The overnight session has been one of alternative weakness and strength: it started in China where stocks tumbled 2.8% to a two month low following an unexpected warning in the official People's Daily mouthpiece that debt and NPLs are too high, not to expect more easing will come, and that the Chinese Economy’s performance won’t be U- or V-shaped but L-shaped.

This took place after another month of disappointing, sharply weaker trade data as fears about China's slowdown returned. An expected freefall in key commodity prices led by a crash in the iron ore complex did not help Chinese sentiment, as China's latest commodity bubble has by now clearly burst.

Concerns about China, however, were promptly forgotten and certainly not enough to keep global assets lower, with European stocks gapping higher at the open and rallying from a one-month low, shaking off the Chinese trade data drag that pushed Shanghai shares lower along with industrial metals, driven by a "surprising" surge in the USD/JPY which has moved nearly 200 pips higher since its post-payrolls low. Another driver is the jump in oil, which rallied just shy of $46 a barrel, buoyed by Canadian wildfires that are curbing production and speculation that the Saudi Arabian oil minister succession will be bullish for oil prices.

Certainly helping Europe rebound was the latest Goldman trade recommendation which came out about an hour ago, and was as follows:

• GOLDMAN SACHS CUTS STOXX 600 12-MONTH TARGET TO 345 FROM 380
• GOLDMAN SACHS CUTS EURO STOXX 50 12-MOS. TARGET TO 3070 VS 3500

As is common knowledge always do the opposite of what Goldman recommends and at last check, the Stoxx Europe 600 Index advanced 1.4% with health care and technology companies leading the gains. Apart from mining companies, all of the 19 industry groups on the Stoxx Europe 600 Index advanced. Copper fell to its lowest in almost a month after imports into China slipped from a record, while iron ore tumbled following an increase in stockpiles at Chinese ports. Oil climbed as high as $45.94 a barrel in New York and gold retreated as a gauge of dollar strength rose for a fifth day.

S&P 500 futures added 0.3 percent, after U.S. stocks Friday halted a three-day decline amid investor speculation that the payrolls data will encourage the Federal Reserve to raise interest rates gradually. Traders are pricing in little chance of higher borrowing costs next month, with December the first month with more than even odds of a hike.

Putting the global rebound in perspective, consider that Chinese trade figures released over the weekend showed exports fell in dollar terms in April and imports dropped for the 18th month in a row, while U.S. jobs figures on Friday were weaker than economists forecast, several Federal Reserve officials have said over the past week that U.S. interest rates are headed higher, comments that have given a boost to the greenback; this happens as earnings season is set to conclude the worst quarterly report in decades.

In other words, lots of central bank multiple expansion, and lots of buybacks are taking place behind the scenes.

Euro-area finance ministers and International Monetary Fund officials are meeting Monday to decide whether Greece’s government has done enough belt-tightening to gain another aid disbursement. Germany reported a bigger increase in March factory orders than economists forecast, while companies including Enel SpA and Tyson Foods Inc. are scheduled to announce earnings.

Global Markets Snapshot

• Stoxx 600 up 1.4% to 336.3
• Eurostoxx 50 +1.6%,
• FTSE 100 +0.8%, CAC 40 +1.4%,
• DAX +1.9%, IBEX +1.5%
• FTSEMIB -0.1%
• SMI +1.3%
• S&P 500 futures up 0.3% at 2058
• Brent Futures up 1.5% to $46.1/bbl
• Vstoxx Index down -2.1% at 24.6
• MSCI Asia Pacific down 0.2%
• Nikkei 225 up 0.7% to 16216
• Hang Seng up 0.2% to 20156.8
• Kospi down 0.5% to 1967.8
• Shanghai Composite down 2.8% to 2832.1
• Euro down 0.09% to $1.1394
• Dollar Index up 0.07% to 93.96
• German 10Yr yield up 2bps to 0.16%
• Italian 10Yr yield down 1bps to 1.49%
• Spanish 10Yr yield down 1bps to 1.59%

