Despite a very explicit warning by Goldman's co-head of equity trading that the "regime has changed" and that instead of "buying the dip", investors should be "selling-the-rip", so far this morning a global BTFD relief rally from Asia to Europe has welcomed a rare respite from volatility as U.S. stock futures surged after a week that saw two of the biggest single-day percentage drops in seven years, with the Dow set to open some 300 points higher after Friday's torrid last hour surge. And as investors await today’s revised monthly budget statement, one which reportedly will no longer balance over the next 10 years, sending the dollar sliding in the process, S&P futures are about 30 handles higher, flirting with 2,650, some 100 points higher from the lows observed around noon on Friday. S&P 500 futures jumped 1.2%, following a weekly decline that at one point was the largest since the financial crisis. Futures on the Dow Jones Industrial Average added 1.3 percent, while those on the Nasdaq 100 Index were up 1 percent. Meanwhile, the VIX fell 11% extending its drop to a second day after JPM wrote on Friday that the worst of the vol spike "unwind" by CTAs, risk parities and vol-targeting funds is behind us. Traders have been on edge following tumultuous moves in equities last week, which saw the S&P 500 post its worst week in two years with a 5.2% decline on fears over interest rate hikes, ending a stretch of 588 days without a 5% drop. However, what has been most surprising about today's session is that Ten-year Treasury yields climbed on Monday, touching a fresh four-year high amid growing inflation fears, worries about the surging US deficit, and concerns the Federal Reserve may accelerate its rate-hike schedule even as it continues to shrink its balance sheet. The 10Y yield rose as high as 2.8930%, yet unlike last week this has - so far - not been enough to dent the equity enthusiasm. The Treasury curve flattened, with futures edging further lower led by belly, EGB peripheral spreads see minor tightening given general risk-on; iTraxx Crossover also tightens ~12bps. Germany’s 10-year yield increased three basis points to 0.77 percent, the highest in more than two years. Britain’s 10-year yield rose five basis points to 1.605 percent, the highest in almost 22 months. European equities rebounded on Monday from the worst weekly sell-off in two years with share prices firming in opening trading. Europe's Stoxx 50 index climbed some 1.9%, led by miners as European bourses catch up with the gains seen late on Wall Street on Friday with macro newsflow otherwise light in the region. Sector wise, material names outperform i nfitting with some of the price action seen in the complex during Asia-Pac trade, energy names are also higher as energy prices continue to retrace some of the losses seen on Friday. In terms of stock specifics, Heineken (-4.2%) are seen lower after their earnings report was clouded by currency effects, Akzo Nobel (+1.7%) have been in focus today after reports in the FT suggesting the Co.’s chemicals unit has been subject to PE interest, Barclays (+1%) have been charged by the SFO regarding their Qatari loans and Airbus (-1.2%) are lower amid reports that they have stopped delivering A320neo jets due to issues with Pratt &Whitney engines. Asia similarly surged, with South Korean equities and the won rose after North Korean leader Kim Jong Un invited his counterpart to meet. Vice President Mike Pence told the Washington Post the U.S. is ready to engage in talks about North Korea’s nuclear program, signaling a shift in policy. The won outperformed major currencies. Japan’s markets are closed for a holiday. Elsewhere, Hang Seng (-0.2%) and Shanghai Comp. (+0.8%) were positive ahead of this week’s Lunar New Year celebrations, while most of the Asia peripheries traded with cautious gains amid a lack of drivers and with various holiday closures scheduled through to next week. China's ChiNext index of small-cap and tech shares jumped after the government was said to call on companies and mutual funds to boost the stock market. The ChiNext rose 3.5% in Shenzhen, its biggest gain since July 27, after falling to a three-year low Friday. "The news about government support eased some worries,” said Shen Zhengyang, Shanghai-based strategist with Northeast Securities Co. “People are hunting for bargains, especially smaller companies that fell too much in the recent rout” Others were more cautious: “Futures can move around quite a bit, but what I will be watching for is a stable ‘green’ in the futures coming into tomorrow,” BB&T's Walter “Bucky” Hellwig told Bloomberg. "“This will show that the S&P didn’t hold on to its 200-day moving average by accident, and this