While this week has been, and continues to be, devoid of macro updates, yesterday's flurry of mostly disappointing earnings releases both before and after the open, including some of the biggest DJIA companies as well as the current and previously biggest and most important companies in the world, AAPL and MSFT, both of which came crashing down following earnings and forecasts that were well short of market expectations, came as a jolt to a market that was artificially priced by central bank liquidity and HFT momo algos beyond perfection. Add to that yesterday's downward revision to historical industrial production which confirmed the US economy is a step away from recession, as well as last night's Crude API inventory build which is once again pressuring WTI lower and on the verge of a 49 handle, and perhaps the biggest question is why are futures not much lower.

Stocks in Europe traded mixed, with information tech and energy sectors underperforming, following less than impressive earnings by Apple and Microsoft after the closing bell on Wall Street, as well as lower energy prices. Of note, Apple's German listed shares traded lower by as much as 7%, with ARM Holdings down 4% after failing to meet revenue expectations.
Fixed income markets have seen light news flow during the European session, with Bunds opening higher amid soft equities before paring these gains throughout the morning.

Asian equities tracked the weakness seen on Wall Street, after Apple shares declined by 9.1% after-market following their iPhone sales missing expectations (47.5mln vs. Exp. 48.8mIn) and Microsoft posted a record quarterly net loss. Nikkei  225 (-1.2%) was dragged lower by softness in IT, firmer JPY and declines among Apple suppliers. ASX 200 (-1.6%) traded in negative territory amid losses sustained in large banks, following analysts revising their profit forecast downwards, while Chinese markets fluctuated between gains and losses with the Shanghai Comp. consolidating around the 4000 level.

In FX, EUR/GBP continued to trend lower, moving below the 0.7000 in the process, driven by hawkish comments by BoE's Miles who said that he expects inflation to converge towards the 2% target at the end of 2015. The release of the most recent BoE minutes revealed a 9-0 vote and while a number of MPC members see increasing inflation risks which are skewed to the upside, the minutes also warned that GBP strength could suppress inflation . The rhetoric released in the minutes are more or less a reiteration of the most recent MPC comments and as such proved to be somewhat uneventful.

AUD/USD saw volatile trade as it initially fell after the latest Australian headline CPI figure missed expectations (0.7% vs. Exp. 0.8%). However, AUD then pared some of its losses as RBA's preferred trimmed mean figure beat expectations (2.2% vs Exp. 2.1%). Later conflicting comments from RBA Governor Stevens also provided a catalyst for price action, as he stated that rate cuts are still on the table but hinted concern of risks from lower rates and that policy was appropriate for the time being.

WTI and Brent Crude futures trended lower overnight and in Europe this morning, weighed on by the ongoing concerns over the slowdown in China, as well as the latest API data release which showed that stockpiles increased by 2.3mln (Prey. -7.3mIn). Elsewhere, gold resumed its downward trend, moving below the psychologically important USD 1,100 level.

Looking ahead, sees the release of RBNZ Rate Decision, DoE crude inventories, Existing Home Sales as well as earnings from Coca Cola, Boeing and Qualcomm

In summary: European shares remain lower with the basic resources and oil & gas sectors underperforming and travel & leisure, retail outperforming. Greek lawmakers voting on a second package of bailout condition measures, ECB to discuss Greek ELA. Bank of England says a number of policy makers see rising inflation risks. Apple’s European suppliers fall after co. missed sales estimates. The U.K. and Swiss markets are the worst-performing larger bourses, the Spanish the best. The euro is little  changed against the dollar. U.K. 10yr bond yields fall; Greek yields increase. Commodities decline, with corn , copper underperforming and soybeans outperforming. U.S. mortgage applications, FHFA house price index, existing  home sales due later.

Market Wrap

• S&P 500 futures down 0.4% to 2106.3
• Stoxx 600 down 0.4% to 401
• US 10Yr yield up 0bps to 2.33%
• German 10Yr yield down 1bps to 0.77%
• MSCI Asia Pacific down 0.9% to 143.9
• Gold spot down 0.5% to $1095.4/oz
• 3 out of 19 Stoxx 600 sectors rise; travel & leisure, retail outperform, basic resources, oil & gas underperform
• 32.8% of Stoxx 600 members gain, 65.3% decline
• Eurostoxx 50 -0.2%, FTSE 100 -1.1%, CAC 40 -0.4%, DAX -0.4%, IBEX +0.2%, FTSEMIB +0.1%, SMI -0.6%
• Asian stocks fall with the Sensex outperforming and the ASX underperforming; MSCI Asia Pacific down 0.9% to 143.9
• Nikkei 225 down 1.2%, Hang Seng down 1%, Kospi down 0.9%, Shanghai Composite up 0.2%, ASX down 1.6%, Sensex up 1.1%
• Euro down 0.02% to $1.0933
• Dollar Index up 0.01% to 97.33
• Italian 10Yr yield up 1bps to 1.98%
• Spanish 10Yr yield up 3bps to 2.03%
• French 10Yr yield down 1bps to 1.07%
• S&P GSCI Index down 0.7% to 398.2
• Brent Futures down 0.6% to $56.7/bbl, WTI Futures down 1.1% to $50.3/bbl
• LME 3m Copper down 1.1% to $5395/MT
• LME 3m Nickel down 0.2% to $11650/MT
• Wheat futures down 1% to 519.5 USd/bu