Top Global News

• Brexit Battle Rages in Week of Bigwig Barrage on U.K. Risks: Carney, Lagarde, Osborne due to speak as decision day nears
• Cameron Evokes War, Churchill Memory in Bid to Avoid Brexit: Britain has ‘fundamental national interest’ in EU, Cameron says
• Bill Gross, Mohamed El-Erian Warn Against Counting the Fed Out: Gross says Fed rate increase may come in June as wages rise
• Bloomberg Editorial: The IMF Is Right About Greece’s Need for Debt Relief: any plan to resolve its financial crisis has to involve debt relief
• Filipinos Vote as Populist Mayor Rides Wave of Discontent: Duterte leads main rivals by 11 points in final opinion polls
• World’s Most Expensive Rough Diamond Sells for $63m: 813- carat diamond recovered by Lucara in Botswana last year
• Twitter Cuts Off U.S. Spy Agencies From Analytics, WSJ Reports: move comes after Apple battled with Justice Department

Looking at regional markets, Asia stocks started the week mostly lower following Friday's NFP miss coupled with weak Chinese trade data in which exports and imports printed below estimates. ASX 200 (-0.4%) was pressured with sentiment soured by a decline in imports from its largest trading partner, although advances in oil amid uncertainty after Saudi replaced oil minister Al-Naimi helped stem losses. Nikkei 225 (+0.7%) outperformed after a 6-day losing streak as JPY weakness boosted exporter names, while the Shanghai Comp (-2.8%) led the region lower amid weak trade data and the PBoC decreasing its liquidity injection. 10yr JGBs traded lower amid increased appetite for riskier assets in Japan, while mild support was seen early in the long-end as the 20yr yield declined to fresh record lows, with the BoJ also in the market to purchase around JPY 1.2trl of government debt.

Asian Top News

• Takata Projects Second Annual Loss on Air-Bag Recall Charges: Company forecasts 13 billion yen loss; had estimated profit
• Soros Chart Signals BOJ Bond Buying Already Enough to Weaken Yen: Japan monetary base rises to 96% that of U.S. in dollar terms
• Japan Finance Minister Fires Another Verbal Salvo at Strong Yen: Aso says Japan has means to intervene
• Chinese Imports From Hong Kong Raise Red Flag Amid Yuan Worries: Import surge from Hong Kong may show capital exit, OCBC says
• Goldman Fund Manager Bearish on Aussie as Dollar Bets Falter: Fund bearish Aussie against kiwi, loonie after RBA rate cut
• Rajan Stimulus Working as Rare Issuers Revive Rupee Bond Market: Issuance in May has second-best start for month in 11 years
• Mitsubishi Heavy Surges After Profit Outlook Beats Estimates: Forecasts 13% increase in op. profit this fiscal year to 350b yen, exceeding est. of 334b yen
• Commonwealth Bank Profit Gains 4.5%, Bad-Debt Charges Rise: Provisions for impaired loans up 67% on corporate defaults

In Europe, equities trade firmly in the green this morning (Euro stoxx: +1.5%), opening higher and going on to close the opening gap throughout the session as higher oil prices fuel risk appetite with gains exacerbated by the upside in IT names. The notable movers this morning come from the materials sector, with the likes of Anglo American, ArcelorMittal, Glencore and Rio Tinto all among the worst performers in Europe after the soft trade balance data from China. Fixed income markets have seen similar price action to equities so far this morning, opening lower before going on to grind higher over the following 2 hours. Of note, EUR denominated corporate bond sales may pick up this week with some noting that a total of EUR 15bIn worth of debt could be sold, as companies look to take advantage of low interest rates after publishing their quarterly earnings as well as the prospect of ECB buying IG bonds in June as part of its QE program. Furthermore, it was also reported earlier in the session that Italy are exploring the sale of a 50yr bond.

European Top News

• Total to Buy French Battery Maker Saft in $1.1 Billion Deal: acquisition forms part of plan to expand clean-energy business
• Imagination Tech Climbs on Bid Speculation Spurred by Tsinghua: Chinese state-backed technology co. Tsinghua Unigroup buys 3% stake in co.
• Investec Finances Four Emirates A380s in $1 Billion Jet Deal: bank says low oil price makes superjumbo more attractive
• Glencore Becomes Top Holder in Iron Ore Miner After Debt Revamp: has also secured marketing offtake rights
• Ikea in Talks to Take Over Some BHS Stores, Times Reports: Swedish retailer registered interest with BHS’s administrators
• Italy Favors Erdemir-Led Group for Ilva vs Mittal: Repubblica: group seen as able to counter possible bid by Arcelor Mittal
• Korian Plans to Buy Foyer de Lork; Deal EPS Accretive This Year: deal to be financed with cash from Korian, available credit lines
• G4S 1Q Continuing Businesses Rev Rises 4.5% to GBP1.51b: comments ahead of CEO Ashley Almanza presentation at JP Morgan conf.
• Abengoa Assets Have EU1b Less Value Than Estimate: Confidencial: reports citing sources it doesn’t identify
• Adidas May Be Only Bidder for German Soccer Team Sponsoring: FAZ: cites unidentified people close to the negotiations

