The best headline to summarize what happened in the early part of the overnight session was the following from Bloomberg: "Asian stocks extend global rally on stimulus bets." And following the abysmal data releases from the past three days confirming that the latest centrally-planned attempt to kickstart the global economy has failed, overnight we got even more bad data, first in the form of Australia's trade deficit, which at A$3.1 billion, came in well wider than the S$2.8 billion expected, and up from the revised A$2.8 billion in July, the largest deficit since June as experts remained flat while imports rose by 1%.

Then moving from Asia to Europe, we got more validation for the "stimulus bets" when Germany's factory orders which once again confirmed the recent PMI weakness, and bombed at an abysmal -1.8%, far below the 0.5% expected, while the Y/Y print was a feeble 1.9% on expectations of a 5.6% increase, with the last month revised to -1.3%, driven by a collapse in orders from outside the Euro area (coughchinacough).

This is what Goldman had to say on the terrible data: German manufacturing orders fell by 1.8%mom in August. Domestic orders decreased 2.6%mom and foreign orders 1.2%mom. Orders from the Euro area were up 2.5% on the previous month, while orders from outside the Euro area decreased 3.7%mom. Within the breakdown for type of goods, manufacturers of intermediate goods recorded decreases in new orders of 0.4% and the manufacturers of capital goods of 2.8% on the previous month. New orders of consumer goods fell by 1.5%."

Goldman's punchline: "the weakness in orders from outside the Euro area seems to reflect genuine weakness in China and emerging markets in general and this will weigh on the German manufacturing sector."

The recent Volkswagen scandal will hardly boost Germany's suddenly struggling manufacturing powerhouse.

So after all this bad data, the "bad news is good news" rally should have really gone into overdrive, right? It did in Asia: Asian equity markets traded with firm gains for a consecutive day on the back of expectations for a fed lift-off being pushed back. Nikkei 225 (+0.8%) outperformed in the region led by broad based gains as the TPP deal was clinched, while the ASX 200 (+0.3%) was led higher by gains in commodities. Hang Seng (-0.1%) pared earlier advances as Nikkei Hong Kong PMI (45.7 vs. Prey. 44.4) printed a 7th consecutive month of contraction. Participants from mainland China were away due to Golden Week holiday. JGBs traded lower amid strength in equity markets, while the weaker than prior enhanced liquidity auction initially added to losses, but then some were later pared.

And while Asia was soundly stronger, stocks in Europe swung between gains and losses (Euro Stoxx: +0.4%) as market participants used the recent upside to book profits while the pushed back expectations of rate hike by the Fed offset the resultant selling pressure. On a company specifc basis, Glencore (-2.7%) underperforms to pare back some of yesterday's gains. In terms of US equities, PepsiCo (PEP) reported Q3 EPS of $1.35 on Exp. of $1.26, with YUM Brands reporting after the closing bell.

At the same time, despite the mixed performance by equities, Bunds edged lower since the open, paring the entire opening gains . Gilts have underperformed, albeit marginally, on touted positioning linked to the 2034 tap by the DMO.

Of note, analysts at Citi forecast global equities rising 20% by Dec 2016, suggesting the global bull market is not over. At the same time, 'unloved' energy sector upgraded to neutral and industrials downgraded to underweight.

In commodities, energy products mimicked the price action that of European equities this morning, with prices gradually recovering following the initial move lower to trade little changed while metals markets have seen gold traded sideways overnight with prices remaining near its best levels in a week. Elsewhere copper prices were mildly lower amid subdued demand with the world's biggest consumer not returning to the markets until Thursday and prices of lead continued their decline to fall to its lowest level since June 2010.

In FX, the biggest story overnight was the RBA keeping the overnight rate unchanged at 2.00% maintaining its neutral policy bias by saying that economic and financial conditions are to inform its policy stance and that leaving rates unchanged was appropriate. The central bank also reiterated that monetary policy needs to remain accommodative, but refrained from any jawboning of the currency. (BBG)

Despite USD/JPY trading lower on reduced expectations of a Fed rate lift-off, overnight ATM vols surged from 11.0 to above 20.0 level, as market participants began to position for potential easing by the BoJ when policy makers meet next. On that note, according to reports in Japanese press, the possibility of a stronger JPY amid reduced expectations of a Fed rate lift-off could prompt the Bank of Japan to further ease monetary policy.

On Today's US economic calendar we get the US trade balance: for the sake of central banks with no credibility left, let's hope it is a terrible print so the S&P can finally regain 2,000. Also notable are speeches by the Fed's George and Williams, but the highlight will be the ECB's Draghi speaking in Frankfurt at 1:00 pm in what many have said could be a market-moving speech.