Bulletin Headline Summary from Bloomberg and RanSquawk

• The BoE minutes showed the MPC undertaking a cautious stance by highlighting that inflation risks may be skewed to the upside, while also warning that GBP strength could suppress inflation
• Downbeat earnings from Apple and Microsoft have filtered through to European stocks with underperformance observed in the IT sector
• Looking ahead, sees the release of RBNZ Rate Decision, DoE crude inventories, Existing Home Sales as well as earnings from Coca Cola, Boeing and Qualcomm
• Treasury curve little changed overnight before U.S. economic data calendar comes alive again with FHFA home price index slated for release at 9am ET and existing home sales at 10am ET.
• BoE said a growing number of policy makers have become concerned about rising inflation pressures, indicating building momentum toward the first rate increase in eight years
• The ECB is embarking on a third tour of duty in Athens, with victory less certain than ever as officials will hold a telephone call Wednesday to discuss the Emergency Liquidity Assistance that keeps Greece’s financial system alive
• PM Tsipras returns to the Greek parliament today to seek support from the opposition to help him overcome his own party’s rebellion against the terms of a third bailout
• The bond market selloff in the second quarter probably dented the capital defenses of many European banks, with lenders in Italy and Spain hit hardest
• As a Puerto Rico agency veers toward a default as soon as Aug. 1, federal officials in the nation’s capital have echoed a refrain heard during recent state and local fiscal crises: Fix the problem on your own
• The selloff in gold is infecting copper and zinc, which fell more than 1% and tin, which fell as much as 4.9%, the most this month. Gold futures retreated for a 10th day in the longest run of losses since 1996 as Goldman Sachs predicted further declines
• Sovereign 10Y bond yields mostly steady with Greek bond +18bps. European and Asian stocks mostly lower; U.S.equity-index futures lower. Crude oil drops, copper and gold drop

US Event Calendar

• 7:00am: MBA Mortgage Applications, July 17 (prior -1.9%)
• 9:00am: FHFA House Price Index m/m, May, est. 0.4% (prior 0.3%)
• 10:00am: Existing Home Sales, June, est. 5.4m (prior 5.35m); Existing Home Sales m/m, June, est. 0.9% (prior 5.1%)

DB's Jim Reid completes the overnight recap

On the subject of Apple, shares dropped nearly 9% in extended trading following the release of their latest quarterly results. Despite a beat at the earnings level and a surge in revenue from China, the market latched onto disappointing overall iPhone shipments relative to street expectations sending the stock tumbling. Combined with a near-4% fall for Microsoft in extended trading after a similarly disappointing report, S&P 500 and Nasdaq futures have fallen -0.4% and -1.2% respectively in Asia this morning.

Indeed yesterday we saw equity markets on both sides of the pond close down as a number of headline names reported disappointing quarterly reports. The S&P 500 (-0.43%) fell from its record high while the DOW (-1.00%) and Nasdaq (-0.21%) also moved lower. Closer to home the Stoxx 600 (-1.02%), DAX (-1.12%) and CAC (-0.70%) also fell once the US session kicked in as earnings reports from IBM, Verizon and United Technologies in particular disappointed the market.

Digging deeper into earnings season so far and taking a look at the beats/miss ratio, despite the softer reports yesterday it’s actually been an OK start to the reporting period. With 89 S&P 500 companies having reported so far, 73% have reported an EPS beat with 26% missing estimates. As per the trend of the last few years, the split is more even at the revenue level with 55% reporting a beat so far. This trend has perhaps been solidified in this reporting period with various companies noting the impact of USD strength on the top line.

