With China, German and South Korea closed for holiday, it has been a relatively quiet day in overnight equity trading, especially in the one stock everyone is keeping a close eye on, Deutsche Bank, whose ADRs are trading fractionally lower, down under 1% in premarket trading.  The British pound dropped 0.8% to $1.2872 in early trading, touching the weakest level since July 6, on concern Britain may face a so-called hard Brexit after British Prime Minister Theresa May pledged to start pulling the U.K. out of the European Union by March. As a result the FTSE 100 Index added 1.1% rising to a fresh 16 month high as the "fear of Brexit" once again proves quite generous for UK stock markets. The yield on 10-year gilts slipped one basis point to 0.74% as the BOJ's efforts to fix the benchmark paper to 0% continue to struggle.

With futures little changed, and what international markets are open rising modestly on Friday's US stock momentum higher, driven by a now rejected rumor of a $5.4 billion revised settlement between the US and DOJ, the key highlight of the trading session so far has been sterling, which dropped by the most in two weeks, helping support British shares. As Bloomberg notes, the MSCI All Country World Index added 0.2% as stock markets rallied in Asia, also reacting for the first time to a report that Deutsche Bank AG would face a smaller fine than feared from the U.S. Department of Justice; ironically a report which US traders now see as having been made up. Crude oil rose for a fourth day, boosting the currencies of commodity-exporting nations. Markets in China, Germany and South Korea were shut for holidays on Monday.

The pound has sunk about 13 percent versus the dollar this year, making it the worst-performing major currency, on concern Britain’s decision to quit the EU will force it out of the single market, hurt exports and dent financial services. With negotiations on the terms of the exit yet to start, business groups and foreign capitals are grasping for more detail. May told her Conservative Party’s annual conference in Birmingham that she’ll invoke Article 50 of the EU’s Lisbon Treaty by the end of March.

“Yesterday the impression participants got was that the pendulum has swung towards a hard Brexit,” said Neil Jones, head of hedge fund sales at Mizuho Bank Ltd in London. “Hard Brexit is a sell for the pound. I know the government line is that they don’t see a need to differentiate between hard and soft Brexit, but the market certainly does.”

In notable M&A news, Henderson Group Plc agreed to buy Janus Capital Group creating a $320 billion money manager as both companies seek to boost profit and assets in the face of rising competition from passive managers. Henderson’s shares surged the most in more than seven years. The combined firm, Janus Henderson Global Investors Plc, will have a market value of at least $6 billion, the Denver and London-based companies said in a statement Monday. Japanese insurer Dai-ichi Life Holdings Inc., Janus’s biggest shareholder, will hold a 9% stake in the combined company and intends to increase that to at least 15 percent, according to the statement.

In commodities, crude oil rallied 1.1 percent to $48.75 a barrel after rising 8 percent over the previous three sessions as OPEC members forged a preliminary agreement to reduce output. Treasury 10-year note yields were at 1.60% after slipping two basis points last week. Japan’s was at minus 0.085 percent and Germany’s at minus 0.11 percent. Attention will focus on today's General Collateral print after the surge in GC to post-crisis highs on Sept 30 to confirm that this was quarter-end driven and not a function of a collapse in USD-liquidity, precipitated by Deutsche Bank fears.

Market Snapshot

• S&P 500 futures up less than 0.1% to 2162
• Stoxx 600 up less than 0.1% to 343
• FTSE 100 up 1% to 6966
• German 10Yr yield up less than 1bp to -0.11%
• Italian 10Yr yield up 4bps to 1.22%
• Spanish 10Yr yield down less than 1bp to 0.88%
• S&P GSCI Index up 0.4% to 365.9
• MSCI Asia Pacific up 0.7% to 141
• Nikkei 225 up 0.9% to 16599
• Hang Seng up 1.2% to 23584
• S&P/ASX 200 up 0.8% to 5479
• US 10-yr yield up less than 1bp to 1.6%
• Dollar Index up 0.12% to 95.57
• WTI Crude futures up 0.8% to $48.64
• Brent Futures up 0.9% to $50.64
• Gold spot down less than 0.1% to $1,316
• Silver spot down 0.2% to $19.13

Global Market Snapshot

• Henderson to Buy Janus, Sending Shares Up the Most in 7 Years: Joint business to have about $6 billion market value
• Deutsche Bank Said Set to Advance on 1,000 Planned Job Cuts: German lender may reach agreement with works council this week
• Google Said to Tap Lazard to Review Potential Bid for Twitter: Social-media company continues to explore a sale
• Tesla Shipments Top Analysts’ Estimates as Musk Urges Sales Push: Electric-car maker puts third-quarter deliveries at 24,500
• Bass Pro Said to Win Auction for Outdoor-Gear Rival Cabela’s: Retailer said to beat private-equity firm Sycamore Partners
• NXP Said to Hire Qatalyst Amid Qualcomm Acquisition Interest: Qualcomm said to be undecided on whether to bid for NXP
• Illinois to Suspend Wells Fargo From Bond, Investing Work: State teasurer joins California in penalizing bank for scandal
• Diamondback Energy Said Near Deal to Buy Silver Hill Energy: Deal may value Silver Hill at ~$2.5b, WSJ reports