In FX, the Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, rose 0.1 percent following its biggest weekly jump since November. The greenback’s reaction to weaker-than-expected U.S. jobs figures on Friday was muted by comments from Fed Bank of New York President William Dudley, who said in a New York Times interview that it remained a “reasonable expectation” the central bank would raise interest rates two times this year.

Aside from the one way surge in the USDJPY, moves across key pairs have been relatively quiet, though some early volatility seen in GBP, but losses since recouped with Cable back in the mid 1.4400's. This may signal some moderation in the USD reversal we are seeing at the moment, with the greenback fighting back hard after the headline miss in US jobs on Friday. EUR/USD is proving resilient under 1.1400, as is USD/JPY ahead of 108.00, but direction hard to read as yet — as is usually the case on the Monday after US payrolls. CAD should perhaps be a little stronger with Oil moving higher again, but the USD perspective is strong, and specs are quick to pounce on any dip at present. USD/CAD still trading on a 1.2900 handle, but strong resistance seen ahead of 1.3000. AUD/USD through key support under .7400, but downside momentum lacking on stable stocks. EU Sentix investor confidence slightly better than expected this morning, while UK Halifax HPI showing some softening, but both to little effect on the markets.

In commodities, iron ore plummeted in Asia after port stockpiles in China expanded to the highest in more than a year, following moves by local authorities to quell speculation in raw-material futures. The SGX AsiaClear contract for June settlement tumbled 7.9 percent to $51.17 a metric ton, the lowest in a month, retreating alongside contracts for steel and coking coal.

Copper fell with industrial metals, extending its worst weekly slide since November, after China slashed purchases from a record high. The metal fell 1.7 percent to $4,728 a metric ton, having touched the lowest in almost a month. Nickel lost 2.7 percent and zinc dropped 1.5 percent. Gold fell 0.8 percent to $1,278.56 an ounce, declining for the fifth time in six days as the dollar strengthened. Silver dropped 0.4 percent and platinum slid 1.1 percent.

Crude rose as expanding Canadian fires knocked out about 1 million barrels a day of production, outweighing the new Saudi Arabian oil minister’s pledge to maintain the country’s policy of near-record output. China's crude imports rose 7.6% Y/Y last month, marking the third straight month that crude imports surpassed 30 million tons. Day by day, China shipped in 7.9 min/bpd in April. In the first four months of the year, China imported 123.67 min tons of crude, which is equivalent to a 12% on-year rise. Saudi Arabia on Saturday replaced its long-serving oil minister Ali al-Naimi, who had held the post since 1995, with Khalid al-Falih, chairman of the state oil Co., Saudi Aramco as his replacement. In separate reports, Saudi's new oil minister Khalid al-Falih stated that hat he will maintain Saudi's stable oil policy. 

