On MLK Day, we party like its 1991... in the Shanghai Composite that is. The main Chinese index slid another 14 points overnight to its lowest level since the June near-banking sector collapse fireworks, entering 1-handle territory once more, and making a mockery of all those who still don't get that since the Chinese stock market is so shallow, the only bubble in China is in its housing market which unlike the stock market is rising just shy of 20% annually.

But the reason why China's GDP missed even though it beat last night, when it posted 2013 GDP growth of 7.7%, higher than the 7.6% expected, is that as the Bloomberg chart below shows, it was the lowest nominal growth since the financial crisis.

And since overnight liquidity in China collapsed once again, the PBOC announced it had provided short-term liquidity to some big banks today, and that it would conduct a reverse repo tomorrow. Of course, with the January 31 Trust default just 11 days away, the Chinese liquidity tinderbox is locked and loaded especially with the Chinese New Year just around the corner.

In other news, European stocks recovered from a lower open and gradually edged into positive territory, with the DAX index outperforming where ThyssenKrupp shares advanced by over 4% after their CFO said that there are no concrete plans to increase capital and also confirmed outlook for EBIT target. At the same time, in spite of consensus beating retail sales data from the UK, the FTSE-100 index underperformed its EU peers, weighed on by Royal Dutch Shell which issued an unexpected profit warning and consequently sent share tumbling at the open. As a result, in spite of higher oil prices, oil & gas was the only sector to trade in the red.

Looking elsewhere, GBP surged across the board following the release of much better than expected UK retail sales numbers, which the ONS said was driven by smaller stores where annual sales grew more than three times faster than in bigger stores. At the same time, UK rates curve steepened, with Gilts moving into negative territory as a result. Going forward, market participants will get to digest earnings release by MS and GE, as well as Housing Starts and Building Permits from the US.

There is nothing on the US calendar today as the US is closed for holiday

Market level recap

• S&P 500 futures little changed at 1833.7
• Stoxx 600 down 0.1% to 335.5
• US 10Yr yield down 0bps to 2.82%
• German 10Yr yield down 0bps to 1.75%
• MSCI Asia Pacific down 0.3% to 139.2
• Gold spot up 0.1% to $1255.3/oz

Asian Headlines

The PBoC said it sees increased positive signals in the economy and that it will maintain appropriate liquidity and credit and social financing growth. (RTRS) PBOC's Weibo says Jan. lending is rising fast and the PBOC have asked banks to tame pace of lending and adjust banking liquidity at proper time. (BBG)

EU & UK Headlines

UK Retail Sales Ex Auto (Dec) M/M 2.8% vs Exp. 0.3% (Prev. 0.4%, Rev. 0.2%)
UK Retail Sales Ex Auto (Dec) Y/Y 6.1% vs Exp. 3.2% (Prev. 2.3%, Rev. 2.1%)
UK Retail Sales Incl. Auto (Dec) M/M 2.6% vs Exp. 0.3% (Prev. 0.3%, Rev. 0.1%) - Joint highest on record
UK Retail Sales Incl. Auto (Dec) Y/Y 5.3% vs Exp. 2.5% (Prev. 2.0%, Rev. 1.8%) - Highest since October 2004

- The ONS says the rise in sales was driven by smaller stores where annual sales grew more than three times faster than in bigger stores.

Eurozone Construction Output (Nov) M/M -0.6% vs Prev. -1.2% (Rev. -1.1%)
Eurozone Construction Output (Nov) Y/Y -1.7% vs Prev. -2.4% (Rev. -2.3%)

Fitch affirmed Netherlands at AAA; outlook negative. S&P revised Portugal sovereign credit outlook to negative from credit watch negative; rating maintained at BB, affirmed Malta at BBB+; outlook stable and affirmed Slovenia ratings at A-; outlook stable. (BBG)

BofA Merrill Lynch have upgraded its Q4 GDP forecast for the Eurozone to 0.3% Q/Q from 0.1% Q/Q, and its 2014 GDP forecast to 1% from 0.8%. (BofA)

RBC sees the first UK rate rise in November 2015 vs August 2016 previously and says the BOE may lower unemployment threshold to 6.5%. (BBG)

UK Chancellor Osborne has called for an above inflation rise in the minimum wage from GBP 6.31 to its pre-recession value of GBP 7.00 per hour.

