While the focus in the overnight session has traditionally been about two things, namely oil and China, today one can also throw in AAPL which is down 4% in the pre-market after its disappointing earnings yesterday in which it confirmed our channel-checked warnings about China from last summer, and the Fed which is set to release the January FOMC statement this afternoon.

Unlike yesterday, when the National Team allowed stocks to tumble, today the Chinese Plunge Protection Team intervened, and with the Shanghai Composite down as low at 2,638, the benchmark stock index pared the loss of as much as 4.1%, spurred by rallies for PetroChina, ICBC and other shares that are long considered favorite holdings of state-linked rescue funds. The result was a -0.52% drop in the composite, preventing what could have been the latest two-day -10% correction.Still, after today's close the index dropped to the lowest since December 2014.

With the Fed set to take center stage today, the dollar's prospects - which increasingly many recognize needs to somehow decline to avoid a worsening global recession - rest on the wording of the Fed's policy statement. Since the U.S. central bank raised interest rates on Dec.16 for the first time in almost a decade, a Bloomberg gauge tracking the dollar against 10 of its leading global peers has risen 1.5 percent, touching a record high on Friday. Those gains have been fueled in part by indications from the Fed that there will be four rate hikes in 2016. Investors are watching for any deviation from that plan. Traders have been more dovish than the Fed, pricing in roughly one rate increase this year. At the end of December the odds of a March move were 51 percent. Fed fund futures now put the probability at 25 percent.

Elsewhere, Apple showed that contrary to Tim Cook's email to Jim Cramer, the tech company isn't immune to China's troubles. The world's biggest company is beginning to see "economic softness" in Greater China, which includes Taiwan and Hong Kong. Apple also projected its first quarterly sales decline since 2003

The negative sentiment weighed in on crude, and after yesterday's gargantuan 11.4 million barrel API inventory build, oil resumed declines amid further evidence of a global glut, dragging European stocks and U.S. equity index futures lower before the Federal Reserve’s first policy statement this year. European bonds gained and the yen strengthened.

West Texas Intermediate crude fell toward $30 a barrel after U.S. industry data showed stockpiles increased. European stocks deepened a monthly rout as disappointing earnings reports reignited investor concern about global growth prospects, with Apple Inc. forecasting its first drop in sales since 2003. Yields on Treasuries due in a decade held at around 2 percent and German note yields fell to record lows, while Malaysia’s ringgit climbed to a seven-week high as Prime Minister Najib Razak was cleared in a corruption probe.

Today it wasn't just about crude: as Bloomberg adds, Iron ore will will be the worst performing metal this year. That's the verdict of the World Bank, which cites low-cost supply outstripping consumption. The Washington-based lender says prices will average $42 a metric ton in 2016, a drop of 25 percent from 2015. Ore with 62 percent content delivered to Qingdao, a global benchmark, sank to a record low of $38.30 in December, having lost almost half its value last year. The slowdown in China has restricted demand from the world's biggest user. At the same time the biggest mining companies are raising production to build market share. The World Bank forecasts nickel may fall 16 percent in 2016, while copper may drop 9 percent.

"Nobody is really sure where we go from here, and nobody is brave enough to make the call,” Peter Dixon, Commerzbank AG’s global equities economist in London told Bloomberg. “Corporate earnings season won’t provide much of a support - markets may find a floor if the Fed is extremely dovish tonight. At least investors will have time to think and reassess valuations."

Looking at markets around the globe, we start in Asia, where stocks traded mostly higher following the firm close on Wall St. where strong earnings and a rebound in the energy complex supported risk sentiment. Nikkei 225 (+2.7%) was led higher by the telecoms sector after index giant Softbank rose the most in 21 months following strong earnings report from its Sprint unit, while the ASX 200 (-1.2%) traded lower as it played catch up to yesterday's regional losses on its return from holiday. Shanghai Comp. (-0.5%) initially underperformed after Chinese industrial profits printed its largest decline in 4 months and 4th consecutive monthly decline, however, the index was granted some reprieve heading into the EU open amid support for energy names. 10yr JGBs traded higher despite the inflows into riskier assets, while the BoJ also entered the market to purchase JPY 1.26tr1 in government bonds.