Bulletin Headline Summary from RanSquawk and Bloomberg

• Light newsflow thus far with European equities trading firmly in the green with higher oil prices helping fuel risk appetite.
• Saudi Arabia have replaced their long-serving oil minister Ali al-Naimi with Khalid al-Falih, chairman of the state oil Co., Saudi Aramco named as his replacement.
• Highlights today include US Labour Market Condition alongside Fed's Kashkari.
• Treasuries little changed in overnight trading as global equities and oil rally, precious metals sell off; this week will see $62b in U.S. Treasury auctions.
• China’s problem with fake trade invoices appears to be getting worse. Imports from Hong Kong surged a record 204% last month, data on Sunday showed, intensifying the spotlight on a channel used to get capital out of the country
• The yuan fell the most in two weeks amid speculation depreciation concerns are prompting investors to shift money overseas and as the dollar headed for its biggest five-day gain since November
• China’s stocks capped their biggest two-day loss since late February, led by commodity producers and industrial companies, as trade data disappointed and the People’s Daily warned about the country’s rising debt in a front-page article
• For all the Communist Party’s rhetoric about giving a decisive role to markets, China’s financial system remains dominated by state-owned lenders. The PBOC has also been expanding support for “policy banks” that support government objectives
• Euro-area finance ministers will debate possible debt-relief measures for Greece Monday, after IMF Managing Director Christine Lagarde warned them that the fiscal targets envisaged in the country’s latest bailout agreement are not realistic
• Voters tuning into the fraught battle over the U.K.’s future will hear from heavy-hitters who have already warned about the risks of leaving the single market
• U.K. house prices fell 0.8% in April after a surge of rental investors rushing to beat a tax change bolstered the market earlier in the year, according to Halifax
• German factory orders advanced 1.9% in March from the prior month as strong global trade helped offset a lull in domestic demand, data from the Economy Ministry in Berlin showed
• U.S. economic fundamentals are “good” and “wait and see” stance for monetary policy is appropriate, said Chicago Fed Pres. Charles Evans, speaking on panel at International Financial Services Forum in London
• Three of the world’s most influential bond investors and the head of the Federal Reserve Bank of New York say the U.S. central bank is on course to raise interest rates even after an April jobs gain that was smaller than economists forecast
• Sovereign 10Y yields mixed, Greece rallies 25bp; European and Asian equity markets higher; U.S. equity- index futures rise. WTI crude oil rallies, precious metals drop

US Economic Calendar

• 10:00am: Labor Market Conditions Index, Apr. est. -1.0 (prior -2.1)
• TBA: Mortgage Delinquencies, 1Q (prior 4.77%)
• TBA: MBA Mortgage Foreclosures, 1Q (prior 1.77%)
• 11:30am: U.S. to sell $31b 3M, $26b 6M bills
• 1:00pm: Fed’s Kashkari speaks in Minneapolis

DB's Jim Reid concludes the overnight wrap

It's always a relatively quiet week after payrolls but the debate over Friday's employment report will continue to rumble on with the 160k number below the 200k expected with the unemployment rate unchanged after hopes had been for a dip lower (5.0% vs. 4.9% expected). Those of a bullish persuasion might just conclude that this is reflecting an economy getting close to full employment and running out of workers. The bears might argue that full employment this cycle is less useful for the economy given the large amount of people who have left the work force. One concern we continue to have is that with corporate profits well off their late 2014 peaks, are the slightly softer recent employment numbers reflecting a corporate sector that is more reluctant to hire now with profits waning? As the chart we used in our 2016 outlook showed (repeated in last Thursday's EMR), the last 11 recessions have started only after corporate profits peaked. The average time it took from peak profits to recession is 2 years. If profits have peaked then this is another of the supportive late cycle indicators we have and it will be interesting to see if employment slowly takes the brunt of reduced profitability over the next 12 months.

So as well as further digesting those employment numbers from Friday, there’s also been some important newsflow over the weekend to contend with. The first comes from the Oil market and specifically out of Saudi Arabia with the news that the Kingdom has appointed a new Oil minister. Khalid Al-Falih replaced Ali al-Naimi on Saturday following 20 years of service as part of a major reshuffle by King Salman. Much of the focus however is on what this means for Saudi production and output with the bulk of the commentary suggesting that we shouldn’t expect to see a huge change in policy. Ahead of the June OPEC meeting, Falih was reported as saying yesterday that Saudi Arabia would ‘remain committed to maintaining our role in international energy markets and strengthening our position as the world’s most reliable supplier of energy’. Indeed Bloomberg, the FT and the WSJ are all suggesting that the new appointment should result in some continuity in oil policy.

The other big story for energy markets are the tragic wildfires spreading through Canada currently. Over the weekend the fires which have raged through Alberta are now said to have spread to the oil-sands facilities north of Fort McMurray. The chatter is that roughly 1m barrels of production from the region could be impacted however the improving weather conditions overnight are helping to the slow the spread for now. A number of producers have declared a force majeure in the region while evacuations are taking place. This morning WTI opened nearly 3% on higher on the news and close to $46/bbl, but has settled slightly now and is currently +2% higher at around $45.50/bbl.