Looking at regional markets, we start in Asia where equity markets began the week higher following last Friday's US gains which were led by financials and energy names, while the region also digested encouraging Chinese Official PMIs. ASX 200 (+0.7%) and Nikkei 225 (+0.9%) advanced as financials continued to be dictated by Deutsche Bank after the Co.'s ADRs rose 14% on Friday amid reports it was nearing a USD 5.4bIn settlement deal, which is much lower than the initially touted USD 14bIn. Furthermore, last week's gains in crude also underpinned sentiment and resulted in the ASX 200 printing its highest level in a month. Hang Seng (+1.3%) outperformed after Chinese PMI data over the weekend showed Official Manufacturing PMI expanded for a second consecutive month and matched the highest reading since October 2014, while Non-Manufacturing PMI also strengthened. As a reminder, markets in mainland China and South Korea were shut for holidays, with China closed all week due to Golden Week holidays.

Top Asian News

• Kuroda Has Ruined Chance of Second Term, Abe Aide Nakahara Says: He says new framework compounds failure of negative rates
• Japan’s Tankan Gauge of Corporate Sentiment Worse Than Expected: Sept. Large Manufacturer Tankan at 6 vs. est. 7
• China Factory Gauge at 2-Year High Eases Pressure for Stimulus: Manufacturing PMI at 50.4 for 2nd month, services rise to 53.7
• Singapore Home Prices Slide by Most in More Than Seven Years: Home prices fall for 12th quarter as curbs stay, dropping 1.5%
• Amazon Bets Billions on Taking Title as India’s Top Web Retailer: Co. is spending $5b, aiming to dominate e-commerce in India.
• Taiwan’s Top Financial Regulator Resigns Over Mega Controversy: New York fined bank for anti-money laundering rule breaches
• Kawasaki Heavy Tumbles Most in Eight Years on Profit Outlook: Company cuts full fiscal year net income forecast by 66%
• Saudi Banks Told to Reschedule Loans of Clients Hit by Cuts: Local banks need customers’ approval to overhaul the loans

In European equity markets we have seen some strength this morning with the FTSE 100 trading higher by 0.7%, with the energy sector outperforming off the back of gains in WTI and Brent. Healthcare names also prop up the index as large cap names are seemingly benefitting at the expense of small-caps in the wake of reports that the UK health watchdog are to start charging drugs companies to appraise new products. Another story of interest is the merger of equals between Henderson Global and Janus Capital, which sent Henderson Global stock climbing higher by 15% at the open. Elsewhere, softness has been observed in Italian banking names amid reports Bank of Italy's Visco and senior Italian bankers are expected to meet with the Italian government today regarding the sale of 4 banks which were rescued from bankruptcy last year with markets seemingly cautious ahead of the meeting. Another thing of note today, is the Jewish New Year and a German public holiday (DAX closed) which could mean light volumes across markets. Subsequently, Bunds trade relatively flat with German participants away and Gilts (+14 ticks) managing to hold on to gains seen earlier on in the session.

Top European News

• Pound Nears Three-Decade Low as May Sets Date for Brexit Trigger: Sterling declines against all 31 of major counterparts
• ING to Cut About 5,800 Jobs Through 2021 to Reduce Costs: Bank plans to invest EU800 million in digital upgrade
• Euro-Area Manufacturing Quickens as Germany Leads Uneven Growth: PMI increased to 52.6 in September from 51.7 in August
• U.K. Factories Boom as Pound’s Brexit Plunge Boosts Exports: U.K. factories had best month in more than 2 years in Sept.
• Nordea Avoids Most ‘Gruesome’ Capital Scenario as New Target Set: Capital ratio falls short of Swedish FSA’s requirement
• Philips Said to Be in Talks to Sell Lumileds Unit to Apollo: Other private equity firms said to have dropped out of talks

In commodities, crude oil rallied 1.1 percent to $48.75 a barrel after rising 8 percent over the previous three sessions as OPEC members forged a preliminary agreement to reduce output. Most industrial metals rose, with copper advancing 0.4 percent, after a weekend report showed China’s official manufacturing purchasing managers’ index steadied at the highest level in almost two years. The LME Index -- a measure of copper, aluminum, nickel, tin, zinc and lead prices on the London Metal Exchange -- entered a bull market last week and climbed to a 14-month high.

