year Treasuries approached a one-month high as investors awaited the Federal Reserve’s latest assessment of the economy.

The yen weakened 0.8 percent to 105.49 per dollar, after advancing 1.4 percent in the previous two days. Prime Minister Shinzo Abe said his total program will amount to 28 trillion yen ($265 billion), with some unspecified part coming in a supplementary budget for 2016.

“Central bank move this week will still remain key to market direction,” said Nicholas Teo, a strategist at KGI Fraser Securities Pte. BOJ Governor Haruhiko Kuroda’s “show is especially important. Seeing how much expectations have been building in the markets for a ’generous’ helping of stimulus, Disappointment in the actual announcement may have a pronounced negative effect”

Almost 80% of surveyed analysts forecast the BOJ will expand its stimulus program Friday, while the Fed is forecast to keep interest rates unchanged on Wednesday.

“The good earnings are driving us further today,” said Michael Woischneck, who oversees about 300 million euros ($330 million) at Lampe Asset Management in Dusseldorf, Germany. “But we have to be aware what the Fed tells us tonight after their two-day meeting.”

Despite resilient stocks, oil is unable to stage a rebound and as of this morning was on a 5 day losing streak.

The Stoxx 600 rose 0.5 percent in London at 10:15 a.m. in London. Nasdaq 100 futures expiring in September climbed 0.7 percent, while S&P 500 futures added 0.2 percent, with the gauge near a record. Apple rallied 6.4 percent after saying iPhone demand picked up and forecasting fourth-quarter sales that may exceed analysts’ estimates. European suppliers Dialog Semiconductor Plc (DLGNF) and AMS AG (AUKUF) climbed more than 3 percent.

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Market Snapshot

• S&P 500 futures up 0.2% to 2167
• Stoxx 600 up 0.4% to 343
• FTSE 100 up 0.3% to 6745
• DAX up 0.9% to 10338
• German 10Yr yield down 1bp to -0.04%
• Italian 10Yr yield down 2bps to 1.23%
• Spanish 10Yr yield down less than 1bp to 1.1%
• S&P GSCI Index down 0.4% to 342.9
• MSCI Asia Pacific up 0.2% to 135
• Nikkei 225 up 1.7% to 16665
• Hang Seng up 0.4% to 22219
• Shanghai Composite down 1.9% to 2992
• S&P/ASX 200 up less than 0.1% to 5540
• US 10-yr yield up 1bp to 1.57%
• Dollar Index up 0.13% to 97.28
• WTI Crude futures down 0.5% to $42.70
• Brent Futures down 1% to $44.42
• Gold spot down less than 0.1% to $1,320
• Silver spot down 0.3% to $19.59

Top Global News

• Apple’s Cheaper IPhone Is Catching On, Allaying Growth Concerns: 3Q revenue, profit beat analysts’ predictions
• Abe Plans Stimulus Package of More Than 28 Trillion Yen
• Hillary Clinton wins nomination to be U.S. president: with nomination, Democrats seek to put divisions behind them
• Twitter’s (TWTR) Revenue Boost From Video Advertising Is Still Far Off: social media company doesn’t have video ad techology ready yet
• Elon Musk Sees Tesla (TSLA) Master Plan Costing Tens of Billions: Musk says he doesn’t plan on spending billions more right away; Tesla energy storage growth may exceed that of its cars
• Deutsche Bank Signals Deeper Cuts as Trading Slump Erodes Profit: 2Q profit almost wiped out by slump in trading revenue and costs tied to job reductions
• Boeing (BA) Wins $5.5 Billion Malaysia Air Order for 737 Max Jets: deal has option for 25 more; deliveries to start in 2019
• Nintendo (NTDOY) Posts Wider Quarterly Loss, Delays Pokemon Go Plus: game maker keeps its profit outlook for fiscal year intact
• Bayer (BAYRY) Second-Quarter Profit Gains 5.7% Amid Monsanto Pursuit: Crop sciences sales to be flat in “weak market environment”
• BASF (BASFY) Quarterly Profit Hurt by Weak Demand For Crop Chemicals: reiterates 2016 forecast for profit, sales drop; specialty chemicals gain helps buffer decline at agro- products
• Blackstone (BLK) May Bid EU6B For Italian Food Retailer Esselunga: MF