Overnight Media Digest from Bloomberg and RanSquawk

• Stocks in Europe swung between gains and losses after Asian equities closed higher on the back of continued push back in expectations for a fed lift-off
• JPY is firmer, as pushed back expectations of Fed rate hike put unfavourable pressure on the major pair
• Today's highlights include the latest US trade balance report, IBD/TIPP economic optimism and API crude oil inventories as well as earnings from Pepsi and Yum Brands
• Treasuries rise amid decline in stock-index futures before week’s auctions begin with $24b 3Y notes, WI yield 0.895%, lowest since April, vs 1.056% in September.
• A slowdown in output and employment may justify the Fed keeping the near zero rate policy for “much longer, well into 2016 or potentially even beyond,” Goldman’s Jan Hatzius wrote in an note
• Traders don’t see a rate increase by the Bank of England until 2017 and while the central bank might not wait as long as that, it is understandable why markets are positioned that way, said SocGen strategist Jason Simpson
• Fortress Investment Group told investors that the emerging markets are at a beginning of a bear market that could rival the Asian financial crisis of 1997 and could last at least until March 2017
• German factory orders unexpectedly fell in August, declining 1.8% after revised 2.2% drop in July
• UBS, Citi and Morgan Stanley are among banks advising clients to pay more attention to the Brexit debate as polls show diminishing support in the U.K. for staying in the bloc
• Greece shouldn’t expect the euro area to relax bailout requirements to meet next month’s deadline for unlocking money to recapitalize its banking system, Dutch Finance Minister Jeroen Dijsselbloem said
• China’s yuan overtook Japan’s yen to become the fourth most- used currency for global payments in August, boosting the nation’s bid for it to be included in the IMF’s reserves basket
• Russia rebuffed calls for a no-fly zone to be established over Syria as its warplanes extended a bombing campaign against Islamic State and other militant groups; also ruled out sending troops to take part in ground operations
• Norway could as soon as next year start making withdrawals from its massive $830b sovereign wealth fund, which it has built over the past two decades as a nest egg for “future generations,” as a slump in oil prices takes toll on economy
• $1.65b IG priced yesterday, no high yield, one deal pulled. BofAML Corporate Master Index OAS narrows 2bp to +178 from YTD wide +180bp, widest since 2012; YTD low 129. High Yield Master II OAS narrows 21bp from YTD wide +683, also widest since June 2012; YTD low 438
• Sovereign 10Y bond yields higher. Asian and European stocks gain, U.S. equity-index futures fall. Crude oil mixed, copper lower, gold gains

US Event Calendar

• 8:30am: Trade Balance, Aug., est. -$48b (prior -$41.86b)
• 10:00am: IBD/TIPP Economic Optimism, Oct., est. 44.5 (prior 42)

Central Banks

• 9:15am: Fed’s George speaks in Chicago
• 1:00pm: European Central Bank’s Draghi speaks in Frankfurt
• 5:30pm: Fed’s Williams speaks in San Francisco
• 11:00pm: Bank of Japan’s Kuroda holds news conference on policy statement

DB's Jim Reid concludes the overnight recap

Markets ripped again yesterday with European stocks (Stoxx 600 +3.01%) having their best day since August and the S&P 500 (+1.83%) experiencing gains for the 5th successive session for the first time in 2015. In fact this index is up nearly 115 points from the lows early last week and 90 points above where we hit after the bad open on Friday. It was a solid start to the week for risk assets generally with credit also off to a strong start with CDX IG some 5bps tighter in the US and Crossover 20bps tighter in Europe, while EM and commodity sensitive currencies also surged higher after a decent leg up for Oil (WTI +1.58%, Brent +2.33%) and Copper (+1.51%). It’s amazing to see also that on the back of a +21% surge yesterday, Glencore is now up +72% from the intraday lows of last Monday, with the share price back to the highest level in two weeks.

Elsewhere yesterday, some slightly softer than expected US data (ISM non-manufacturing) continued to support the view of the Fed staying on hold for the foreseeable future although in fairness some of the details of the data were a little more mixed. With that said, 10y Treasury yields are now back to the pre-payrolls level after moving +6.3bps higher to 2.057% at yesterday’s close. October hike expectations were unmoved at 10% but December expectations nudged modestly higher to 35% (from 31% this time yesterday), but still remain near the lows of the recent range.