confidence is going to pull more buyers into the market.” To be sure, with Japan closed for holiday, and virtually no economic events and market drivers so far on Monday (this will change with Wednesday's CPI release) has led to an extremely muted European session. Meanwhile, the USD is weaker across the board after Sunday reports that the Trump budget to be released today will not only increase the US deficit but - for the first time under a Republican president - won't balance over 10 years. Other major currencies were rangebound, USD/ZAR drifts lower in anticipation of Zuma departure, RUB rallies with crude. Some other pairs from Bloomberg: EUR/USD rises as much as 0.4% to 1.2297 before paring as take-profit offers cap pair for now, volumes relatively muted amid Japan holiday GBP/USD edges up as as U.K. Prime Minister Theresa May embarks this week on a push to bring her divided Cabinet together and flesh out a Brexit strategy USD/JPY falls modestly AUD/NZD rises as cross bounces off 1.0750 area for the fifth time in as many days helped by macro flows The dollar’s decline supported commodities, with metals higher and crude oil halting a six-day selloff. Both WTI and Brent crude futures have continued to retrace Friday’s losses despite Friday’s Baker Hughes rig count showing a climb of 26 oil rigs. In terms of energy newsflow, UAE energy minister stated the energy market is to balance this year with shale oil output to be absorbed by rising 2018 demand. In metals markets, spot gold is seen higher alongside the softer USD, although gains are likely being capped by this morning’s risk environment. Elsewhere, copper prices have recovered from their two month lows during London trade while Chinese iron ore futures were seen lower overnight after recent rampant gains ahead of the Lunar New Year which kicks off this Thursday. And while there are few notable economic releases today, looking ahead investors will await U.S. consumer-price data on Wednesday with some trepidation. Pressure on equities has been emanating from the Treasury market and in the outlook for inflation, and any upside surprises will likely resume the positive correlation between bond and stock prices. There were some central bank comments overnight, with BoE’s Haldane saying that minor interest rate increases are likely to be introduced later this year, while he also stated that inflation is currently running above target and that’s one of the factors interest rates were hiked last year. BoE Vlieghe said that if there are less credit headwinds, this may signal that the UK is ready for higher rates, there is increased evidence that a tight labour market is having upward effects on wages, also stating that rise in UK debt burden not sustainable if continues for many years. ECB’s Nowotny said that the ECB is concerned regarding US attempts to politically influence FX rates. Nowotny also added that said that EU inflation still has room to increase so the ECB is still on the careful side, although that certainly won’t last forever and that there will be a need for higher interest rates in the foreseeable future. ECB’s Visco said ECB will be patient on pursuit of its inflation goal and that it has been challenging to push up inflation expectations. This week earnings season continues in full swing with reports from Bunge, TripAdvisor, SunPower, Con Edison, Bombardier, Heineken, Loews, Michelin, PepsiCo, MetLife,Cisco, Japan Post Bank, Credit Suisse, Nestle, Airbus, Allianz, Telstra, Coca-Cola, Deere, Eni, Credit Agricole and Campbell Soup. Bulletin Headline Summary from RanSquawk European bourses catch up to the gains seen late Friday on Wall Street A relatively quiet start to the week in FX, partly due to Japan’s market holiday, but also as many participants simply take some time out after the hectic sessions of late Looking ahead, today sees a lack of tier 1 highlights Market Snapshot S&P 500 futures up 1.2% to 2,649.25 Brent Futures up 2.2% to $64.18/bbl Gold spot up 0.4% to $1,321.31 U.S. Dollar Index down 0.3% to 90.21 STOXX Europe 600 up 1.6% to 374.31 MXAP up 0.4% to 171.13 MXAPJ up 0.6% to 557.88 Nikkei down 2.3% to 21,382.62 Topix down 1.9% to 1,731.97 Hang Seng Index down 0.2% to 29,459.63 Shanghai Composite up 0.8% to 3,154.13 Sensex up 1% to 34,329.57 Australia S&P/ASX 200 down 0.3% to 5,820.70 Kospi up 0.9% to 2,385.38 German 10Y yield rose 3.7 bps to 0.782% Euro up 0.2% to $1.2271 Brent Futures up 2.2% to $64.18/bbl Italian 10Y yield rose 5.4 bps to 1.779% Spanish 10Y yield fell 0.4 bps to 1.476% Top Overnight News from Bloomberg President Trump will seek billions of dollars in new spending to build a border wall, improve veterans’ health care and combat opioid abuse in a budget proposal