European stocks opened lower this morning despite a generally positive close from their Asian counterparts. With somewhat damp sentiment, and without large swings in Asian equities, earnings from European majors have managed to dictate price action. Heavy weight Novartis (-3.0%) missed on its headline sales and EPS figures, and as a result weighs upon the SMI (-0.8%). The fallout from Novartis' poor fourth quarter has also been felt in other defensive sectors across Europe, who have failed to benefit from a lack of risk-on. Elsewhere, BASF (-3.0%) and RBS (-2.9%) issued warnings of upcoming EUR 600mln and GBP 500mln impairment charges respectively. To round it off the premier company of the IBEX, Santander (-1.0%), posted virtually zero Q4 net.

Apple's (-3.2%) Frankfurt listing trades lower following fears about iPhone sales growth, despite the company posting a beat on EPS. iPhone sales grew just 1% from a year earlier, the slowest ever rate for the device, sluggishness which, according to the company's own projections is set to continue. Furthermore, the company projected the first revenue decline in over a decade, although CEO Tim Cook said was indicative of a slowdown in global economic growth.

In FX, extremely tight trade seen in FX this morning, with the majors well contained by familiar limits. Oil/stock watching dominates, but we had some brief excitement with AUD/USD breaking higher through the .7000's on better than expected CPI, but the move ran out of steam around .7050. This coincided with a turn in risk sentiment, though Asia was mixed. Oil lower again though, holding off the $29.0 handle, but enough to pull the CAD a cent off the 1.4040 highs vs the USD. USD/JPY confined to the 118.00 handle, finding support at the figure level in Asia and since. EUR/USD is trying to break higher, but upper 1.0900's well offered. GBP is losing its shine.

In commodities, WTI and Brent trade lower as the supply glut continues, with yesterday's API inventories showing a substantial build of 11.4 min bbl; if the official data out later today shows a similar rise, it would be the largest weekly gain in stocks since May 1996. With this is mind however, Brent remains above USD 31.00 level and WTI above USD 30.00, with comments yesterday from Iraq's Oil Minister in regards to production, seemingly preventing a further slide in prices.

Spot gold ticked down from 3 months highs overnight, amid a relatively quiet session in Europe, with similar lack of price action in USD, as participants await today's FOMC. The yellow metal hit after hit USD 1,123.06 in yesterday's session, its highest level since November 3rd, and as of this morning remains higher by 5.3% since the start of the year, as the beneficiary of safe haven bids.

Elsewhere, copper prices have seen subdued trade, with LME copper now around the level of its Kerb close yesterday, seemingly quite comfortable above that important USD 4,500 handle. Some have speculated that this is because short positions are closing ahead of the Chinese New year, as an uptick is demand is expected after Chinese participants return from their week long-hiatus and businesses complete their first quarter copper tender in March.

Finally, Iron ore has continued its rebound with prices rallying to a 3-week high. This comes despite the World Bank forecasting iron ore to be the worst performing among metals this year, citing increasing output by the industry leaders and low cost supply continuing to overshadow demand.

Datawise in the US today the only release of note will be the December new home sales data. That’s before we turn to the main event of the day of course with the conclusion of the two-day FOMC meeting at 7.00pm GMT. Away from this we’ve got a number of ECB board members due to speak including Coeure, Mersch and Lautenschlaeger at various points this morning. Earnings season rumbles on and today sees 33 S&P 500 companies report including Facebook (after-market), eBay (after-market) and Boeing (pre-market open).