Looking at regional markets, Asia equity markets traded mixed following the indecisive US close with Japan outperforming as BoJ easing and fiscal stimulus take focus. Nikkei 225 (+1.7%) soared on JPY weakness following reports of increasing support within the BoJ for additional stimulus, with Apple suppliers benefiting from stronger than expected results from the tech giant, while a possible stimulus announcement also provided a catalyst. ASX 200 (0.0%) is relatively flat with early basic material-led gains offset by reduced expectations of an RBA rate cut after a mixed CPI release, with Credit Suisse swaps now indicating around a 50% chance of a cut next week vs. over 60% prior to the data. Elsewhere, Hang Seng (+0.4%) and Shanghai Comp (-1.9%) failed to sustain the support from an improvement in industrial profits and another firm PBoC liquidity injection, as debt concerns linger and the continued strong data dampens easing prospects. Finally, 10yr JGBs traded higher on increased BoJ easing hopes with the 10yr lead bond futures rising to a record high, while the BoJ were also in the market for JPY 750b1n of government debt.Support is increasing within the BoJ for further monetary easing, according to reports in Nikkei. According to reports in the Kyodo, Japan PM Abe states that the stimulus package is to be over JPY 28tr1, however Abe also noted that economic stimulus is to be compiled next week.

Top Asian News

• China Stocks Tumble on Report of Wealth Management Product Curbs: Regulators have been increasing scrutiny of investment flows
• Australian Inflation Remains Subdued, Leaving Rate Cut on Table: Annual trimmed-mean CPI climbed 1.7% y/y in 2Q
• Hedge Funds in Asia Worst Hit by Redemptions, eVestment Says: Asia-based funds have lost about 10% of assets this year
• Daiwa’s Quarterly Profit Falls on Brokerage Commissions, Trading: Stock slump is dissuading households from investing savings
• Line Posts a Profit in its First Report Card Since Global IPO: Co. reports 2.56b yen of net income in 6 months through June
• Indonesia Names Sri Mulyani Indrawati as Finance Minister: Govt revamps cabinet to solve poverty and economic inequality issues

In Europe, it has been an upbeat session so far in Europe (Euro Stoxx: +0.4) with price action dictated by the latest batch of earnings, most notably the CAC 40 (+1.5%) is outperforming after strong updates from Peugeot (+7%) and LVMH (+6%). While Deutsche Bank (-4.3%) shares slipped this morning after announcing a 98% decline in net income, subsequently heightening the concerns surrounding the financial sector ahead of the ECB stress test results later this week. Alongside this, reports doing the rounds that support for further monetary easing is increasing among the BoJ members has also been a catalyst for the upside across global equities. Bunds have edged higher throughout the European morning and head into the North American crossover higher by over 30 ticks and back towards the 167 level, while the German 30Y auction saw the 10/30Y spread extending on earlier flattening.

Top European News

• UniCredit Said to Mull $5.5 Billion Stock Sale, Pekao Exit: bank said to mull selling exiting online lender Fineco
• UniCredit, Santander End Talks for Asset Management Deal: UniCredit to explore options for Pioneer, including IPO
• LVMH Climbs After Estimate-Beating Sales Showcase Resilience: shares rise as Cognac, champagne boosted sales at wines-and-spirits division
• U.K. Economy Grew Faster Than Forecast Before Brexit Vote: economic growth accelerates to 0.6% in 2Q; pickup may mark end of more than 3 years of expansion
• Airbus Suffers $1.5 Billion Hit Against Delays to Two Key Model: co. needs huge production surge to meet 2016 profit goal
• Santander Quarterly Profit Falls as Lending Margins Narrow: chairman reaffirms guidance of earnings, dividend increase
• Italian Manufacturing Confidence Rises to Highest Since Jan.: consumer confidence, economic sentiment also rose in July
• PSA Profit Jumps 32% as French Carmaker Downplays Brexit: Brexit is opportunity to ‘demonstrate agility,’ CFO says

In FX, the yen weakened 0.8 percent to 105.49 per dollar, after advancing 1.4 percent in the previous two days. Prime Minister Shinzo Abe said his total program will amount to 28 trillion yen ($265 billion), with some unspecified part coming in a supplementary budget for 2016. The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, added 0.1 percent following Tuesday’s 0.3 percent drop. The pound weakened versus the euro even as a report showed U.K. economic growth was stronger than expected in the second quarter, accelerating to 0.6 percent from 0.4 percent in the first. The data predated the June 23 referendum that resulted in the shock decision to leave the European Union and recent surveys suggest the vote delivered an immediate and sharp blow to business and consumer sentiment.

In commodities, copper fell 0.6 percent, leading most industrial metals lower following reports on Chinese curbs on wealth-management products. Zinc dropped 0.6 percent and nickel slid 0.1 percent. Oil traded near the lowest closing price in three months as industry data showed U.S. crude stockpiles at the nation’s biggest storage hub expanded by 1.4 million barrels, swelling supplies that are already at a seasonal record. West Texas Intermediate was little changed at $42.86 a barrel and Brent traded at $44.73. Gold was also little changed, at $1,319.66 an ounce. Silver dropped 0.2 percent and platinum rose 0.1 percent.