Meanwhile, the other news over the weekend concerns the latest economic data out of China. FX reserves were reported as rising unexpectedly last month by $6.4bn to $3.22tn (vs. $3.20tn expected), the second consecutive month that reserves have increased. The softer US Dollar last month and resulting impact on valuation adjustments looks to have been a big factor in that however. Also out over the weekend were the April China trade numbers. In US Dollar terms exports were reported as declining -1.8% yoy last month (vs. 0.0% expected) from +11.5% in March. That said, a sharper than expected fall in imports (-10.9% yoy vs. -4.0% expected; -7.6% previously) has resulted in the trade surplus increasing. In CNY terms exports were reported as increasing close to that expected by the market (+4.1% yoy vs. +4.3% expected).

lancing at our screens, bourses in China have opened this morning on the back of that data on a weak note. The Shanghai Comp and CSI 300 have tumbled -2.23% and -1.71% respectively, although it’s a bit of a mixed performance elsewhere in Asia. The Kospi (-0.67%) and ASX (-0.37%) are also lower, however the Nikkei (+0.54%) and Hang Seng (+0.61%) are off to reasonable starts. Base metals have weakened post the China data, although it’s a bit more mixed in currency markets.

Moving on. As you’ll see at the end in the week ahead, earnings season is winding down now with the vast majority of the big reports now behind us. With that, it’s a good time to recap how the quarter has gone so far. As it stands we’ve now had 437 of the S&P 500 companies report their latest quarterly numbers. Earnings beats are currently standing at 75%, which is roughly in line with recent quarters, while sales beats stand at 54% - a touch ahead of the recent trend. More importantly however, the bottom-up Q1 EPS of $27.01 is -5.3% yoy according to our US equity strategists, while bottom-up sales are currently -2.0% yoy. Significantly, if you strip out the impact of energy names, earnings are actually flat yoy while sales are +1.7% yoy. If you go further and strip out financials as well, then earnings are actually +3.4% yoy and sales +2.4% yoy. So the combined impact from those two sectors has been very material. Meanwhile, as we’ve noted previously this has been a massive quarter for downward revisions to earnings expectations. In fact, despite the Q1’16 EPS beat running at +2.4% versus a +3.2% average from Q1’11 to Q4’15, that EPS has been revised down by nearly 10% since the turn of the year which is the most since 2011 and compares to an average downward revision in that time of -3.9%.

Back to Friday and a quick recap of the rest of the data. Average hourly earnings for the US in April were reported as increasing +0.3% mom as expected last month. That’s had the effect however of lifting the YoY rate by two-tenths to +2.5%. The labour force participation rate declined two-tenths to 62.8% unexpectedly, while average weekly hours rose one-tenth as expected to 34.5hrs. The broader U-6 measure of unemployment edged down one-tenth to 9.7% and so matching the recent low in February. Markets reacted in a typical knee-jerk fashion with the US Dollar weakening, Treasury yields sharply lower and risk assets weaker. That said markets quickly went into reverse gear as investors digested the data. The USD index closed a smidgen higher (+0.12%) after being down as much as half a percent. 10y Treasury yields closed up over 3bps higher at 1.780% after touching as low as 1.703% in the immediate aftermath, while finally the S&P 500 ended up with a +0.32% gain after also being down as much as half a percent. Credit markets were little changed by the end of play however.

It was hard to determine what swung sentiment back the other way. Some pointed to comments from the Fed’s Dudley, arguably one the closest-followed Fed officials. Dudley said that the employment report was ‘a touch softer, maybe, than what people were expecting, but I wouldn’t put a lot of weight on it in terms of how it would affect my economic outlook’. Dudley went on to confirm and stick to the Fed’s script of still expecting two rate hikes this year. The futures market gave little weight to this however as we saw the June probability dip into single-digit territory at 8% (from 10% at Thursday’s close).

Away from the employment report and later on in the evening, the March consumer credit reading printed at $29.7bn (vs. $16.0bn expected). The revolving credit component which includes credit card spending was reported as increasing at the biggest annualized pace since July 2000. Elsewhere, in Europe the sole data release was out of Spain where industrial production was reported as increasing +1.2% mom in March and more than expected. We’ll get the rest of the IP reports for Europe this week. Price action had been relatively mixed to close the week in Europe on Friday. The Stoxx 600 closed -0.36% however the DAX (+0.18%) managed to jump back into positive territory by the end of play.

Away from the data there is more Fedspeak for us to digest this week. We’ll hear from both Evans and Kashkari today, Rosengren and George on Thursday and Williams on Friday. The ECB’s Constancio is also scheduled to speak this morning. Earnings season is beginning to wind down meanwhile. We’ve got just 20 S&P 500 companies due to release their quarterlies including Macy’s and Walt Disney. In Europe there are 90 Stoxx 600 companies due to report however including more of the Banks.