French Finance Minister Moscovici is aiming for GDP growth of more than 1% in 2014 and has repeated 2014 GDP growth forecast of 0.9%. (BBG)

A new accounting standard adopted by the EU from September may reduce Italy's debt-to-GDP ratio - the second highest in the region after Greece, by as much as 2 percentage points, according to an official at Italy's statistics agency ISTAT.

US Headlines

US Senate voted 72-62 to send the USD 1.1trl government spending bill, which would fund the US government through September 30th, to President Obama to sign. (BBG)

Equities

Heading into the North American open stocks in Europe are seen broadly higher, with the DAX index in Germany outperforming its peers where ThyssenKrupp shares surged by over 4% after their CFO said that there are no concrete plans to increase capital and also confirmed outlook for EBIT target. At the same time, oil & gas related stocks failed to benefit from higher oil prices and the sector underperformed its EU peers since the get-go, weighed on by Royal Dutch Shell which issued an unexpected profit warning. Of note, given that today also marks expiration of various equity option contracts may result in erratic, albeit short-lived price action around expiration times.

FX

GBP/USD rallied over 100pips and moved above its 21DMA line following the release of much better than expected UK retail sales numbers, which the ONS said was driven by smaller stores where annual sales grew more than three times faster than in bigger stores. Broad based GBP strength saw GBP/JPY also move above its 21DMA line, with the consequent JPY weakness also ensuring that USD/JPY was able to move into positive territory.

French President Hollande has said the EUR rate is particularly high. (BBG)

Deutsche Bank sees Turkish GDP growth at 2.8% in 2014. (BBG)

Commodities

Commerzbank sees gold rising to USD 1,400 by end of year, as well as a revival of commodity investment demand in 2014 and forecasts copper to average USD 7,600 in 2014. (BBG)

Morgan Stanley have said that gold prices look likely to remain under pressure this year with rising US interest rates and we remain firmly of the view that far greater upside lies with the platinum group metals and palladium in particular. (DJN)

South Africa's National Union of Mineworkers accepts Northam platinum wage offer according to Tantsi and the platinum strike has been called off'. (BBG/Twitter)

Morgan Stanley say Brent to average USD 103/bbl in 2014 on higher supply. Brent crude is to peak in Q1, fall in Q2 on refinery maintenance, according to a Co. report. (BBG)

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We conclude with the overnight summary by DB's Jim Reid

Markets have started the week on the back foot, despite a brief rally following a better-than-expected Q4 GDP print in China. Indeed, Asian equities recorded a small pop following the GDP report, but the gains were shortlived as the general negativity on China’s growth trajectory continues to weigh on Asian markets. In terms of the data itself, China’s Q4 GDP (7.7% YoY) was slightly ahead of expectations of 7.6% but it was slower than Q3’s 7.8%. DB’s China economist Jun Ma maintains his view that economic growth will likely accelerate in 2014 on stronger external demand and the benefits from deregulation. The slight slowdown was also evident in China’s December industrial production (9.7% YoY vs 10% previous), fixed asset investment (19.6% YoY vs 19.9% previous) and retail sales (13.6% vs 13.7% previous) data which were all released overnight. Gains in Chinese growth assets were quickly pared and as we type the Shanghai Composite (-0.8%), HSCEI (-1.1%) and AUDUSD (-0.1%) are all trading weaker on the day. On a more positive note, the stocks of mining companies BHP (+0.29%) and Rio Tinto (+0.26%) are trading flat to slightly firmer and LME copper is up 0.1%. Across the region, equities are generally trading lower paced by the Nikkei (-0.5%) and the Hang Seng (-0.7%). Staying in China, the 7 day repo rate is another 50bp higher to a three month high of 9.0% with many investors continuing to focus on the Chinese shadow banking system following the looming restructuring of a $500m trust product that was sold to ICBC’s customers. The PBoC said late last week that it expects cash demand to increase substantially before the Lunar New Year on Jan 31st and it has asked banks to pare back the pace of lending in preparation for this.

