So far it has been largely a repeat of the previous overnight session, where absent significant macro drivers, the attention again remains focused both on China, which reported some truly ugly inflation (with 0.8% Y/Y CPI the lowest since Lehman, just call it deflation net of the "goalseeking") data (which as usually is "good for stocks" pushing the SHCOMP 1.5% higher as it means even more easing), and on Greece, which has not made any major headlines in the past 24 hours as patience on both sides is growing thin ahead of the final "bluff" showdown between Greece and the Eurozone is imminent. The question as usual is who will have just a fraction more leverage in the final assessment - Greece has made its ask known, and it comes in the form of 10 billion euros in short-term "bridge" financing consisting of €8 billion increase in Bills issuance and €1.9 billion in ECB profits, as it tries to stave off a funding crunch, a proposal which will be presented on the Wednesday meeting of euro area finance ministers in Brussels. The question remains what Europe's countrbid, if any, will be. For the answer: stay tuned in 24 hours. In Europe, traders also appear tentative as they await tomorrow’s Eurogroup emergency meeting to discuss the stand-off with Greece’s new anti-austerity government before the current bailout programme is due to expire at the end of the month. Ahead of this, European equities have trended lower this morning with the energy sector the underperformer, weighing on the FTSE, while over in Athens, the stock exchange is up by 1.8% and the GR/GE 10 year spread is tighter by 34bps as yesterday’s commentary about a bridging facility have helped support local assets. T-notes continue to edge lower, with the US 10yr yield breaking back above 2% for the first time since the beginning of the year, the weakness driven by long-end interest hedging as a result of the Microsoft $10.75 billion deal, the largest so far in 2015. As a consequence USD/JPY is now trading back above the 119.00 level supported by yield differential flows. UK Gilts have underperformed core European paper this morning as they play catch up to late selling in US and GE paper after the UK close yesterday. Asian equities trade mostly lower after tracking yesterday’s losses on Wall Street amid the ongoing Greek led Eurozone concerns. Nonetheless, the Shanghai Comp (+1.50%) rose after reversing earlier losses amid speculation of further easing from the PBoC following disappointing Chinese data. January CPI slipped to a 5yr low (Y/Y 0.8% vs. Exp 1.0% (Prev. 1.5%)) while PPI saw its biggest decline in 5yrs to post a 35th consecutive monthly contraction (Y/Y -4.3% vs. Exp. -3.8% (Prev. -3.3%)). Nikkei 225 (-0.33%) fell despite a raft of positive earnings reports weighed on by a mildly firmer JPY. In FX, the USD has dictated play in much of the price action in FX markets this session, strengthening by 0.3%, hampering both the EUR and the GBP prior to UK Industrial and Manufacturing production (-0.2% vs. Exp. -0.1% (Prev. -0.1%) and 0.1% vs. Exp. -0.1% (Prev. 0.7%, Rev. 0.8%) respectively) which saw GBP strengthen, however the pair failed to hold onto these gains, with the ONS stating that the data will not have any impact on UK GDP. AUD fell during the European session as the PBoC reiterated their regular 'prudent monetary policy' phrase, without making any actual monetary change, therefore cooling speculation of stimulus, which saw overnight strength in AUD/USD despite Chinese January CPI slipping to a 5yr low while PPI saw its biggest decline in 5yrs to post a 35th consecutive monthly contraction. Ahead of today’s API crude oil Inventories, WTI is on course to snap its 4th consecutive day of positive trading despite fairly bullish comments from IEA, who forecast overnight that the build in oil inventory over the last few months is to end as soon as mid-2015 and the market is to begin tightening substantially. IEA also stated during today’s session that output from OPEC in January fell to 30.31mln due to the decline in output from Iraq and Libya, while prices have risen in January as market participants take note of the recent decline in US rig count. Elsewhere copper is the laggard in the metals complex, falling in tandem with AUD on the back of a cooling in speculation of PBoC stimulus, which saw prominence yesterday after the above mentioned weak CPI and PPI data. Precious metals are seen weaker across the board as a result of strength in the greenback. In Summary: European shares rise, currently near session high, with tech, telcos outperforming, oil & gas and banking sectors underperforming. G-20 ministers and central bankers to conclude meeting in Istanbul, Schaeuble, Weidmann brief press around 6.30pm CET. The Swiss and U.K. markets are the worst-performing larger bourses, Italy the best. The euro is weaker against the dollar. Japanese 10yr bond yields rise; Greek yields decline. Commodities decline, with WTI crude, nickel underperforming and natural gas outperforming. On the calendar today: In terms of this morning the likely highlights will be the manufacturing and industrial production readings out of both France and the UK whilst we also get the industrial production print for Italy. Later calendar picks up in the US with the NFIB small business optimism survey due along with wholesale inventories and trade sales due for the December period. We also see the influential JOLTS job opening print. The Fed’s Lacker will also be due to speak at some point today. Market Wrap S&P 500 futures up 