European, Asian stocks and S&P futures all fall as investors digested poor overnight news on Apple earnings and U.S. car sales, while the dollar rose in muted trading as investors contemplated chances of another rate hike next month ahead of today's Federal Reserve statement.

Europe's Stoxx 600 fell from a 20 month high as traders sold risk after poor earnings from Apple and a 4th consecutive month of declining U.S. car sales, while the dollar strengthened before a Federal Reserve meeting where policy makers will need to mull over another soft patch in the U.S. economy. European Apple suppliers were among the biggest losers in the broader Stoxx 600 Index, with Dialog Semiconductor dropping as much as 6.2% before recovering losses.

Poor April auto sales in turn hit industrial metals which pushed commodity producers for a third day. Falls in the price of copper, iron ore and other metals also underlined growing nerves over China and, with oil prices stuck near recent lows, weighed on Europe's commodity-heavy indices.

"These numbers point to U.S. consumers becoming more cautious and do seem like a source of some of the weakness today," said Andy Sullivan, a portfolio manager with GL Asset Management UK in London. "Autos, tech and basic resources are leading Europe lower."

A bond rally in peripheral Europe was led by Italy while closed markets in Japan, South Korea and Hong Kong limited trading in Treasuries, which weakened at the start of European hours.

And then there is today's Fed statement. As a reminder, markets now price in a 60% probability of a June rate hike, however weak U.S. economic numbers in the past month have cast some doubt on this. As a result, traders will be keenly looking at hints by Yellen whether the recent bout of economic weakness will be seen by the Fed as merely temporary.

According to DB, there is unlikely to be much new information in this month’s FOMC statement. DB’s Peter Hooper believes that the risk, albeit a small one, is that they will come closer to moving in a tightening direction than currently expected. More will be learned on that score in post-meeting Fedspeak (for which there are a number of speakers due on Friday including Fed Chair Yellen) or the minutes to the meeting. In terms of the finer details, Peter highlights that the Committee should be able to get away with relatively minor changes in the discussion of recent developments. They can acknowledge the soft GDP print and consumer spending in particular. That said they should also downplay this softness given the known issues with seasonality. On the inflation front, indicators have trended modestly higher on balance, notwithstanding a softening in core inflation in March driven by the anomalous drop in mobile phone services prices. The YoY change in the core PCE price index was running just modestly below the Committee’s 2% objective through Q1. An up-drift in most measures of wage inflation over the past couple of years confirm that the labor market has been in the vicinity of full employment for a while now. Market measures of inflation expectations have eased on balance since the March FOMC meeting, though they have rebounded recently. In summary, with market expectations for a June hike running at 67% according to Bloomberg’s calculator (and just 13% for a May hike) there will probably not be a need to push these expectations higher at this point. But any net changes in the statement are more likely to be read as hawkish rather than dovish, simply because the current and near-term prospective mix of economic developments probably moves them closer to their next rate hike, which DB expects will be in June

Back to markets, where after a mixed Asian session, with Japan, SKorea and HK closed, the MSCI global share index was marginally lower on the day. Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore, said the weak U.S. auto sales could make market participants wary of actively buying the dollar against the yen for now. "Concerns about geopolitical risks such as North Korea had weighed on the dollar against the yen recently ... But the focus is shifting to whether the (strength) of U.S. economic fundamentals is for real," he said. "There is more data coming up including the jobs data, so those need to be watched closely," Okagawa said, referring to the U.S. nonfarm payrolls report due on Friday.

Euro Stoxx 600 fell 0.2 percent as of 10:37 a.m. in London, with losses led by miners; Futures on the Nasdaq 100 gained 0.1 percent. S&P 500 futures retreated 0.2% after the underlying gauge rose 0.1% Tuesday.