that’s likely to get little traction in a Republican Congress that has its own, very different spending priorities OMB’s Mulvaney: U.S. will post a larger budget deficit this year and could see a “spike” in interest rates as a result In a break from a longstanding Republican goal, the plan won’t balance the budget in 10 years, according to a person familiar with the proposal The U.S. is ready to engage in talks about North Korea’s nuclear program even as it maintains pressure on Kim Jong Un’s regime, Vice President Mike Pence said, signaling a shift in American policy The U.K. economy is ready for slightly higher rates, BOE’s Vlieghe says on a panel in London Reports of Prime Minister Shinzo Abe’s plan to nominate Haruhiko Kuroda for another term as chief of the Bank of Japan is seen as easing pressure on the yen BOE’s Vlieghe: U.K. economy ready for slightly higher rates ECB’s Nowotny says euro-area inflation has room to move higher so ECB is still on the careful side; Visco says risk of deflation averted, forex volatility seen as main risk for inflation German Chancellor Angela Merkel said she’s determined to serve another full term, rebuffing party critics who say she sold out to the Social Democrats to extend her 12 years in office China Jan. M2 Money Supply: 8.6% vs 8.2% est; New Yuan Loans 2.9t vs 2.1t est; Agg. Financing 3.1t vs 3.2t est. Asia equity markets began a holiday-quietened week mostly positive in which the region got a mild lift as US equity futures extended on Friday’s late rebound. However, upside was contained with Japan away in observance of National Founding Day, while the ASX 200 (-0.3%) was the laggard as energy names reeled from last week’s drop in crude prices and with financials subdued as the Royal Banking Commission started its inquiry into the industry. Elsewhere, Hang Seng (-0.2%) and Shanghai Comp. (+0.8%) were positive ahead of this week’s Lunar New Year celebrations, while most of the Asia peripheries traded with cautious gains amid a lack of drivers and with various holiday closures scheduled through to next week. PBoC skipped open market operations. Top Asian News China Is Said to Call on Companies, Mutual Funds to Boost Stocks China New Loans Hit Record on Seasonal Boost, Shadow Bank Curbs Chinese Tourists Are Taking Over the Earth, One Selfie at a Time Singapore Seen Leading Race to Tax $38 Billion Shopping Boom China’s Jan. New Loans 2.9T Yuan; Est. 2.05T Yuan European equities have kicked the week off on the front foot (Eurostoxx 50 +1.9%) as European bourses catch up with the gains seen late on Wall Street on Friday with macro newsflow otherwise light in the region. Sector wise, material names outperform infitting with some of the price action seen in the complex during Asia-Pac trade, energy names are also higher as energy prices continue to retrace some of the losses seen on Friday. In terms of stock specifics, Heineken (-4.2%) are seen lower after their earnings report was clouded by currency effects, Akzo Nobel (+1.7%) have been in focus today after reports in the FT suggesting the Co.’s chemicals unit has been subject to PE interest, Barclays (+1%) have been charged by the SFO regarding their Qatari loans and Airbus (-1.2%) are lower amid reports that they have stopped delivering A320neo jets due to issues with Pratt &Whitney engines. Top European News Barclays Bank Unit Charged by SFO Over 2008 Qatar Loan Deal ECB’s Nowotny Says Central Banks’ Task Isn’t to Satisfy Markets TDC Withdraws Recommendation of MTG Transaction After Bid999 Kazakh Halyk Bank Weighs Dividend as CEO Predicts Excess Capital Berlusconi Papers Over Cracks in Alliance: Italy Campaign Trail In FX, a relatively quiet start to the week, partly due to Japan’s market holiday, but also as many participants simply take some time out after the hectic sessions of late. The Usd is modestly weaker vs all its G10 peers bar the Kiwi, and then only just as Nzd/Usd nestles around 0.7250 and Aud/Nzd remains below 1.0800 – Aud/Usd maintaining 0.7800+ status. Cable has ticked up towards the top of a 1.3810-1.3875 range on little obvious Sterling supportive news or factors aside from further BoE rhetoric underscoring more policy tightening (albeit gradual), while Eur/Usd is mid-way between 1.2245-95 parameters amidst more qualms registered by ECB’s Nowotny about the US exerting political influence on exchange rates. Usd/Jpy even more contained within a 108.50-108.95 band, as are Usd/Chf and Usd/Cad in 0.9370-0.9400 and 1.2600-1.2555 ranges awaiting more direction – via stock market developments and US CPI data for example. The Dollar index is keeping its head above the 90.000 level with the latest weekly CFTC reports on spec positioning showing a slightly less