In FX, the pound dropped 0.8 percent to $1.2865 at 9:36 a.m. London time, touching the weakest level since July 6. Sterling tumbled the most on record to a more than 30-year low in the wake of the June vote in favor of Brexit. The FTSE 100 Index added 1.1 percent and the yield on 10-year gilts slipped one basis point to 0.74 percent. Sterling stayed lower after a gauge of U.K. manufacturing unexpectedly increased. The Mexican peso led gains among currencies of raw materials producers, adding 0.9 percent, while the South African rand advanced 0.7 percent. Colombia’s peso is likely to be sold off following the unexpected rejection in a referendum of a peace deal between the government and Marxist guerrillas, according to Goldman Sachs Group Inc. analysts. The currency strengthened more than 3 percent in each of the last two months.

Looking at key events in the US, today's highlight is the ISM manufacturing print, while the final manufacturing PMI, construction spending for August and also September vehicles sales data will also be closely watched

Bulletin Headline Summary from RanSquawk and Bloomberg

• GBP is softer against its major counterparts amid UK PM May stating that the UK is to trigger Article 50 by the end of March next year. Losses trimmed by firm UK manufacturing PMI
• Conversely, the FTSE 100 outperforms, led higher by energy and healthcare names with soft GBP also supporting export names
• Looking ahead, US manufacturing PMI, US ISM Manufacturing and ECB's Mersch is Speaking
• Deutsche Bank Said Set to Advance on 1k Planned Job Cuts
• Pimco Warns of Rising Asia Debt After Record Dollar Bond Sales
• ConvaTec Plans to Raise $1.8b in London Initial Offering
• Samarco Bondholders May Come Away With Nothing After Default
• Oil Bulls Rewarded as Crude Surges After OPEC Output Accord
• Tighter European Loan Spreads Pressure CLO Arbitrage: Analysis
• Standish’s Reinhart Says High-End ABS, HY, EM Offer Value Potential
• New Hedge Fund Ayin Capital to Launch Structured Credit Fund

US Event Calendar

• Wards Total Vehicle Sales, Sept., est. 17.45m (prior 16.91m)
• 9:45am: Markit US Manufacturing PMI, Sept. F, est. 51.4 (prior 51.4)
• 10am: Construction Spending m/m, Aug., est. 0.3% (prior 0%)
• 10am: ISM Manufacturing, Sept., est. 50.3 (prior 49.4)
• 11:30pm: Reserve Bank of Australia cash rate, est. 1.5% (prior 1.5%)

DB's Jim Reid concludes the overnight wrap

The main stories over the weekend revolve around Brexit and China. Before we discuss these it's also worth highlighting that today is global manufacturing PMI day and Friday is the all important US payroll release. In the US, last month's composite PMI employment number (manu and non-manu) suggested a payroll print of around 30k (given historical regressions) so keep an eye on these sub components as well as the headline numbers.

Now to the weekend news, UK PM Theresa May spoke at the start of her party conference and suggested that Article 50 will be triggered before the end of March next year. Sky News sources suggest that civil servants are working on being able to trigger by mid-January. This starts to give the process some shape and we now know that membership will likely cease in Q1 2019. It'll be interesting to see if we learn anything else from the Tory conference this week. There will be lots of opportunity to clarify more of the position of the party with regards to Brexit or alternatively lots of opportunity to show division. Also today sees new chancellor Philip Hammond speak at lunchtime and it'll be interesting to see if he gives any clues at to how much fiscal loosening we may or may not see at the upcoming autumn statement. Overall the weekend UK news should dispel any thoughts in the market that Brexit might be watered down. The government has been pretty clear that they think the vote means that migration needs to be controlled and they will try to negotiate the best trade deal possible with that constraint. The pound opened 0.5% lower against the dollar in the Asian session as a result but is around 0.2% lower as I type.

With regards to China the official PMIs showed stabilisation but we also saw measures to curb the property bubble. The manufacturing PMI was unchanged at 50.4 (50.5 expected) with non-manufacturing rising to 53.7 from 53.5 in August. In terms of property seven local governments have tightened home buying rules to curb demand since Friday as at a national level prices are running at their highest level of growth for 6 years including 60% YoY gains in Shenzhen. As a reminder our Chinese economist published a note on Friday looking at the property bubble (we highlighted it on Friday). Zhiwei Zhang thinks that the bubble will likely have a small positive effect on growth over the next 3 to 6 months, but cause significant downside risk beyond. He has cut his 2018 GDP forecast to 6.0% and revised the USDCNY forecast to 6.8, 7.4, and 8.1 by the end of 2016, 2017 and 2018. Capital outflows may rise in 2017 and FX reserves may drop below USD3 trillion. He is keeping his 2017 GDP forecast at 6.5%, but this will require significant policy easing including interest rate cut in Q2 to offset the risk of the property bubble bursting. 