Looking at the rest of markets this morning, equity bourses across Asia this morning are broadly weaker. The Nikkei (-1.00%), Hang Seng (-1.12%), Kospi (-0.99%) and ASX (-1.14%) have all fallen while in China the Shanghai Comp (-0.42%), CSI 300 (-0.66%) and Shenzhen (-0.05%) have also declined after an up and down start. Mixed data in China hasn’t helped the lack of direction in markets there. The MNI China Business Indicator for business sentiment slumped 4.7% mom in July to match the YTD low in April of 48.8. The Conference Board Leading Indicator on the other hand rose 1.0% mom during June. Over in Australia a softer than expected headline Q2 CPI print (+0.7% qoq vs. +0.8% expected) has seen the AUD fall 0.5% in early trading. Gold (-0.67%) has taken another leg lower while WTI (-1.40%) is creeping back down closer to the $50/bbl mark. 10y Treasuries are largely unchanged while Asia credit is 2bps wider.

It’s another relatively quiet calendar for data today however Greece is set to step back into focus with the Greek parliament due to vote on a second set of reforms demand by the Creditors, the second such pre-requisite to opening talks on a new bailout package.

In his latest report yesterday, DB’s George Saravelos highlighted the latest on the current political situation in Greece and what his expectations are going forward. George notes that Greece is now in a very unusual political configuration whereby Tsipras has openly stated his disagreement with the effectiveness of the current agreement (although acknowledges that the alternative would be worse), can no longer rely on his own parliamentary group to pass legislation and may no longer control the Syriza party either. Despite this, opposition votes have ensured that the Euro leaders’ agreement and prior actions passed through the Greek parliament with an even larger majority than the first and second Greek programs.

George notes that the current situation could potentially lead to one of three different political outcomes over the next few weeks. The first of these is near-term political instability that would put ESM negotiations on hold and return pressure on the Greek banking system ahead of the August 20th ECB bond redemption. This would likely be provoked by Tsipras tendering his resignation either by losing additional MPs in coming parliament votes or by losing support in the party’s Central Committee although either would not necessarily cause a general election and rather a government of national unity would be more probable until ESM talks concluded. The second possible outcome is a decision from Tsipras to more aggressively position himself against internal party dissent and in favour of program implementation. This move would require the PM to take the risk of more formally splintering the party with potential unpredictable results given his more uncertain influence over the Central Committee. The final outcome and most likely in George’s view is a continuation of the last few days’ status quo with persistent attempts by Tsipras to work through internal party dissent as well as the ESM negotiations, but without precipitating political change meaning Tsipras presides over a de facto minority government.

George ultimately believes that resolution could be led by Tsipras moving Syriza in a more moderate direction followed by an early general election later this year once ESM negotiations have concluded. This would increase the odds of a government with greater commitment to implementation, irrespective of electoral outcome but risk a major splintering of the party. We’ve highlighted that Greece should play less of role in markets this summer, but implementation risks still remain until we get greater clarification around political change. George’s report is attached here for those interested. http://pull.db-gmresearch.com/cgi-bin/pull/DocPull/1196-941A/13242688/DB....

In terms of the rest of markets yesterday, credit markets in the US retreated as Apple results hit the wires with CDX IG finishing 1.5bps wider. In Europe Crossover (+8bps) and Main (+1bp) also had a softer day. The risk-off sentiment yesterday helped fuel a bid for Treasuries as the benchmark 10y closed 4.7bps lower at 2.326%, albeit on seasonally lower volumes. It was a weaker day for the Dollar meanwhile with the Dollar index dropping 0.72% to bring to an end four consecutive daily gains while the Euro rose 1.02%. The softer day for the Dollar wasn’t helped by downward revisions to the latest industrial production (+0.2% mom from +0.3% previously) and capacity utilization (77.8% from 78.4% previously) prints. After the weakness in the commodity space of late Gold (+0.43%) took something of a breather and pared back some of the recent weakness following 6 previous days of declines while WTI (+0.83%) closed back above $50 at $50.86/bbl.

Before we look at today’s calendar, in the UK yesterday we heard once again from the BoE’s Carney who largely reiterated his recent rhetoric saying that ‘the decision as to when to start that process of raising interest rates will likely come into sharper focus around the turn of the year’. Yesterday’s public sector net borrowing data for June was slightly lower than expected (£8.6bn vs. £8.7bn expected) while net borrowing excluding public-sector banks of £9.4bn was slightly higher than the £8.9bn expected. 10y Gilts closed 2.5bps higher yesterday at 2.085%.

Looking at the day ahead now, the BoE minutes from the July meeting will likely garner most of the attention this morning while data wise we’ve just got French business and manufacturing confidence prints expected along with Italian retail sales. In the US this afternoon there’s finally some data to look forward to with June existing home sales and the May FHFA house price index. The corporate earnings calendar is headlined by Boeing, Coca-Cola and American Express.