After the best quarter for US stocks since 2015, global equities have started off Q2 on the right foot, despite caution about the upcoming meeting between President Trump and China's Xi Jinping later this week, and Fed Minutes which are expected to be more hawkish than the FOMC statement.

European shares opened broadly higher, with Europe's Stoxx 600 rising 0.3% - its 5th day of gains - following a rally in Asian markets on upbeat final PMI data and after a report that Chinese President Xi Jinping will create a new economic zone. S&P futures were modestly in the green, pointing to a higher open for the S&P on the first day of the new quarter.

Mostly positive mfg PMIs out of Asia:
Vietnam 54.6
Philippines 53.8
Japan 52.6
Korea 52.4
Indonesia 50.5
Thailand 50.2
Malaysia 49.5

— David Ingles (@DavidInglesTV) April 3, 2017

A second PMI survey on China's manufacturing on Saturday came in below market expectations but still showed a healthy expansion after a similar survey by the government on Friday pointed to strong growth in the sector. In Japan, the first major data release showed confidence among Japan’s large manufacturers rose for a second consecutive quarter in the first three months of the year after the BOJ's "tankan" survey showed that business sentiment improved, albeit slightly less than expected (more below).

US futures are pointing to a modestly higher open with oil price holding above $50/barrel, thanks to a flat dollar after NY Fed President Dudley doused speculation of a more aggressive pace of policy tightening.

As the second quarter gets going, political developments threaten to cloud the improving global economic outlook, according to Bloomberg.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.2%, while Japan's Nikkei gained 0.8% after hitting a seven-week low on Friday. U.S. stock futures also indicated a positive open for Wall Street shares, while focus turned to a meeting on Thursday and Friday between the U.S. and Chinese presidents.

The Stoxx Europe 600 Index gained as much as 0.4 percent before paring the advance, while the euro looked set to end its longest run of losses versus the dollar since February. Energy companies led a gain in emerging-market shares as oil held above $50 a barrel.

German manufacturing growth reached an reached an almost six-year high in March, Markit's PMI for manufacturing showed on Monday, pushing the Dax to new record highs.

Manufacturing activity in France and Italy also rose, adding to signs of a pickup in momentum in the global economy.Overall, the final Euro area manufacturing PMI was unchanged from the flash estimate. Relative to the February release, the Euro area manufacturing PMI increased 0.8pt. There were minimal revisions in the manufacturing PMIs relative to the flash estimates (Euro area, Germany and France). The Italian figure increased +0.7pt from February, while the Spanish figure fell 0.9pt (there is no flash estimate for these countries).The breakdown of the area-wide figure showed gains in output (+0.2pt), new orders (+1.0pt) and employment (+0.8pt).

• Euro area: Manufacturing PMI (Mar): 56.2, Cons/Flash: 56.2, Previous: 55.4
• Germany: Manufacturing PMI (Mar): 58.3, Cons/Flash: 58.3, Previous: 56.8
• France: Manufacturing PMI (Mar): 53.3, Cons/Flash: 53.4, Previous: 52.3
• Italy: Manufacturing PMI (Mar): 55.7, Cons: 55.1, Previous: 55.0
• Spain: Manufacturing PMI (Mar): 53.9, Cons: 54.7, Previous: 54.8

The pound fell for the first time in three days against the dollar as U.K. manufacturing growth unexpectedly cooled for a third month in March and may weaken further this quarter. IHS Markit PMI declined to 54.2 from revised 54.5 in February, below economists’ expectations for an uptick to 55

Still, the growth wasn't uniform as the following summary from Markit shows:

See what I mean? Dichotomy Europe...which obviously we knew in any case pic.twitter.com/xWyMXcQC6V

— Chris Bailey (@Financial_Orbit) April 3, 2017

South Africa’s rand slumped for a sixth day after Finance Minister Pravin Gordhan was dismissed in a political shake-up.

"Despite the solid gains seen so far this year, there is some evidence that the rally in U.S. markets is looking a little tired given President Trump's trials and tribulations in Congress," said Michael Hewson, chief market analyst at CMC Markets. "The reflation trade is likely to face a new test this week when President Trump entertains the Chinese leader Xi-Jinping at his Mar-a-Lago golf course in Florida, which in the words of President Trump himself could be a little 'difficult'."

A failure to push through healthcare reforms last month has added to concerns that Trump may struggle to pass highly-anticipated tax cuts and infrastructure spending bills. Trump held out the possibility on Sunday of using trade as a lever to secure Chinese cooperation against North Korea and suggested Washington might deal with Pyongyang's nuclear and missile programs on its own if need be.