The Bloomberg Dollar Spot Index rose, reversing Tuesday’s fall, as traders covered some shorts in the currency even though options suggested the Federal Reserve policy decision will fail to excite markets. Bloomberg notes that amid low volumes and below-average liquidity with Japan closed for holidays, fast-money accounts were seen cutting part of their dollar-short positioning in the London session, according to foreign-exchange traders in the region. Investors expect marginal language shifts, if any, by the Fed and an unwillingness to commit to a June hike. Tier-one data out of the U.S. are to be released in the weeks ahead, including employment and inflation figures, which makes a case for policy makers to adopt a fully flexible approach. Options reflect subdued expectations on the Federal Open Market Committee decision and communique: overnight volatility in euro-dollar peaked earlier at 12.41 percent, the second-lowest reading on any announcement day since 2016

Meanwhile WTI rebounded overnight, as futures bounced back from lowest level in 6 weeks. Brent also gained trading around $51after Russia said to back extension to output cuts. Yesterday's API data are “keeping a bid in the market as we await confirmation of these numbers,” said Jens Pedersen, senior analyst at Danske Bank. “There had been bearish sentiment as the market has become a bit more concerned about the extension of cuts” As a reminder, API reported inventories down 4.16MMBbl, with gasoline 1.93MM barrels lower.

Carlyle, Estee Lauder, Humana are among companies reporting earnings. The main event is the Fed's rate announcement at 2pm; there is no Yellen press conference this month.

Market Snapshot

• S&P 500 futures down 0.2% to 2,381.75
• STOXX Europe 600 down 0.2% to 388.89
• MXAP down 0.1% to 149.79
• MXAPJ down 0.2% to 489.58
• Nikkei up 0.7% to 19,445.70
• Topix up 0.7% to 1,550.30
• Hang Seng Index up 0.3% to 24,696.13
• Shanghai Composite down 0.3% to 3,135.35
• Sensex up 0.04% to 29,934.31
• Australia S&P/ASX 200 down 1% to 5,892.34
• Kospi up 0.7% to 2,219.67
• German 10Y yield fell 0.6 bps to 0.322%
• Euro down 0.2% to 1.0912 per US$
• Brent Futures up 0.9% to $50.93/bbl
• Italian 10Y yield rose 2.4 bps to 2.011%
• Spanish 10Y yield fell 2.4 bps to 1.63%
• Gold spot down 0.3% to $1,253.39
• U.S. Dollar Index up 0.09% to 99.07

Top Overnight News

• Apple Inc. reported falling iPhone sales, highlighting the need to deliver blockbuster new features in the next edition of the flagship device if the company is to fend off rivals like Samsung Electronics Co.
• Wall Street dealers, resigned to the prospect of a new ultra-long U.S. government bond, predict the Treasury would issue only a limited amount of the securities and pay a yield spread over existing 30-year debt
• The euro area maintained its growth momentum at the start of 2017, strengthening the case of those pressuring the ECB to sketch out an end to extraordinary stimulus measures
• EU chief Brexit negotiator Michel Barnier ruled out any immediate negotiations on transitional arrangements for the U.K.’s withdrawal from the bloc as he unveiled his first detailed vision of how talks will take shape
• JPMorgan plans to move hundreds of London-based bankers to expanded offices in Dublin, Frankfurt and Luxembourg as it prepares for the U.K. to lose easy access to the EU’s single market after Brexit
• Russia considers it sensible to extend the existing deal with OPEC to curb crude output for at least six months, given current market dynamics

Asian markets traded mixed ahead of the looming key risk events including the FOMC meeting and amid several market closures with Japanese, South Korean and Hong Kong markets shut for public holiday. ASX 200 (-0.9%) declined below the 5,900 level with telecoms weighed on by Vocus, while miners also slipped as copper prices remained pressured. The Shanghai Comp. (-0.3%) failed to benefit from a firm CNY 200bIn PBoC liquidity injection and the Taiex gained with the Apple supply chain mostly higher following the tech giant's earning release, where Q2 EPS beat expectations but revenue and iPhone sales disappointed. PBoC injected CNY 170bIn in 7-day reverse repos, CNY2Obln in 14-day reverse repos and CNY 10bIn in 28-day reverse repos.