On today's calendar, the key data to keep an eye on will be the June durable and capital goods orders. Also out today will be pending home sales data, before we then get the FOMC meeting outcome (2pm ET). A reminder that there is no post-meeting Yellen press conference scheduled. Earnings wise today we’re due to get quarterly reports from 54 S&P 500 companies including Coca-Cola (KO) and Boeing prior to the open and Facebook (FB) after the close. The European earnings calendar will also see Glaxo (GSK) and Banco Santander (SAN) release results

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Bulletin Headline Summary From RanSquawk and Bloomberg

• European equities have seen price action dictated by individual earnings, with Deutsche Bank in negative territory while Peugeot lead the way higher
• GBP shrugs off the latest GDP readings, with the higher than Exp. reading considered out of date, given the current post-Brexit outlook
• The main highlight today comes in the form of include FOMC Rate Decision, while today also sees DOE Crude Oil Inventories and earnings from Facebook and Comcast
• Treasuries little changed in overnight trading as global equities rally and oil and precious metals drop; FOMC rate decision due today at 2pm ET, markets are wary.
• Japanese Prime Minister Shinzo Abe announced plans for more than 28 trillion yen ($265 billion) in economic stimulus in an effort to prop up the nation’s economy
• The BOJ has become more relevant to some U.S. traders than their own central bank as a Bloomberg survey of economists projects Governor Haruhiko Kuroda will expand his record stimulus program Friday
• U.K. Chancellor Philip Hammond says govt and BOE “will take whatever action is necessary to support our economy and maintain business and consumer confidence”
• U.K. retail sales fell at the fastest pace in more than four years in July, signaling caution among consumers; the index dropped to minus 14 -- the lowest since January 2012 -- from 4 in June
• China’s central bank boosted the supply of cash in the financial system, helping push the benchmark money-market rate down from a three-month high
• Deutsche Bank CEO John Cryan signaled Germany’s largest lender may have to deepen cost cuts after second-quarter profit was almost wiped out by a slump in trading revenue and costs tied to job reductions
• Chancellor Angela Merkel faced renewed criticism of her handling of the refugee crisis in the wake of four attacks in Germany in the span of a week that have unsettled the public

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US Event Calendar

• 7am: MBA Mortgage Applications, July 22 (prior -1.3%)
• 8:30am: Durable Goods Orders, June P, est. -1.4% (prior -2.3%)
• 8:30am Cap Goods Orders Non-defense, Ex-aircraft, June P, est. 0.2% (prior -0.4%)
• 10am: Pending Home Sales M/m, June, est. 1.2% (prior -3.7%)
• 10:30am: DOE Energy Inventories
• 2pm: FOMC Rate Decision

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DB's Jim Reid concludes the overnight wrap

The key thing to watch at tonight's FOMC conclusion is how strong a signal they want to send about the possibility of a September hike. The problem is that a big part of the reason for the recent rally in markets is that post the Brexit vote Fed hikes were practically priced out of the market over the subsequent 18 months. Although that's reversed a bit with the rally it's fair to say that a pretty benign looking Fed is keeping risk elevated. So they are a little trapped even if several on the committee would be only too pleased to have the licence to hike. Overall they are unlikely to close the door on September which may make for a slightly hawkish interpretation tonight but the reality is that 'doing' is proving a lot more difficult than 'saying'.

The outcome of that meeting and the statement will be out at 7pm BST. A reminder also that there is no Yellen press conference scheduled for after. In the meantime, one topic which is at least generating a little bit of interest in what has otherwise been a pretty dull start to the week is the back and forward headlines concerning Japan and specifically the debate or doubts over how far the BoJ will push the fiscal stimulus envelope. In yesterday’s EMR we highlighted the report about the mooted second supplementary budget for FY2016 which was seen as a little disappointing. Later in the day yesterday there was a fair bit of focus on Finance Minister Taro Aso’s comments, who said that the government is still yet to have decided on the size of the fiscal package. However just a short time ago Japanese press (FNN) reported that a ¥27tn package will be announced this morning and this is seemingly gaining some real interest with PM Abe due to speak as we go to print. The package is said to include ¥13tn of low interest loans. As we go to print the WSJ is also suggesting that Japan is considering issuing 50y JGB’s. The Nikkei has rallied to +2.11% following the news and the Yen is just shy of 1% weaker.
Meanwhile on the monetary policy side of things this morning the Nikkei newspaper is suggesting that BoJ officials are looking at a number of monetary easing proposals for this Friday including cutting rates deeper into negative territory, expanding government buying beyond ¥80tn or expanding purchases of other assets.