On Friday, the U.S. president sought to push his crusade for fair trade and more manufacturing jobs back to the top of his agenda by ordering a study into the causes of U.S. trade deficits and a clamp down on import duty evasion.

Friday's payroll report and meeting between U.S. President Trump and Chinese leader Xi this week will be watched for further direction for dollar. Trump said U.S. can “totally” address North Korea’s nuclear threat unilaterally if China doesn’t cooperate to put pressure on that nation, according to Financial Times. He has blamed China for U.S. trade deficits and job losses, saying discussion with Xi this week “will be a very difficult one.”

“From a data perspective, we think this week should be dollar supportive, but the big uncertainty is the Xi-Trump meeting,” says Rodrigo Catril, a currency strategist at National Australia Bank in Sydney. “My guess is that we will get a positive outcome, good for dollar and sentiment, but you never know.”

"The challenge for markets in an event-filled week will be to contend with the conflicting signals stemming from the Trump administration’s fiscal and trade policy agendas," ING Groep NV strategists, led by Chris Turner, wrote in a note. "In particular, investors will be asking whether the White House clampdown on trade will be aggressive enough to directly thwart any U.S. reflation sentiment founded on renewed tax reform hopes."

In curencies, the dollar index was up 0.15 percent at 100.49 - holding above four-month lows hit last week. After a modest reboumd, the euro was back to session lows at $1.065, despite today's solid PMIs after data showed inflation in the currency bloc had slowed by more than expected in March.

Government bond yields in the euro zone's lower-rated countries meanwhile rose on Monday, underperforming their peers as a reduction in the European Central Bank's bond purchase program took effect. As of the start of April, the ECB's monthly asset purchases fell to 60 billion euros from 80 billion euros.

Governments and other economic actors need to get ready for higher borrowing costs after years of record lows, ECB Executive Board member Benoit Coeure said on Monday.

In commodities, Brent crude futures were flat at $53.50 per barrel, while U.S. West Texas Intermediate crude futures were little changed at $50.58 a barrel.

* * *

Overnight Bulletin Summary

• The first trading session of the quarter has seen a tentative start for European equities with newsflow relatively light
• GBP has seen some selling pressure amid the latest UK manufacturing PMI data which fell short of expectations with GBP/USD back below 1.2500
• Looking ahead, highlights include US Mfg. PMI data, US Construction Spending, ECB's Coeure, Fed's Dudley, Lacker and Harker

Market Snapshot

• S&P 500 futures +0.1% at 2,360.5
• STOXX Europe 600 up 0.1% to 381.56
• MXAP up 0.3% to 147.41
• MXAPJ up 0.4% to 481.00
• Nikkei up 0.4% to 18,983.23
• Topix up 0.3% to 1,517.03
• Hang Seng Index up 0.6% to 24,261.48
• Shanghai Composite up 0.4% to 3,222.51
• Sensex up 0.9% to 29,873.24
• Australia S&P/ASX 200 up 0.1% to 5,872.68
• Kospi up 0.3% to 2,167.51
• Brent Futures down 0.1% to $53.47/bbl
• German 10Y yield fell 1.9 bps to 0.309%
• Euro up 0.2% to 1.0669 per US$
• Italian 10Y yield fell 12.6 bps to 2.022%
• Spanish 10Y yield fell 0.9 bps to 1.658%
• Gold spot down 0.3% to $1,245.89
• U.S. Dollar Index up 0.1% to 100.48

Top Overnight News

• President Trump said the U.S. can “totally” address North Korea’s nuclear threat unilaterally if China doesn’t cooperate to put pressure on, according to the FT
• The Senate is hurtling toward a confrontation over President Trump’s first Supreme Court nominee in a week that could change how Washington works
• Reckitt Benckiser is considering a sale of its food business, which makes French’s mustard and ketchup, to help pay for the $16.6 billion acquisition of infant-formula maker Mead Johnson Nutrition Co.
• U.K. manufacturing unexpectedly cooled for a third month in March and may weaken further, according to IHS Markit
• Crude stockpiles are starting to decline in a sign that the production cuts implemented this year are bringing the market to balance, according to OPEC’s Secretary-General Mohammad Barkindo
• South African parliamentary Speaker Baleka Mbete said she’s considering a request to recall lawmakers to debate an opposition-sponsored motion of no confidence in President Jacob Zuma
• Tesla Beats Estimate With 25,000 Deliveries as Model 3 Nears
• Euro-Area Unemployment Falls to Record Low as Recovery Broadens
• Imagination Tech Shares Plunge 69% After Apple Ends Chip Deal
• Credit Suisse Said to Hire Deutsche Bank Equities Executives
• Google Changes Ad Policies Again to Try to End YouTube Crisis

