Overnight News

• European bourses are trading higher playing catch up with the recovery late Friday on Wall Street

• News of a potential higher inflation forecast in BOE’s upcoming inflation report saw an early test of barriers at 1.6000 in GBP/USD

• Markets look forward to the FOMC rate decision tomorrow with further alarms sounded for QE2
  

ASIA

JGBs gained overnight, with futures rising towards a seven-year peak, after US Treasuries surged on weakerthan- expected US jobs data that stoked expectations of monetary easing by the Federal Reserve. Nikkei fell 0.7% in very thin trade after jobs data signalled the US economic recovery was flagging and fanned talk that the Federal Reserve may consider further policy easing at a meeting this week. Strength in the JPY weighed on exporters after the USD approached a 15-year low against the JPY on Friday following the payrolls data, according to market players. (RTRS)

In other news, China extended a record buying spree of Japanese debt in June as sovereign debt concerns buffeted the EUR, purchasing a net USD 5.9bln of short-term bills although it was a net seller of longer dated notes. (RTRS)

Elsewhere, the introduction of additional stimulus measures in China would cause over capacity, asset bubbles and drive speculation and price surges in the property market, according to deputy head of the financial institute of the State Council’s Development Research Centre. In other news, China’s economy will enjoy a strong, stable second half, putting it on course for full year growth of about 10%-11%, according to the head of the Development Research Centre, Zhang Yutai. Also, former Chinese central bank deputy governor Wu Xiaoling said the nation shouldn’t introduce additional stimulus measures. (People’s Daily/ Shanghai Securities News)

US

The Federal Reserve is set to downgrade its assessment of US economic prospects when it meets on Tuesday to discuss ways to reboot the flagging recovery. Faced with weak economic data and rising fears of a double-dip recession, the Federal Open Market Committee is likely to ensure its policy is not constraining growth and to use its statement to signal greater concern about the economy. It is, however, unlikely to agree big new steps to boost growth. Smaller measures to help the economy could initially take the form of a decision to reinvest proceeds from maturing mortgage-backed securities held by the US central bank, thereby preventing the Fed’s balance sheet from shrinking naturally. (FT FrontPage)

In other news, the US economy will improve slowly and another round of fiscal stimulus wouldn’t be effective, according to former Treasury secretaries Paul O’Neill and Robert Rubin. (Sources)

Elsewhere, Goldman Sachs revises US growth forecast and sees US real GDP growth to average 1.5% at an annual rate in H2. Co. previously forecasted growth to rise from 2.5% in Q1 to 3.5% by H2. Co. says they now look for a more gradual pickup-from 1.5% in Q1 to 3% in Q4. The 2.5% Q4/Q4 average is about 0.9% points below the previous forecast. Says annual average basis of their forecast for growth in 2011 drops to 1.9% from 2.4% and says expects jobless rate to rise to 10% by early 2011 and remain there for the rest of the year.
Elsewhere, Barclays revises GDP outlook for Q3 to 2.5% from 4%. (CNBC)

Also, new US whistleblowing incentives within the Dodd-Frank financial reform act – that could net informants multimillion dollar pay-outs – are likely to generate a surge in allegations against US-listed companies and Wall Street banks, lawyers say. (FT)