0.2% to 2045.5 Stoxx 600 up 0.2% to 371.3 US 10Yr yield up 1bps to 1.99% German 10Yr yield up 1bps to 0.37% MSCI Asia Pacific down 0.3% to 140.8 Gold spot down 0.2% to $1236/oz Euro down 0.4% to $1.128 Dollar Index up 0.42% to 94.84 Italian 10Yr yield down 1bps to 1.65% Spanish 10Yr yield up 3bps to 1.6% French 10Yr yield up 1bps to 0.68% S&P GSCI Index down 0.5% to 415.2 Brent Futures down 0.6% to $58/bbl, WTI Futures down 1.6% to $52/bbl LME 3m Copper down 1.7% to $5575/MT LME 3m Nickel down 1.5% to $14930/MT Wheat futures down 0.8% to 525.8 USd/bu Bulletin Headline Summary From RanSquawk and Bloomberg European equities are feeling the consequence of WTI snapping its 4 day winning streak as participants remain tentative ahead of tomorrow’s Eurogroup meeting USD has dictated play in much of the price action in FX markets this session, strengthening by 0.3%, hampering both the EUR and the GBP ? Looking ahead, there is wholesale Inventories, the US crop report, Fed’s Lacker (Voter, Hawk) speaking on the economy and a US USD 24bln 3yr Note auction Treasuries decline before quarterly refunding auctions begin with $24b 3Y notes; yield 1.060% in WI trading vs 0.926% award in Jan. The risk of a clash between Greece and its euro partners grew as Merkel signaled little willingness to compromise over the conditions attached to the country’s bailout U.K. Chancellor of the Exchequer George Osborne said the danger of a miscalculation leading to a “very bad outcome” between Greece and the euro area is increasing, and G-20 finance ministers are urging a solution Ukrainian troops staged a new offensive against pro-Russian separatists as the U.S. examined aid options for the government in Kiev and European leaders prepared for new peace talks The Ukraine crisis is set to spur Western rearmament as concerns about Russian aggression prompt governments to boost military budgets and reverse years of diminishing combat capability, arms-maker Saab AB predicated The U.S. is in talks with Australia about “basing” Navy vessels in its main South Pacific ally, Chief of Naval Operations Admiral Jonathan Greenert said, a move that would risk inflaming tensions with China China’s CPI rose 0.8% from a year earlier, below 1% median estimate in Bloomberg survey; slide in factory gate prices deepened to 4.3%, extending a stretch of declines to 35 months U.K. factory production increased 0.1% in Dec., better than forecast, capping its best annual performance since 2010 Yields on some Puerto Rico bonds climbed to records Monday after a judge threw out a debt-restructuring law that lawmakers passed last year The difference between the price at which traders are willing to buy and sell major currencies has widened to the most since the 2008 financial crisis amid the most foreign- exchange volatility in over a year, according to data from JPMorgan Sovereign yields mostly higher; Greece 10Y falls ~34bps. Asian, European stocks mostly higher, U.S. equity-index futures gain. Brent, WTI, gold, copper fall US Event Calendar 9:00am: NFIB Small Business Optimism, Jan., est. 101 (prior 100.4) 10:00am: Wholesale Inventories, Dec., est. 0.2% (prior 0.8%) Wholesale Sales, Dec., est. -0.3% (prior -0.3%) 10:00am: IBD/TIPP Economic Optimism, Feb., est. 51.9 (prior 51.5) 10:00am: JOLTs Job Openings, Dec., est. 4.990m (prior 4.972m) 8:15am: Fed’s Lacker speaks in Raleigh, N.C. * * * DB's Jim Reid concludes the overnight recap It does look likely that volatility will stay around for a while yet as plenty of complicated issues remain unresolved. The "Grexit" chatter is starting to rise, the Fed and the market are far apart on expectations for the path of rates, China growth looks vulnerable, nobody quite knows whether the next 20% move in Oil will be up or down and the Russian situation could go either way quite quickly. The good news for European assets is that with QE, the tolerance for bad news is higher than it should be but clearly they can't be completely impervious to negativity in the list of themes above. You can add the risk of deflation and what it means for markets to the above list and overnight China has given us more food for thought. Indeed sentiment is firmer there as a subdued inflation print has raised hopes of further policy easing. The +0.8% yoy reading was down from +1.5% previously and below expectations of 1%. DB’s Zhiwei Zhang noted that a large extent of the decline was driven by food prices, which Zhiwei in turn believes is partly driven by weak domestic demand. Our colleagues believe that the number opens the way for further policy easing and they expect an interest rate cut in March and another in Q2, along with a RRR cut in Q2. So it’s fair to say that although a prolonged flirtation with deflation would be bad, a brief dalliance might be good if it leads to further global easing. It’s a delicate balance though. As we type Hang Seng is unchanged and Shanghai Composite (+0.86%) firmer on stimulus bets whilst the Nikkei (-0.54%) and Kospi (-0.57%) are weaker, more influenced by yesterday's moves. Credit markets in the region are around half a basis point firmer though. Markets were unsurprisingly weaker yesterday following PM Tsipras’s somewhat defiant speech over the weekend. We’ll take a look at the price action shortly but in terms of the latest on Greece, Bloomberg is reporting that Greek finance minister Varoufakis is set to request an €8bn increase on the cap on T-Bill issuance at this Wednesday’s Eurogroup meeting, as well as the disbursement of €1.9bn in profits that euro-area central