Asia equity markets start the quarter on a mostly positive note, although gains were relatively reserved as the region digested a slew of mixed data releases. Nikkei 225 (+0.4%) gained following the BoJ's Tankan survey which despite missing expectations for Large Manufacturers Index and Outlook, still showed an improvement from prior while Large All-Industry Capex unexpectedly expanded and the Small Manufacturing Index rose to its highest in nearly a decade. ASX 200 (-0.2%) traded subdued as commodity related sectors underperformed with an unexpected contraction in Retail Sales also dampening sentiment, while Hang Seng (+0.5%) also edged gains despite Chinese Caixin Manufacturing PMI falling short of estimates, as the data still showed the 9th consecutive monthly expansion and is solely focused on the mainland which was closed for Tomb Sweeping Day. 10yr JGBs traded lower amid gains seen in Japanese stocks and after today's BoJ Rinban announcement was for a relatively paltry JPY 370b1n. Furthermore, the curve flattened amid underperformance in the short-end.

Key Asian Economic Data

• Chinese Caixin Manufacturing PMI (Mar) M/M 51.2 vs. Exp. 51.6 (Prey. 51.7).
• Japanese Tankan Large Manufacturers Index (Q1) Q/Q 12 vs. Exp. 14 (Prey. 10).
• Tankan Large Manufacturing Outlook (Q1) Q/Q 11 vs. Exp. 13 (Prey. 8)
• Tankan Large All Industry CAPEX (Q1) Q/Q 0.60% vs. Exp. -0.30% (Prey. 5.50%)
• Tankan Small Manufacturers Index (Q1) Q/Q 5 vs. Exp. 3 (Prey. 1); Highest since June 2007

Top Asian News

• China Just Had Its Worst Ever Start to a Year for Bond Defaults
• New Tepco Chairman Says Japan Nuclear Restart ‘Will Take Time’
• Vietnam Will Ask Google and Amazon to Pay Tax: Tien Phong
• Buying Spree in These Tokyo Stocks Unearned to Own Officials
• Unwinding Property Curbs Gives Singapore Developers Headache
• Central Banks Boost Yen Assets by Most Since at Least 1999
• Asian Stocks Continue Quarterly Rally as Japanese Shares Gain

In Europe, the new quarter has kicked off in a tentative fashion, with major indices relatively unmoved so far this morning. In terms of a sector breakdown, financials are the laggards this session as energy names outperform, with little of note on a stock specific basis to report. With newsflow light elsewhere, Linde are among the best performers in Frankfurt this morning, trading higher by (+1.4%) after the Co.'s Chairman and CEO reiterated their confidence that the Praxair deal will be completed in the near future. Elsewhere, fixed income markets have seen upside in Bunds so far this morning, with the curve slightly steeper and all major counterparts wider against the German 10Y. The auction calendar is relatively bare today as the week kicks off, however is set to pick up later in the week as supply is scheduled from the likes of UK, Germany, France and Spain.

Top European News

• Euro-Area Factory Recovery Broadens as Italy, France Improve
• Spain Tells U.K. to Keep Its Cool After Falklands Comparison
• Deutsche Asset, Infravia to Buy Control of Venice Airport’s Save
• Sartorius Raises Forecast, Completes Essen BioScience Takeover
• Euronext, Intercontinental Sign Derivatives Clearing Pact; Euronext Says Remains Willing Buyer of LCH.Clearnet SA
• Reckitt Benckiser Reviews Food Business After Mead Johnson Deal
• U.K. Manufacturing Slows as Inflationary Pressures Continue
• Euribors Tick Higher After Praet; BTPs Lag, Schatz Outperforms
• Nordic Capital’s Bambora Sets Sights on U.S. and Canadian Market
• Putin’s Ally in Serbia Wins Presidential Vote by a Landslide

In currencies, Britain’s pound fell as much as 0.5 percent to $1.2492 after the worse-than-expected manufacturing data. South Africa’s rand tumbled 1.2 percent against the dollar, the most among major global currencies. The euro was little changed at $1.0655 and the Bloomberg Dollar index climbed 0.2 percent. FX markets have traded in a fairly tight range so far this session, with the only notable news coming in the form of the latest manufacturing PMIs, national readings from across the Eurozone printed a relatively mixed picture, with the Eurozone figure itself coming in line with expected, to see EUR/USD unchanged on the day. Elsewhere, the UK saw manufacturing PMI print a 4 month low and GBP/USD move below 1.2500 as a consequence. The latest PMI readings from the UK will do little to support the latest 'trade of the week's from the likes of Morgan Stanley and Barclays, who both recommend selling EUR/GBP.