Bulletin Headline Summary from Bloomberg and RanSquawk

• European equities trade lower amid a raft of weak earnings and impairments, Apple's (-4.0%) Frankfurt listing trades lower following fears around iPhone sales growth
• Extremely tight trade seen in FX this morning, with the majors well contained by familiar limits
• Today's highlights: US new home sales, DoE inventories, FOMC & RBNZ rate decisions, comments from BoE's Shafik, ECB's Lane, Mersche & Lautenschlaeger
• Treasuries lower overnight ahead of FOMC rate decision at 2pm ET; week’s U.S. auctions continue today with $35b 5Y notes, WI yield 1.44%, compares with 1.785% awarded in Dec., highest 5Y auction stop since 1.800% in Sept. 2014.
• When Fed Chair Yellen looks for an update on China she’ll find little reason for cheer. The Shanghai Composite Index has tumbled to a 13-month low as a rout that started in the middle of 2015 shows no signs of easing up. Capital is leaving at a record pace
• Last year, Chinese policy makers watched $1t in capital head for the exits. Now, the question is what exactly will President Jinping’s economic team do about it. One option is capital controls
• China’s leading state media are becoming more vociferous in their support for the yuan; short sellers “haven’t done their homework,” the state-run Xinhua News Agency said on Wednesday, while the People’s Daily declared that such trades will undoubtedly fail
• The Italian government and the European Commission agreed on a plan to help banks offload bad debt in a deal that won’t count as state aid because Italy’s backing will be priced at market rates
• Royal Bank of Scotland dropped after taking a £3.6b ($5.2b) hit to the value of its assets and set aside more money for past misconduct, overshadowing CEO Ross McEwan’s efforts to resume dividend payments
• Bank of America isn’t waiting to see if trading revenue rebounds from a tough 2015. CEO Thomas Montag is increasing pressure on deputies to lower expenses across his trading and investment banking world, according to people with knowledge of the initiative
• Canadian PM Trudeau has pledged to keep the country’s debt declining in relation to the size of the economy, even as he drives up the deficit with infrastructure spending
• After years of lambasting other countries for helping rich Americans hide their money offshore, the U.S. is emerging as a leading tax and secrecy haven for rich foreigners by resisting new global disclosure standards
• Sovereign 10Y bond yields mostly steady. Asian stocks mostly higher, European stocks drop; U.S. equity-index futures drop. Crude oil falls, copper and gold drop

US Event Calendar

• 7:00am: MBA Mortgage Applications, Jan. 22 (prior 9%)
• 10:00am: New Home Sales, Dec., est. 500k (prior 490k)
• New Home Sales m/m, Dec., est. 2% (prior 4.3%)
• 1:00pm: U.S. to sell $35b 5Y notes
• 2:00pm: FOMC rate decision, est. 0.25%-0.5% (prior 0.25%-0.5%)

DB's Jim Reid completes the overnight wrap

Having struck an intraday low of $29.25/bbl early yesterday morning, WTI staged a comeback post the Asia close, rising steadily through much of the European and US sessions after headlines concerning potential supply cuts from OPEC and Russia gained traction. That saw Oil hit an intraday high of $32.41/bbl (an 11% swing from the day’s low) but the momentum faded slightly into the close with prices settling back down at $31.45/bbl and still nearly a dollar off where we closed Friday. As you’ll see below that fading momentum has continued into the Asia session. The earlier moves were enough to see equity markets rebound and close broadly higher yesterday with decent gains for the S&P 500 (+1.41%), Dow (+1.78%), Stoxx 600 (+0.87%) and DAX (+0.89%).

Post the US close we saw Apple report which given its size is becoming a macro event. While earnings came in slightly ahead of estimates and sales a smidgen behind, the bigger news was the guidance for the current quarter where management is forecasting the first quarterly drop in sales since 2003 (to between $50bn to $53bn). That’s also below Wall St forecasts for $55.5bn with Apple’s CFO highlighting some softness in China and Hong Kong this month in particular. The news saw shares down a couple of percent in extended trading while US equity index futures are looking up to 1% lower.

US futures are not being helped by another turnaround in Asia with the majority of bourses cooling off after opening strongly. The Nikkei (+2.24%), Kospi (+1.03%) and Hang Seng (+0.47%) appear to be following much of the lead from the US although have pared much greater gains, while there’s been another steep fall for bourses in China (Shanghai Comp -3.52%), while the ASX is also down -1.20%. Oil continues to reverse last night’s high mark with WTI down -1.00% at $31.13/bbl in trading this morning. The weakness in China this morning may also be reflecting some soft industrial profits data, with profits falling for a seventh consecutive month in December (-4.7% yoy) after being at -1.4% in November.