Top Asia News

• Australia Stocks Drop, Dollar Becalmed Before Fed: Markets Wrap
• BNM Says Bank Institutions Don’t Need to Maintain Reserve Fund
• Noble Group on the Ropes Before Share Consolidation Kicks In
• Nickel Sinks as Philippines’ Lopez Is Rejected by Lawmakers
• Indian Stock Valuations May Stay Elevated on Equity Demand: MS
• Deutsche Bank’s Chinese Backer HNA Becomes Top Shareholder
• Strike at Freeport’s Grasberg Mine Continues as Talks Stalled
• Citi Seeks to Buy Santos Stake on Behalf of Hony, AFR Says
• Duterte Attending to Possible Lopez Replacement, Abella Says

In European trading tech names underperformed after Apple shares fell in after market trade as the tech giant announced iPhone sales missed analyst estimates due to a 14% decline in Chinese sales. EU bourses are trading modestly in the red with the main headline this morning focusing on reports from the FT that the Brexit bill may be around EUR 100BN, according to their calculations. While UK Brexit Minister Davis has been quick to state that the UK would not have to pay the bill if they do not reach an agreement with the EU, subsequently adding further uncertainty to how the Brexit negotiations will take place. However, the FTSE has been somewhat undeterred by these latest reports. Fixed income markets have been on the front foot with FTQ flow keeping prices afloat, OATs are relatively flat with yields trickling down by 0.4bps ahead of tonight's French Presidential TV debate.

Top European News

• U.K. April Construction PMI 53.1 vs 52.2 in March; Est. 52
• Deutsche Bank’s Chinese Backer HNA Becomes Top Shareholder
• German Unemployment Falls Further as Business Outlook Brightens
• Commerzbank Had Solid 1Q Results, ‘Good’ Start to Year, CEO Says
• Nordea Says Potential Move of HQ Will Cost Less Than EU70m
• Macron 59%, Le Pen 41% in Ipsos Poll, Le Monde Says
• Russia Said to Back Extending OPEC Deal After Hitting Target
• European Miners Drop to 4-Month Low as Metals Prices Sink
• Novo’s Legal Challenges Mount as U.S. States Query Insulin Price
• M&S Poaches Car-Parts Seller’s CEO to Lead Clothing Revival
• Sistema Plunges in Moscow After Rosneft Files $1.9 Billion Suit

In currencies, FX liquidity has not at its best based on the price action seen this morning. GBP has been in focus given the latest rhetoric from the EU 27, who have now banned Theresa May from head of state meetings. The hard-line stance relates to the settling of the exit bills, where some of the numbers have been pumped in the media, but early GBP selling has been reversed. Cable dipped under 1.2900 but held the Tuesday lows, while EUR/GBP has been contained by 0.8435-80. Construction PMIs in the UK also beat forecasts, but key services sector due tomorrow. EU growth data matched expectations to underline the steady recovery alluded to by ECB president Draghi last week. No major impact as yet as French politics takes over the focus, and to that end, sellers ahead of 1.0950 contain the spot rate, but sub 1.0900 bids also banking on a Macron victory as the polls (so far) suggest. A large 1.0925 expiry today is also helping to steady the ship. USD/JPY has traded a very quiet range above 112.00, but this is likely to change after the ADP private jobs survey later on today. US Treasury yields have taken a modest dip, though brushed off by FX markets as yet.

In commodities, it is proving a little more volatile in the commodities market of late, and with Oil prices dominating in recent sessions, it has been Copper taking a hit. Various factors cited, with some pointing to the weaker China manufacturing PMIs, but the timing of the hit suggests weak US auto car sales would have been more of a factor. Price now eyeing a move towards the range lows for 2017, but still comfortably off USD2.50 as yet. Oil traders still testing lower levels, and this was in light of the higher than expected draw down on Crude inventory. APIs are pretty erratic however, and pressure likely to continue unless the data is underlined by the EIA later today. WTI resistance ahead of USD50.00 has been a factor, but this level also support for Brent. Precious metals still basing out, but we may see some upside going into the weekend and the second round vote in France.