Last week we discussed our updated thoughts on the market (see Thursday's EMR) and one small part of it was that for whatever reason the seasonals tend to be more supportive once we get into October. In today's pdf we show a chart we've used before of the average path of the S&P 500 throughout a year with data going back to 1928. As can be seen the 'average' year sees a dip in markets in September, with October seeing stabilisation before the usual year-end rally. Interestingly though, when we look at the 1 standard deviation trendlines, October sees the biggest range of outcomes, with moves in both direction more likely in this month. There are some famous big falls in October but there have also clearly been some big rises too. So far this is looking like one of the bigger positive ones but plenty of time yet for that to be wrong!!

Turning to Asia, the rally continues with our screens generally a sea of green again as we head to print. Leading the gains are markets in Japan where the Nikkei (+1.12%) and Topix (+1.21%) have both taken a decent leg higher ahead of tomorrow’s BoJ meeting. There have been modest gains also for the Hang Seng (+0.12%), Kospi (+0.67%) and ASX (+0.35%) while credit markets in Asia, Australia and Japan are generally 3-4bps tighter. The better tone across risk assets has seen EM currencies strengthen further in Asia this morning, the Indonesian Rupiah in particular at one stage surging the most since December 2013. There’s been little in the way of data meanwhile, with the RBA leaving the cash rate on hold as expected.

Markets aside, much of yesterday’s headlines were dominated by the news that the US, Japan and ten other Pacific Rim nations have, after five years of work, come together to reach an accord on the Trans-Pacific Partnership. The trade pact, which is still subject to legislative approval by each country is set to cover 40% of the global economy and is the biggest trade deal the US has been part of since the North America Free Trade Agreement in 1994. The merits and implications of the pact will no doubt be scrutinized in due course with the finer details still to be announced, although Abenomics has been given a clear boost with the deal a key part of PM Abe’s three-arrow strategy, while the FT is suggesting that the pact will likely face parliamentary opposition in Australia and Canada in particular. There’s set to be some tension in US Congress too, with the likes of Ford Motor instead urging the Government to implement ‘strong and enforceable currency rules’ over concerns that Japanese carmakers will likely benefit under the agreement from further weakness in the Yen.

Back to markets and looking closer at yesterday’s data flow. The main focus was on the September ISM non-manufacturing reading which eased 2.1pts to 56.9, below expectations of a fall to 57.5. The details made for more mixed reading however. The new orders component grabbed some attention after dropping 6.7pts in the month to the lowest in seven months. Prices paid were also soft, dropping to the second-lowest level since July 2009 although on the other hand and seemingly in stark contrast to Friday’s NFP’s, the employment component rose 2.3pts to 58.3 and well above the six-month average of 56.4. Away from this, we also got the final September services PMI which dipped to 55.1. Finally, the September labour market conditions index was flat for the month, declining 1.2pts from August and well below hopes for a bounce to +1.4.

Closer to home, yesterday’s final September Euro area composite PMI was revised down at the last count by 0.3pts to 53.6 versus the flash reading, leaving it at the lower end of the narrow range seen since March. Much of that disappointment was driven by Spain which saw its composite notched down unexpectedly by 4.2pts to 54.6 (vs. 58.0 expected). Italy was revised down 1.3pts to 53.3, while Germany was taken down slightly to 54.1 (-0.2pts from the flash reading). Offsetting this to some extent was a 0.5pt upward revision for France to 51.9. Over in the UK meanwhile we saw the composite PMI drop 1.9pts unexpectedly to 53.3 (vs. 54.9 expected). Away from the PMI’s, the Euro area investor confidence reading dropped 1.9pts to 11.7 (vs. 11.8 expected) and retail sales for the region printed as expected at 0.0% mom for August.

Taking a look at today’s calendar, German factory orders data for August and UK house price data for September are the highlights of a relatively light calendar this morning in Europe. Over in the US however we’ve got the August trade balance print with the deficit expected to widen sharply (to $48bn from $41.9bn) in light of last week’s advance international trade data which showed a substantial deterioration in net exports. On this, our US colleagues note that assuming there are no further revisions in today’s data and little offset from the trends in services, the deterioration in Q3 net exports could subtract about two full percentage points off output. While inflation-adjusted consumer spending should help underpin Q3 growth, they note that in light of the latest data on net exports, they expect to reduce their projection of H2 real GDP growth in 2015. Away from the trade data, also expected in the US this afternoon is the IBD/TIPP economic optimism reading for October. Fedspeak today is highlighted by George (due to give a key note speech shortly after lunch) and Williams this evening while shortly after the European close we are due to hear from the ECB President Draghi.