These moves come ahead of the main event of today – the FOMC meeting. Leading into it, futures markets are actually pricing a greater chance of a cut than a hike (4% versus 0%) from the Fed. The important takeaway however will be what hints we get from the committee about forward policy guidance. It would be no great surprise to see the FOMC leave the door for a March move open, but clearly the news since the December meeting doesn’t lend itself to a March move. As DB’s Peter Hooper points out, financial conditions have deteriorated enough to subtract as much as half a percent point from GDP growth if sustained and the committee has emphasized the importance of incoming data to their decisions going forward. As a result they will have the delicate task of acknowledging the recent deterioration in economic and financial conditions while at the same time leaving the door open for a March move if recent deterioration proves to be temporary. We continue to be of the view that the Fed should be on hold for now however and so would not be surprised to see a more dovish message out of today. Of potentially more relevance could be Fed Chair Yellen’s monetary policy testimony in a couple weeks. By then we will have had the December consumer spending and inflation data, Q4 GDP, Q4 ECI data, January employment data and the Q1 Fed Senior Loan Officer Survey.

Moving on and quickly recapping the rest of markets yesterday. As well as that bounce in Oil some better than expected corporate earnings results from Procter & Gamble (PG), Johnson & Johnson (JNJ) and 3M (MMM) contributed to the much better tone for risk. US consumer confidence data also attracted some attention after we saw the print unexpectedly jump 1.8pts this month to 98.1 (vs. 96.5 expected), marking a three-month high in the process. This was surprising in the context of the big slump for equities this month which has been seemingly overshadowed by the resilient labor market and consumer benefits from lower energy prices. The rest of the data yesterday offered few surprises. The flash US services PMI came in a touch below expectations at 53.7 (vs. 54.0 expected), a decline of 0.6pts from December. The Richmond Fed manufacturing index print declined 4pts to 2 as expected. Meanwhile the S&P/Case-Shiller house price was up +0.9% mom in November (vs. +0.8% expected), while the FHFA house price index rose in line with the market at +0.5% mom.

There was no data out of Europe yesterday but that didn’t stop Europe sovereign bond yields edging lower once more. 10y Bund yields finished 2.5bps lower and are now sitting around 0.445% which is the lowest since the end of October last year after starting the year closer to 0.628%. Meanwhile 2y Bunds have quietly gone about extending their move deeper into negative territory, moving another basis point lower yesterday to -0.460% and in the process setting a fresh record all time low. The latest leg lower in part helped by some more affirmative words from ECB President Draghi who reiterated the need for the ECB to achieve its inflation mandate.
Staying in Europe, the systemic euro peripherals are both in focus at the moment. In Spain the probability of a left-wing PSOE-Podemos government has increased materially according to DB's Marco Stringa. There is a significant risk that an eventual agreement will include the reversal of the labor market reform. A left-wing government would probably be highly unstable as it will likely fall short of an absolute majority and would likely require the collaboration of more than seven parties. Overall, the three main options continue to be: (i) a left-wing government, (ii) a last-minute temporary Grand Coalition or (iii) a new election to be called probably in April. Although uncertainty is very high, options (i) and (iii) seems the more likely. Overall Marco continues to think that an early election at a national level is a question of when rather than if.

Moving to Italy, last Friday, Marco and DB bank analyst Paola Sabbione published a report on the country and its banks. There is the risk that recent events put upward pressure on bank funding costs, above all for the small credit institutions. But this will not compromise the stability of the Italian banking sector in their view. The recent ECB request for additional information on NPLs is not a sign of a new risk in asset quality. Italy could undertake a significant institutional makeover via the Senate reform. A referendum should take place in October. Were it to be rejected, it would likely trigger the fall of Renzi's government. 

Turning over to today’s calendar now, we’re kicking off this morning in Europe with various consumer confidence readings out of Germany, France and Italy along with house price data out of the UK. Datawise in the US this afternoon the only release of note will be the December new home sales data. That’s before we turn to the main event of the day of course with the conclusion of the two-day FOMC meeting at 7.00pm GMT. Away from this we’ve got a number of ECB board members due to speak including Coeure, Mersch and Lautenschlaeger at various points this morning. Earnings season rumbles on and today sees 33 S&P 500 companies report including Facebook FB (after-market), eBay (EBAY) (after-market) and Boeing (BA) (pre-market open).