Looking at the day ahead, in the US the early focus will be on the April ADP employment change print which will be closely watched ahead of payrolls on Friday. The consensus is for a 175k reading while our US team are forecasting 200k. Also due out are the final PMI revisions (services and composite) and the ISM non-manufacturing print. Thereafter all eyes turn over to the FOMC meeting in the evening. Away from the data, the ECB’s Hansson is due to speak around lunchtime today, while the EU’s Barnier is also due to brief press on Brexit talks in Brussels this morning. This evening we have the decisive French presidential debate. Earnings wise today we’ve got 33 S&P 500 companies scheduled to report including Kraft Heinz, Facebook and Time Warner. BNP Paribas and Volkswagen also report in Europe.

US Event Calendar

• 7am: MBA Mortgage Applications, prior 2.7%
• 8:15am: ADP Employment Change, est. 175,000, prior 263,000
• 9:45am: Markit US Services PMI, est. 52.5, prior 52.5
• 9:45am: Markit US Composite PMI, prior 52.7
• 10am: ISM Non-Manf. Composite, est. 55.8, prior 55.2
• 2pm: FOMC Rate Decision

DB's Jim Reid concludes the overnight wrap

This week is still yet to really kick into gear although there is the potential for things to get a bit more interesting tonight when we first get the outcome of the FOMC meeting, before following that up with a head to head battle between French presidential candidates Macron and Le Pen when they face-off in a live televised debate.

With regards to the Fed the general feeling is that there is unlikely to be much new information in this month’s FOMC statement. DB’s Peter Hooper believes that the risk, albeit a small one, is that they will come closer to moving in a tightening direction than currently expected. More will be learned on that score in post-meeting Fedspeak (for which there are a number of speakers due on Friday including Fed Chair Yellen) or the minutes to the meeting. In terms of the finer details, Peter highlights that the Committee should be able to get away with relatively minor changes in the discussion of recent developments. They can acknowledge the soft GDP print and consumer spending in particular. That said they should also downplay this softness given the known issues with seasonality. On the inflation front, indicators have trended modestly higher on balance, notwithstanding a softening in core inflation in March driven by the anomalous drop in mobile phone services prices. The YoY change in the core PCE price index was running just modestly below the Committee’s 2% objective through Q1. An up-drift in most measures of wage inflation over the past couple of years confirm that the labor market has been in the vicinity of full employment for a while now. Market measures of inflation expectations have eased on balance since the March FOMC meeting, though they have rebounded recently. In summary, with market expectations for a June hike running at 67% according to Bloomberg’s calculator (and just 13% for a May hike) there will probably not be a need to push these expectations higher at this point. But any net changes in thestatement are more likely to be read as hawkish rather than dovish, simply because the current and near-term prospective mix of economic developments probably moves them closer to their next rate hike, which DB expects will be in June.

Over in France the polls continue to heavily favour Macron over Le Pen in recent days with the average lead from the last 5 polls still at 20pp. Some of the press reports in the last 24 hours or so have been on Le Pen seemingly trying to downplay her anti-euro message with the FT in particular running such a story so it’ll be interesting if this comes out at all tonight. As noted at the top tonight’s debate is live and televised once again and is due to kick off at 9pm CET (8pm BST).

Over in markets yesterday it was another fairly uneventful session on Wall Street with the S&P 500 (+0.12%) eking out another modest gain. This came after European bourses returned from the long weekend in a good mood as evidenced by the +0.75% gain for the Stoxx 600. Developments in Greece seemed to be a big factor behind the positive sentiment after the country came to an agreement with creditors on reforms needed to unlock the next disbursement tranche of emergency loans. The deal came about following a long night of talks with Greece eventually backing down on aggressive pension cuts, dropping the minimum income tax threshold and liberalising Sunday trade among other things. Greece PM Tsipras will now need to pass everything through parliament while the IMF and Europeans will also now have to come to an agreement on debt relief measures. Unsurprisingly Greek assets rallied pretty hard yesterday. The Athex finished up +3.06% while 10y Greek yields were 32bps lower by the end of play.