short Greenback base, along with the Jpy, while Eur and Gbp longs lighten up a bit and Loonie longs increase their Cad holdings. In terms of option expiries, nothing really of note or in size for today’s NY cut. In commodities, both WTI and Brent crude futures have continued to retrace Friday’s losses despite Friday’s Baker Hughes rig count showing a climb of 26 oil rigs. In terms of energy newsflow, UAE energy minister stated the energy market is to balance this year with shale oil output to be absorbed by rising 2018 demand. In metals markets, spot gold is seen higher alongside the softer USD, although gains are likely being capped by this morning’s risk environment. Elsewhere, copper prices have recovered from their two month lows during London trade while Chinese iron ore futures were seen lower overnight after recent rampant gains ahead of the Lunar New Year which kicks off this Thursday. North Sea Forties pipeline is now said to be in full operation, according to sources. Phillips 66 reports a unit upset at wood river, Illinois refinery; the refinery has a crude capacity of 314K bpd. With data fairly thin on Monday all eyes will instead be on the White House with President Trump expected to release a $1.5tn infrastructure plan, along with his 2019 budget blueprint. Away from that the only data of note is the January monthly budget statement in the US. US Event Calendar 2pm: Monthly Budget Statement, est. $51.0b, prior $51.3b DB's Jim Reid concludes the overnight wrap Are we potentially set for a Valentine’s Day sell-off on Wednesday for markets or will Cupid fire some dovish arrows for the market. Indeed we can’t remember a more eagerly anticipated number than the US CPI release on the most romantic day of the year. It’s near impossible to predict one number but our bias continues to be for higher inflation than expected in 2018. This number has been slightly complicated as the BLS have recently made some seasonal adjustments. Before this, January's print (i.e. this week's number) had consistently exceeded expectations in the last 25 years and February's had consistently missed. So all a bit uncertain. Our economists also think we should watch healthcare inflation which is due some upside surprise soon. We'll fully preview on Wednesday but that'll be the focal point for the week and the focal point for pretty much every month this year in our opinion. Other data will pale into insignificance this week but you can see what’s in store at the end of this report. It’s also worth mentioning that today President Trump is expected to release a $1.5tn infrastructure plan (which will kick off the process for producing legislation) and also his 2019 budget blueprint. Given the tax reform, the recent budget concessions to keep the government open, and this infrastructure plan, it’s no surprise to see investors looking at whether government bond yields are too low regardless of inflation. It’s also worth noting that it’s a half-term week in the UK and parts of Europe so that could add to the liquidity fun and games in either direction. On a similar vein Chinese New Year kicks off on Thursday, with mainland markets subsequently shut until February 21st. Now recapping equities performance from Friday. European bourses were all lower after the negative leads from Asia, with key bourses down 1-1.5% (Stoxx 600 -1.45%; DAX -1.25%; FTSE -1.09%). Across the pond, the S&P exhibited large swings with a peak to trough intraday range of 4.1% before recovering throughout the day and closing 1.49% higher. The Dow (+1.38%) and Nasdaq (+1.44%) also advanced. Within the S&P, all sectors excluding energy were in the green, with gains led by the tech, real estate and utilities sectors. Elsewhere, the VIX also traded in a large range of c13pt (27.7 to 41.1) before closing 4.4pt lower to 29.06 (-13.2%). Over the weekend, the Nikkei reported Japan’s PM Abe intends to nominate Kuroda for a second five year term as BOJ Governor. Our Japanese strategist Yamashita expect the near term market impacts to be limited, in part as consensus was broadly expecting a reappointment. Looking ahead, he expects the current monetary easing framework to remain in the short term, but a normalisation bias is more likely down the track, albeit with actual action likely to be made on the condition of inflation reaching +1% and the government declaring a victory over deflation. If normalisation occurs, he expects a hike in the 10y JGB yield target to be the BOJ's first move towards normalization. ETF purchases are also likely to be scaled back sooner rather than later, although domestic stock prices will probably need to move back into an uptrend trend before that can happen. Refer to his note for more