China is off this week due to the golden week celebrations but the Hang Seng is open and up 1.2% as we type with the Nikkei 1% higher shrugging off a slightly disappointing Tankan report. 10 year JGBs are a couple of bps higher at -0.078% and it'll be interesting to see how the first 10 year auction since the BoJ policy change goes tomorrow.

Briefly recapping Friday, equity markets around the world rallied late following a shaky start with sentiment in European financials dominating trade in both directions. The Euro STOXX picked up from some large early losses of about -1.7% to end the day marginally higher (+0.06%). Despite ending the last four days of the week in positive territory, the STOXX still ended the week down -0.7%. The S&P also ended  Friday up +0.8% (led by financials up +1.5%) and up +0.2% for the week, posting its third consecutive weekly gain.

Over in credit markets we saw Main and Crossover end the day essentially unchanged, although they were wider +2bps and +8bps respectively on the week. US credit performed better on Friday, with CDX IG and HY both tighter by -3bps and -11bps respectively. On the week CDX IG was -2bps tighter, although HY failed to recover from earlier widening and ended the week +15bps wider. At the other end of the risk spectrum US 10Y yields ticked up by +3.5bps on Friday while German 10Y yields were largely unchanged on the day.

Looking back at some of the data out on Friday, we saw German retail sales drop by -0.4% mom in August (vs. -0.2% mom expected; 0.5% previous). Preliminary French CPI numbers for September also slipped into deflationary territory (-0.2% mom), although the deflationary pressure was less than expected (-0.3% expected; +0.3% previous). Euro area inflation as a whole however picked up in September (+0.4% YoY vs. +0.4% expected; +0.2% previous) to its highest level since late 2014. Data out of the UK continued to shrug off Brexit concerns as house prices rose in September in line with expectations (+0.3% vs. +0.3% expected; +0.6% previous), while final Q2 GDP numbers were revised up to +0.7% QoQ (vs. +0.6% previous estimate).

Over in the US we saw personal spending unchanged in August (vs. +0.1% expected; +0.3% previous) while personal income growth slowed as expected (+0.2% mom vs. +0.2% expected; +0.4% previous). Survey data out of the US painted a more positive picture as Chicago PMIs beat expectations in September (54.2 vs. 52.0 expected; 51.2 previous) while the UMichigan Sentiment indicator ticked up for the first time in four months to 91.2 (vs. 90.0 expected; 89.8 previous). The latter also saw the current conditions index tick up to 104.2 (vs. 103.5 previous) while long term inflation expectations (next 5-10 years) climbed to 2.6% (vs. 2.5% previous).

Turning over to this week’s calendar now. This morning in Europe we’re kicking off with the manufacturing PMI’s where we’ll get the final revisions for the Euro area, Germany and France and a first look at the data for the UK and the periphery. Across the pond this afternoon the highlight is likely the ISM manufacturing print, while the final manufacturing PMI, construction spending for August and also September vehicles sales data will also be closely watched. Tuesday morning starts with a couple of Central Bank meetings with the RBA and RBI decisions due (market expecting no change in policy at either). During the European session the sole release is Euro area PPI while there’s nothing of interest scheduled in the US. Wednesday is another PMI day with services and composite prints due in Japan, Europe and the US in particular. We’ll also get Euro area retail sales for August along with important data in the US in the form of the September ADP print, August trade balance and September ISM non-manufacturing reading. August factory orders will also be released. Moving to Thursday, Germany factory orders highlight a quiet morning session for data although we will get the latest ECB minutes. Over in the US initial jobless claims is the only data scheduled for release. We’ve got a bumper end to the week on Friday. In Japan we’ll get labour cash earnings and the conference board’s leading index. During the European session we’ll get Germany industrial production as well as France and UK trade data and industrial production. Over in the US it’s all about the September employment report including the all important payrolls number. Wholesale inventories and trade sales along with consumer credit will also be released. China is also due to release its September foreign reserves reading at some stage on Friday.

Away from the data, the Fed’s Lacker (Tuesday and Wednesday), Evans (Wednesday), Kashkari (Wednesday), Fischer (Friday), Mester (Friday), George (Friday) and Brainard (Friday) are due to speak in a packed week of Fedspeak. The other potentially interesting event is the Vice-President nominees debate tomorrow between Pence and Kaine, before Clinton and Trump square off again next Sunday. UK PM Theresa May is also due to give a keynote speech on Wednesday at the Conservative Party conference.