In commodities, WTI crude was little-changed at $50.62 a barrel, after the biggest weekly gain of the year. Crude stockpiles are starting to decline in a sign that the production cuts implemented this year are bringing the market to balance, according to OPEC’s Secretary-General Mohammad Barkindo. Gold fell 0.3 percent to $1,245.70 per ounce. The metal has alternated between gains and losses for the past six days. Trade has been choppy so far, with WTI May'17 futures trading near USD 50.50/bbl as focus falls on OPEC and whether or not further agreements will be reached for H2'17. In terms of energy specific newsflow, sources suggested Libya's crude oil output is to rise to approximately 660k bpd. Trade in metals have tracked the other asset classes in their relatively muted trade, as gold trades lower by around US 3/oz as USD holds steady.

US Event Calendar

• 9:45am: Markit US Manufacturing PMI, est. 53.5, prior 53.4
• 10am: ISM Manufacturing, est. 57.2, prior 57.7; Prices Paid, est. 66, prior 68; New Orders, prior 65.1; Employment, prior 54.2
• 10am: Construction Spending MoM, est. 1.0%, prior -1.0%
• Wards Total Vehicle Sales, est. 17.3m, prior 17.5m; Vehicle Sales, est. 13.7m, prior 13.7m

Central Banks

• 10:30am: Fed’s Dudley Speaks at Press Briefing in New York
• 3pm: Fed’s Harker Speaks in Philadelphia on Fintech
• 5pm: Richmond Fed President Lacker Speaks (Event Cancelled)

DB's Jim Reid concludes the overnight wrap

Welcome to a new financial quarter. One surprising element of Q1 was that the VIX index had its lowest average quarter since Q4 2006. As we've discussed a lot recently it seems that data best predicts where equity vol will trade but we've been surprised that there hasn't been the odd spike up given the political uncertainties on both sides of the Atlantic. Data is winning out for now. On this, today see the release of the global PMIs which have been key to the decent performance (and low vol) of equities in Q1. Tomorrow we'll likely update our PMI/YoY equity (%) performance charts but so far the rally in Q1 is consistent with the data so this is a key monthly number. The rest of the week ahead is at the end before the performance review but after today's data deluge the week is bookended by Mr Trump hosting China President Xi Jinping (Thursday/Friday) and Friday's payrolls which to be honest doesn't feel quite as important as it often can do. With employment consistently firm of late, inflation numbers seem to have taken over as the swing factor for the pace of Fed hikes and on this side of the pond, further tapering from the ECB. On the ECB, today marks the start of the EU80 to EU60 billion taper (our words not Draghi's!) and while we don't know the taper split between PSPP and CSPP, this is going to be an interesting development to watch. First signs will occur next Monday where the weekly release will contain 3 days under the new regime. Last week's CSPP number showed the lowest number outside of holiday periods so it'll be interesting to see this afternoon's release to see whether last week was a one-off or the start of slowly adjusting to a new lower level of corporate bond purchases.

Before we get there, the weekend newsflow has been fairly light although we have opened with some Trump-related headlines to decipher. Specifically it’s an interview that the President had with the FT which is attracting the most attention In it, the President was quoted as saying that the US is willing to take unilateral action against North Korea should it need to, regardless of China’s position. His exact quote was “if China is not going to solve North Korea, we will”. The subject of North Korea is set to be a big talking point between Trump and President Xi later this week so it’ll be worth keeping an eye on that.

The other significant news from this weekend comes from China. First is the announcement out of the PBoC on Saturday in which the Bank raised the interest rate for overnight standing lending facility loans by 20bps to 3.3%. At the same time the bank also raised the rate of 7-day loans to 3.45% and the 1-month rate to 3.8%. This follows similar mini hikes earlier in the year. The PBoC also said that it will “continue to implement a sound and neutral monetary policy, striking a good balance among maintaining growth and containing bubbles and mitigating risks”. Staying with China, there was a little bit of disappointment in the weekend data with the Caixin manufacturing PMI coming in 0.5pts lower in March at 51.2 (vs. 51.7 expected). That contrasts with the improvement in the official manufacturing PMI we saw on Friday to 51.8 (from 51.6).

Markets are closed in China this morning however bourses elsewhere have mostly kicked off April and Q2 on the front foot. In Japan the Nikkei and Topix are +0.38% and +0.31% respectively following the release of the BoJ’s Tankan Survey which showed some moderate improvement in business conditions for both small and large manufacturing businesses in Q1. Elsewhere the Hang Seng is +0.45% and Kospi +0.28%, while the ASX is -0.14% following some mixed data in Australia this morning. US equity index futures have opened with small gains while commodities are largely unchanged.