details. Following on, Nick Burns from my team has examined the potential headwinds for HY credit due to the spike higher in equity market volatility. We believe there will likely be a reversal from the current levels of equity market volatility, but credit spreads will likely come under pressure unless equity market volatility falls towards the lows seen during 2017. Further, he has also looked at how the technicals seem to be less supportive in the early stages of 2018 than they have been in recent years. Refer to his note for more details. This morning in Asia, markets are modestly higher. The Hang Seng (+0.58%), Kospi (+1.18%) and China’s CSI 300 (+0.81%) are all up while the ASX 200 is down 0.30% as we type. Elsewhere, the Japanese market is closed today for a holiday and WTI is rebounding c1%. Now recapping other market’s performance from Friday. In government bonds, earlier risk aversion seemed to help core European 10y bond yields to fall 2-5bp (Bunds -1.8bp; Gilts -4.6bp) while peripherals yields rose 3-7bp. Turning to currencies, the US dollar index strengthened 0.24% while the Euro was broadly flat and Sterling fell 0.62%, weighed down by the softer than expected prints on IP and trade deficits. In commodities, WTI oil fell 3.19%, in part as the Baker Hughes US rig count posted its biggest weekly increase in more than year. Elsewhere, precious metals softened (Gold -0.16%; Silver -0.34%) and other base metals also weakened (Copper -1.41%; Zinc -0.69%; Aluminium -0.81%). Away from markets, the US Budget director Mulvaney noted that rising budgets deficits are “a very dangerous idea, but it’s the world we live in” and the “US will post a larger deficit this year and could see a spike in interest rates, but lower deficit are possible over time given sustained economic growth”. Elsewhere, Congress has officially passed the two year spending deal with our US economists expecting the c$300bln increase in spending to potentially add several tenths to their 2018 and 2019 growth forecasts of 2.6% and 2.1% (Q4/Q4) respectively, subject to more details from the deal. Over in Germany, the BamS has reported the SPD leader Martin Schulz will be replaced on Tuesday when the SPD leadership meets. The BamS did not say how it got the information but noted Andrea Nahles will be appointed as acting party Head. Earlier on Friday, Mr Schulz has “declared his withdrawal from a (proposed) role in the federal government” but said he wanted party members to vote in favour of the coalition government with Ms Merkel’s bloc. Elsewhere, Ms Merkel noted that it’s acceptable to give the finance ministry post to the SPD and that “a finance minister can’t just do what he wants”. Finally onto central banks commentaries. The ECB’s Nowotny noted the recent equities sell off as “a normalisation” and that “…the task of central banks isn’t to satisfy markets but to ensure economic stability. So if necessary, rates will have to rise and markets will have to adapt to that”. On QE, he said “…I don’t think we will need it (after September), at least not in its current form”. On inflation, he noted it still has room to move higher, so the ECB is still on the careful side, but that won’t last forever, as “in the foreseeable future there will be a need for the ECB to raise rates…” In the UK, the BOE’s Haldane said “some further tightening of policy might be needed over the period ahead”, but the BOE is “in no rush” to do so. He added rates in the UK “won’t remotely go back to levels we’ve seen in the past, but nonetheless keeping the cost of living under control is….the single best and most important thing we can do to help the economy”. We wrap up with other data releases from Friday. In the US, the final reading of the December wholesale inventories was revised upward to 0.4% mom (vs. 0.2% expected). Overall,the Atlanta Fed's GDPNow model now estimate that the US economy will grow 4.0% saar in 1Q, while the NY Fed’s estimate is c3.4% saar. In Europe, both France and Italy’s December IP was above market, at 4.5% yoy (vs. 3.5% expected) and 4.9% (vs. 1.9% expected) respectively. Conversely, a fall in output in the oil and gas and mining sectors contributed to a lower than expected December IP in the UK, at -1.3% mom (vs. -0.9%) and 0% yoy (vs 0.4%), while its December trade deficit widened to -£4.9bln (vs. -£2.4bln expected). Exports for the month rose 0.8% mom, while imports rose an even stronger 3.0% mom. With data fairly thin on Monday all eyes will instead be on the White House with President Trump expected to release a $1.5tn infrastructure plan, along with his 2019 budget blueprint. Away from that the only data of note is the January monthly budget statement in the US. Heineken will report earnings.