banks have supposedly made on their Greek bond holdings. The proposal would in effect form the basis of a financing ‘bridge’ that Greece is looking for before more concrete proposals are made. In response to Sunday’s dramatic events, German finance minister Schaeuble was reported as saying on Reuters that ‘without a program, things will be tough for Greece. I wouldn’t know how financial markets will handle it without a program – but maybe he knows better’ in comments aimed at Tsipras. Meanwhile, in the same report EC President Juncker said that ‘Greece should not assume that the overall mood has changed so that the euro zone will adopt Tsipras’s government program unconditionally’. Speaking at a G20 meeting yesterday, German Chancellor Merkel was quoted in the FT saying that the focus remains on the current program and that this is ‘the basis of any discussion that we have’ before going on to say that ‘what counts’ is the ‘proposal that Greece puts on the table’ ahead of Wednesday. Interestingly, French finance minister Sapin appeared to take a more conciliatory tone towards Athens than his European counterparts, quoted at the same G20 meeting as saying that ‘in the short term, we need to put together what some may call an extension, or the Greeks might want to call a bridge’. Finally the UK PM Cameron yesterday organized a meeting of senior officials to discuss a potential ‘Grexit’ according to the BBC. Yesterday Greek equities finished -4.75% weaker led by a further decline for banks (-9.57%). Just on the banks, Moodys yesterday downgraded five of Greece’s largest banks over fears of reduced government support. 3y Greek yields yesterday rose to their highest level since 2012, finishing over 300bps wider to now yield 21.1%. All eyes on tomorrow’s meeting but with the current political standoff, it looks set to be a bumpy ride. Expanding further on markets yesterday, in the US the S&P 500 finished -0.42% at the close, just off the lows for the day. Oil continued to rebound with WTI (+2.26%) and Brent (+0.93%) firming for the third consecutive session to $52.86/bbl and $58.34/bbl respectively. In fact both markets have now closed in positive territory for the seventh time in eight days with renewed hopes that we will soon be seeing evidence of a slowdown in production. Markets yesterday were given a boost by the news that OPEC has cut its oil supply growth for non-OPEC members. OPEC expects non-cartel members to produce around 850k barrels a day in 2015, a reduction of around 420k barrels on previous forecasts with the US leading the cuts. Energy (+0.18%) was the only sector to finish in positive territory yesterday. In fixed income markets Treasuries were particularly volatile yesterday. The 10y benchmark yield had initially traded lower intraday touching 1.882%, only then to weaken into the close to finish at 1.978% and 2.1bps wider on the day. It was a weaker day for the Dollar too with the DXY finishing -0.26%. Elsewhere it was a particularly data light calendar in the US with just a slightly softer labour market conditions index with the reading falling to 4.9 in January from 7.3 in December. Finally there were some relatively dovish comments out of the Fed’s Powell yesterday who commented that he still needs evidence of inflation moving back towards 2% and that ‘patience is the appropriate term’. Before all this, closer to home in Europe the weaker sentiment around Greece weighed on equity markets with the Stoxx 600 closing 0.74% lower although it had initially dropped as much as 1.4% in early trading. The DAX closed -1.69% weaker and the CAC finished -0.85%. Peripheral markets also suffered with the IBEX (-1.97%) and FTSE MIB (-1.90%) both dropping. Fixed income markets fared little better as Crossover weakened 11bps and 10y yields in Spain (+8bps), Italy (+8bps) and Portugal (+11bps) all widened. 10y Bunds however closed 2bps tighter at 0.353% and the Euro, perhaps surprisingly, finished relatively unchanged at $1.133. Like the US, the data calendar was light however the Sentix investor confidence reading for the Euro-area firmed with the 12.4 print for February rising 11.5 points from the January reading – and more importantly the first reading since the announced ECB QE programme. Elsewhere Germany reported a better than expected trade surplus driven by a bounce in exports (+3.4% mom vs. -2.2% previously) and French business sentiment ticked up a notch to 98 (from 97), the joint highest reading since February last year. Elsewhere, following Merkel’s meeting with President Obama yesterday in Washington over the Ukraine crisis, the BBC has reported that Obama is considering the option of supplying arms to Ukraine should we see no resolution from the latest round of efforts. Specifically, Obama was quoted as saying that ‘if, in fact, diplomacy fails, what I’ve asked my team to do is to look at all options’ and that ‘the possibility of lethal defensive weapons is one of those options’. Tomorrow's peace talks will certainly be a big focus. Taking a look at the calendar today, in terms of this morning the likely highlights will be the manufacturing and industrial production readings out of both France and the UK whilst we also get the industrial production print for Italy. Later this afternoon the calendar picks up in the US with the NFIB small business optimism survey due along with wholesale inventories and trade sales due for the December period. We also see the influential JOLTS job opening print. The Fed’s Lacker will also be due to speak at some point today.