Quickly recapping Friday’s session now. While markets in Europe generally recovered from early losses, it was a bit of a directionless session in the US with equity markets in the end slightly underperforming. Moves were fairly modest though with the Stoxx 600 closing +0.18% and the S&P 500 -0.23%, with the latter paring the weekly move to +0.80%. In sovereign bond markets 10y Treasury yields generally tracked lower as the session went on and finished -3.2bps by the closing bell at 2.388%. That closing level also nicely bisected what was a fairly tight 8bps trading range over the full course of the week. The Fed’s Dudley probably disappointed some of the hawks by saying that the economy is clearly not overheating and that the rise in sentiment is not showing up in hard data. He also said that a couple more hikes this year “seems reasonable” but that also that the Fed may look to shrink the balance sheet later this year or in 2018, in which case they “might actually decide at the same time to take a little pause in terms of raising short term interest rates”. Meanwhile in Europe 10y Bund yields edged down 0.5bps to 0.322% with a disappointing Euro area CPI report not helping matters (more on that shortly). Elsewhere, in commodities WTI Oil (+0.50%) rose for the fourth session in a row and in doing so capped a weekly return of +5.48% which was the best since December with hopes rising that OPEC will extend its production cut deal past June.

Much of the focus on Friday was on the vast amount of data released on both sides of the pond. In the US there was some disappointment in the February personal spending print which came in at just +0.1% mom (vs. +0.2% expected), with real spending also falling unexpectedly (-0.1% mom vs. +0.1% expected). Personal income did however rise +0.4% mom as expected while the savings rate also rose to a five-month high. On the inflation front the PCE deflator was confirmed as rising +0.1% mom in February and the core +0.2% mom which helped to hold the YoY rate at +1.8%. Away from that, the Chicago PMI beat expectations after coming in at 57.7 in March (from 57.4; 56.9 expected) while the University of Michigan consumer sentiment reading was revised down at the final reading to 96.9 from 97.6, albeit still 0.2pts ahead of the February reading. All told the Atlanta Fed have now revised down their Q1 GDP estimate to 0.9% from 1.0% however the NY Fed’s measure continues to remain at a much higher 2.9%. Our US economists sit in the middle and are forecasting +2.0% in Q1.

Over in Europe on Friday the main disappointment was the aforementioned CPI report for the Euro area in March where headline CPI was estimated to be +1.5% yoy and down from +2.0%. Consensus was for +1.8% while the core rate also dipped to +0.7% yoy from +0.9%. That is the joint lowest core reading since April last year and you would imagine would give the ECB some food for thought. Meanwhile, in the UK Q4 GDP growth was confirmed at +0.7% qoq. In Germany the unemployment rate dipped one-tenth to 5.8% in March while February retail sales came in at a much better than expected +1.8% mom (vs. +0.7% expected).

To the week ahead now. This morning we’re kicking off the week in Europe with the final manufacturing PMI’s for March as well as a first look at the data for the UK and periphery. Also due out is PPI and unemployment rate data for the Euro area. This afternoon in the US we’ll get the final manufacturing and composite PMI’s for March along with the ISM manufacturing print and February construction spending data. Later this evening we’ll also get the March vehicle sales data. During the Asia session tomorrow we’ll have the RBA meeting outcome where no change is expected. In Europe we’ve got retail sales data for the Euro area due while in the US we will get the final durable and capital goods orders data revisions for February, along with February’s trade balance reading and factory orders data. Wednesday looks set to be a busy data with the final March services and composite PMI’s due in Japan and then in Europe. We’ll also get the final services PMI in the US along with the ADP employment report for March and ISM non-manufacturing print. Also due out will be the March FOMC meeting minutes. Turning to Thursday, the early data is due out of China with the Caixin PMI’s. In Germany we’ll get factory orders data while the ECB meeting minutes will also be released around lunchtime. In the US on Thursday the calendar is quiet with just initial jobless claims data due. It looks set to be a busy end to the week on Friday. In Europe we are due to get industrial production reports and trade data for the UK, France and Germany. In the US all eyes will be on the March employment report including the all important payrolls print. Wholesale inventories and consumer credit will also be due out in the US.

Away from the data the Fed speakers this week include Dudley, Harker and Lacker today followed by Tarullo on Tuesday and Williams on Thursday. The ECB’s Coeure speaks today. Away from that, the second French presidential debate is due tomorrow night. As with the first debate it will be televised live. President Trump is also due to host China President Xi Jinping on Thursday and Friday. An informal EU finance ministers meeting is also due on Friday and Saturday.