Another potentially interesting story which did the rounds yesterday was another Nikkei report suggesting that the Japan government is considering cash disbursals to low income people as part of its potential stimulus plan, a sign perhaps of what a potential form of helicopter money could look like. The article said that the government is mulling distributions of ¥10K ($95) or more to low income people to spur spending as part of the expected ¥6tn extra spending budget being considered. The article goes on to suggest other proposals including the biggest minimum wage hike ever and lowering the unemployment insurance premium from 0.8% of an insured worker’s pay to 0.6% over several years which would result in ¥340bn of relief for workers and employers. This wouldn’t be the first time we’ve heard such proposals this year with Switzerland having previously rejected a UBI vote a couple months back. It's likely that such redistribution scheme prove tempting for many countries over the years ahead.

On the topic of fiscal spending, our Global Economics group published a Global Economic Perspectives yesterday entitled: “Global fiscal stimulus to the rescue?” They conclude that while the potential shift away from monetary policy as the principal lever of support is welcome, the boost to global growth from the most probable fiscal packages is likely to be modest. The change in the fiscal stance they expect from the G3 and several other advanced economies could provide a meaningful boost to advanced economy growth, but it will only raise global growth by about 0.2 percentage points in the year ahead – this is not insignificant but it is also not a game-changer according to their analysis.

Yesterday was mostly about the various corporate earnings reports. Prior to the open we got a few mixed reports. Both McDonald’s (MCD) and Verizon (VZ) numbers were seen as relatively disappointing, with domestic sales growth at the former in particular much weaker than expected. The latest Caterpillar (CAT) numbers were a bit better than expected though at both the earnings and revenue line. It was noted that management also expect declining construction sales to flatten out and that they were starting to see some signs of dealer rebuilds. After the bell we then got the latest Apple numbers (for fiscal Q3) which were also taken positively. Earnings per share was 3c ahead of estimates and revenues also beat modestly. Despite iPhone sales falling 15% yoy during the quarter, the drop wasn’t quite as much as expected and raised hopes that the worst of the sales decline is in the past. Shares were up 7% in extended trading.

Along with some mixed data, it was another reasonably benign day of price action as a result. The S&P 500 closed +0.03% although credit did underperform with CDX IG over a basis point wider. European equities edged higher (Stoxx 600 +0.10%) and credit was little changed. Sovereign bond markets were fairly unchanged, while in the commodity complex WTI (-0.49%) closed below $43/bbl (at $42.92/bbl) for the first time since mid-April.

Outside of Japan, markets are a bit more mixed in Asia. Equities in China are weaker (Shanghai Comp -0.58%) despite industrial profits for China in June rising to +5.1% yoy from +3.7% in May. Elsewhere the Kospi (-0.21%) is also in the red, while the Hang Seng (+0.35%) and ASX (+0.08%) are slightly firmer. The Aussie Dollar has weakened after the latest CPI data in Australia raised expectations that the RBA will ease at the August meeting.

In a quick recap of yesterday’s data, in the US the flash services PMI was a little disappointing after printing at 50.9 (vs. 52.0 expected), down 0.5pts from June. Together with the manufacturing reading on Friday the composite for July did however nudge up 0.3pts to 51.5. Elsewhere consumer confidence edged down a very modest 0.1pts this month to 97.3 (vs. 96.0 expected), while the present situations component rose 1.7pts. In the housing market new home sales rose +3.5% mom in June (vs. +1.6% expected) to an annualised rate of 592k. On the manufacturing side of things the Richmond Fed manufacturing survey impressed, rising 20pts to +10 (vs. -5 expected). Finally the S&P/Case-Shiller house price index fell -0.05% mom in May (vs. +0.10% expected).

Before we look at today’s calendar, there was an interesting article in the FT last night suggesting that Italy was seeking a privately backed bailout of Monte dei Paschi, which included a plan to raise €5bn of new capital. The article goes on to suggest that a private rescue is being aimed before the announcement of the stress test results on Friday. One to keep an eye on.

Looking at today’s calendar, this morning in Europe we’re kicking off with the latest consumer confidence data in Germany and France, closely followed by the ECB’s June money aggregates data. Following this, attention will turn to the UK where we’ll get the advance Q2 GDP report which our economists are pencilling in at a below market +0.3% qoq (vs. 0.5% expected). This afternoon in the US the key data to keep an eye on will be the June durable and capital goods orders. Our US economists expect headline durable orders to be soft (-3.5% mom expected) as a result of aircraft orders, and expect core capex orders to be flat. Importantly though this report could still have an impact on Friday’s Q2 GDP reading. Also out today will be pending home sales data, before we then get the FOMC meeting outcome later in the evening (7pm BST). A reminder that there is no post-meeting Yellen press conference scheduled.