Last week ended on a sour note as the S&P500 (-0.39%) faded into the close on the weight of a number of profit warnings and earnings disappointments. The big headline misses came from the likes of General Electric (-2.3%) and Intel (-2.6%) – the latter reporting disappointing earnings on the back of continuing weakness in traditional PC demand. Morgan Stanley (+4.4%) bucked the general trend by reporting a solid Q4, courtesy of strong performances in investment banking and capital markets. But overall the S&P500 has managed a fairly lacklustre Q4 reporting season thus far, with just 60% of the 50 companies that have reported managing to beat analyst estimates. The picture on the revenue side is about the same with 63% of companies beating expectations on the top line. Looking deeper at the earnings beats/misses so far, it’s clear that the financials sector has had a decent earnings season, with 13 financials beating EPS estimates and only 6 missing. On the other side of the ledger, the clear underperformer is consumer services, specifically retail where only 2 companies have met sales estimates but 6 have missed. Our oft-used earnings summary table for the S&P500 is included in today’s PDF. We’ll be updating this for both the S&P500 and Stoxx600 as we head deeper into the earnings season.

Briefly recapping the weekend news flow, the ECB has reportedly given selected Euroarea banks three weeks to submit details of their trading books and risk models as part of the central bank’s upcoming asset quality review. Banks have until January 31st to provide data on trading book portfolios, applying common definitions used in regulatory and accounting standards where possible (Reuters)

Also in Europe, after the US markets closed on Friday, Ireland was upgraded by Moody’s back to investment grade (Baa3 from Ba1) with the rating agency noting the dual tailwinds of an improving fiscal outlook and the government’s exit from the EU/IMF programme as the rationale for the upgrade. In Asia, the latest home price data from the Chinese government showed that average new home prices in 70 major Chinese cities climbed 0.4% in December on the month, easing from November's +0.5% and seeing the fourth straight slowdown since August's 0.8% gain. Average nationwide new home prices are up 10% YoY. Elsewhere in Asia, the Bank of Japan is said to be planning to raise credit lines for low interest loans to entities that are showing increasing financial support to industries such as the environment, medicine and welfare (Nikkei).

Previewing the week ahead, the coming week will be a little more quiet than usual with a holiday-shortened week in the US and a relatively light economic data calendar. But there are still a number of important data releases ahead of the month-end FOMC on January 29-30th. The main US economic data releases this week will all come on Thursday with the release of initial jobless claims, the Markit flash PMI and existing home sales. This week’s jobless claims also coincide with the survey period for January payrolls. The 3rd week of US reporting season will see 69 S&P 500 companies reporting, accounting for 17% of index market cap, including Microsoft, P&G, IBM, Verizon and McDonald’s. The US Treasury will auction $15bn of 10yr TIPs on Thursday. US equity and bond markets will be shut today for the Martin Luther King Day long weekend.

In Europe, the highlights on the data docket include Tuesday’s German ZEW Survey and Thursday’s flash PMIs for the EZ/France/Germany. In the UK, watch for the unemployment which will be released on Wednesday, where expectations are for unemployment to fall to 7.3%, edging closer to the BoE’s 7% forward rate threshold. The latest BoE minutes are released on Wednesday. The World Economic Forum meets in Davos, Switzerland starting Wednesday with the IMF due to release its latest world economic outlook a day ahead of that.

In Japan, the BoJ monetary policy meeting is scheduled on Wednesday where the central bank will provide its three year economic outlook. In China, the HSBC flash manufacturing PMI is on Thursday where consensus is expecting a further slowdown to 50.3 (from 50.5 in December).