Similar maturity Bunds on the other hand were 1bp higher at 0.324%. Away from this, there wasn’t much new to report on the politics front in the US. President Trump used twitter to say that “Our country needs a good ‘shutdown’ in September to fix mess!” but the market was little moved. 10y Treasury yields perfectly reversed Monday’s move to finish 3.8bps lower at 2.281% with the only data release being a non-eventful April auto sales print (16.8m vs. 17.1m expected). Oil may have played a factor in the move for Treasury yields however after WTI dipped -2.42% and back below $48/bbl. It has however rebounded about 1% overnight after the API report showed a drop in gasoline and crude stockpiles.

Another mover after the US close last night was Apple after shares dipped 2% in extended trading following its Q2 earnings report. While earnings were marginally ahead of Bloomberg consensus, revenues missed on lower iPhone sales and Q3 revenue guidance was set at $43.5bn-$45.5bn which was also seen as disappointing compared to expectations for $45.7bn. Apple did announce an increase to their capital return program but that wasn’t enough to stop shares falling and we’re seeing Nasdaq futures down -0.30% in the early going too this morning. Meanwhile in Asia it’s another holiday-disrupted session with only bourses in China and Australia open. Both are weaker as we go to print with the Shanghai Comp down -0.22% and ASX -1.01%.

Moving on. The main focus of yesterday’s data was the final revisions to the European manufacturing PMIs. At a headline level the final reading for the Euro area was revised down one-tenth to 56.7. All told that leaves the reading up 0.5pts versus March and also at the highest in six years. Germany and France were unrevised at 58.2 and 55.1 respectively. Meanwhile Italy recorded a 73-month high at 56.2 (vs. 56.0 expected), Spain a 2-month high at 54.5 (vs. 54.4 expected) and Ireland a 3-month high at 55.0. The UK also came in at a much better than expected 57.3 (vs. 54.0 expected) which was an increase of 2.9pts versus March and the highest level in 3 years.

Also yesterday we thought that we would get greater clarity from the ECB in terms of the CSPP/PSPP taper ratio. However the numbers are yet to be conclusive even if they hint at tapering in both but with slightly less tapering in CSPP. Last week's CSPP net purchases dropped to €1.2bn from €1.5bn a week earlier and €1.7bn the week before whereas PSPP net purchases went up to €14.1bn from €11.1bn and €12.5bn, respectively. So the last week of the month's data has balanced the data a bit after what looked like at one point a more aggrieved PSPP taper over CSPP. Michal Jezek in my team has published a note overnight updating the view and numbers on the CSPP program and the recently ended BoE equivalent. Further, this IG update looks at credit repricing following the first round of French presidential elections, including a focus on the relative performance of French credit. Email him (Michal.jezek@db.com) if you didn't receive a copy.

Looking at the day ahead, this morning in Europe the early data release is from Germany where the April unemployment stats are due out. Shortly following that we’ll get the advance release of Q1 GDP for the Euro area, the consensus for which is pegged at +0.5% qoq. The Euro area PPI report is also due out this morning. This afternoon in the US the early focus will be on the April ADP employment change print which will be closely watched ahead of payrolls on Friday. The consensus is for a 175k reading while our US team are forecasting 200k. Also due out across the pond are the final PMI revisions (services and composite) and the ISM non-manufacturing print. Thereafter all eyes turn over to the FOMC meeting in the evening. Away from the data, the ECB’s Hansson is due to speak around lunchtime today, while the EU’s Barnier is also due to brief press on Brexit talks in Brussels this morning. This evening we then have the aforementioned French presidential debate. Earnings wise today we’ve got 33 S&P 500 companies scheduled to report including Kraft Heinz, Facebook and Time Warner. BNP Paribas and Volkswagen also report in Europe.