Yesterday was window dressing day (facilitated at just the right time by Yellen's most dovish commentary to date) not only for the hedge fund and vacuum tube community, but also for banks, which as we reported received a record $242 billion in Treasurys from the Fed via an all time high reverse repo. Which means that today, as the repo unwinds, the system will be flooded with over $100 billion.

This brings us to the topic of what stocks may do today - while futures are already solidly in the green, perhaps on the abysmal Japanese Tankan results, or China's Schrodinger economy, which has been growing and contracting ever since 2012, and posted PMIs that both beat and missed, or maybe it was the record high Italian unemployment reported overnight - will likely focus on just one thing: how to frontrun April performance in the first millisecond of trading. And since April is conventionally the stronger month of the year, and since all bad news are both ignored and priced in at the same time, expect yet another levitation day courtesy of our friends, the high freaks, whose time may be drawing to a close not because of the FBI investigation, which is a joke, but because Goldman has now picked a side, and it is not that belonging to the vacuum tubes.

Among the key overnight events was the February Euro area unemployment report, which was unchanged at 11.9%, lower than the 12% median estimate; in Italy it rose to a record 13% while in Germany the locally defined jobless rate for March stayed at the lowest in at least two decades Euro zone PMI held at 53 in February, unchanged from January and matching median estimate in a Bloomberg survey HSBC/Markit’s China PMI fell to 48 in March, the lowest reading since July, from 48.5 in February; a separate PMI from the government, with a larger sample size, was at 50.3 from 50.2 the previous month NATO foreign ministers meet today to discuss their next steps after Putin began withdrawing forces stationed on Ukraine’s border Gazprom raised prices for Ukraine 44% after a discount deal expired, heaping financial pressure on the government in Kiev as it negotiates international bailouts.

RanSquawk confirms that overall, it has been a quiet session in Europe this morning, with the sentiment towards riskier assets supported by the release of an encouraging set of EU related PMIs and also lower than expected German unemployment rate, which fell to the lowest since German unification in 1989.

Looking at the day ahead, there are plenty of activity indicators to digest on the data docket. Beginning in Europe, the final Euroarea and UK PMIs will be released today together with the PMIs for Italy and Spain. Stateside, the focus will be on the ISM manufacturing and US auto sales data. There is market chatter that a number of US automakers will report strong March sales following the winter slump (Bloomberg). Right, onto the performance review.

Bulletin headline summary from Bloomberg and RanSquawk

• Treasuries decline, led by 10Y and 30Y; curve spreads steepen as unwind of post-Fed flattening continues; data and Fed speaker calendar light as market focuses on Thursday’s ECB meeting, Friday’s U.S. payrolls.
• Unemployment in the euro area was at 11.9% in February, lower than the 12% median in a Bloomberg News survey; in Italy it rose to a record 13% while in Germany the locally defined jobless rate for March stayed at the lowest in at least two decades
• Euro zone PMI held at 53 in February, unchanged from January and matching median estimate in a Bloomberg survey
• HSBC/Markit’s China PMI fell to 48 in March, the lowest reading since July, from 48.5 in February; a separate PMI from the government, with a larger sample size, was at 50.3 from 50.2 the previous month
• NATO foreign ministers meet today to discuss their next steps after Putin began withdrawing forces stationed on Ukraine’s border
• Gazprom raised prices for Ukraine 44% after a discount deal expired, heaping financial pressure on the government in Kiev as it negotiates international bailouts
• Japan’s economy will probably withstand a sales tax increase that takes effect today as Prime Minister Shinzo Abe prepares economic stimulus measures and companies raise wages, the country’s new bank lobby chief said
• The first phase of Obamacare ended yesterday much the same way it began: The federal website drew 1.2 million visitors by noon and crashed at least twice
• Federal agents are investigating whether high-frequency trading firms break U.S. laws by acting on nonpublic information to gain an edge over competitors
• Sovereign yields higher. Asian stocks mostly higher. European equity markets, U.S. stocks futures gain. WTI crude and copper lower, gold gains

US Event Calendar

• 9:45am: Markit U.S. Manufacturing PMI, March final, est. 56 (prior 55.5)
• 10:00am: ISM Manufacturing Index, March, est. 54 (prior 53.2)
• ISM Prices Paid, March., est. 59.5 (prior 60)
• 10:00am: Construction Spending, m/m, Feb., est. 0.0% (prior 0.1%)
• 10:00am: IBD/TIPP Economic Optimism, April, est. 46.0 (prior 45.1
• TBA: Domestic Vehicle Sales, March., est. 12.3m (prior 11.98m); Total Vehicle Sales, March., est. 15.8m (prior 15.27m) Central Banks
• EU finance ministers, central bankers meet in Athens Supply
• 11:30am: U.S. to sell $25b 52W bills, $25b 4W bills

Asian Headlines

JGBs traded higher overnight in Asia, with the swaps curve bull flattening following 10y JGB auction (first in new fiscal year) and also after the BoJ's Tankan survey missed expectations, with the drop in sentiment larger than when the sales tax was last hiked in 1997. Prices were also supported by the release of somewhat mixed macroeconomic data from China, with Manufacturing PMI coming in at 50.3 vs. Exp. 50.1 (Prev. 50.2) and HSBC Manufacturing coming in at 48.0 vs. Exp. 48.1 (Prev. 48.1).

EU & UK Headlines

The release of an encouraging set of EU related PMIs and better than expected German jobs report (with unemployment rate at its lowest since German unification in 1989), combined with further unwind of built in expectation of easing by the ECB meant that Bunds traded lower since the open. Looking elsewhere, UK Gilts failed to benefit from the release of weaker than expected UK Manufacturing PMI and in fact underperformed EU peers, with markets focusing on the latest comments by BoE's Carney who said financial markets should be prepared for higher interest rates in the future.

US Headlines

Attention now turns to the release of the latest ISM Manufacturing PMI and the weekly API reports.

Equities

Stocks in Europe gapped higher at the open (Eurostoxx50 +0.5%), benefiting from the carry-over of sentiment following dovish comments by Yellen yesterday and also a raft of positive corporate related news flow pre-market. The move higher in stocks was led by basic materials sectors, with BHP Billiton among the best performing stocks following reports that the company is considering spinning off non-core assets worth up to USD 20bln.

FX

EUR outperformed GBP this morning, supported by the release of weaker than expected UK Manufacturing PMI and also the ongoing unwind of bearish positions ahead of the ECB governing council meeting this week. EUR/GBP also benefited from M&A related flows following reports that Metso may be acquired by UK listed Weir Group. Of note overnight, the Reserve Bank of Australia kept rates unchanged at 2.50%, alongside expectations, the central bank also noted that AUD is high by historical standards and that the boost from lower AUD to be less due to recent FX gains.

Commodities

Little in terms of commodity related news flows this morning, but analysts at Deutsche Bank raised 2014 gold price estimate by 10% to USD 1,261 and see 2014 Brent price forecast at USD 106.50bbl, WTI price forecast at USD 96.60bbl. Elsewhere, a Libyan tribal leader has claimed a deal is 'imminent' to open Rebel-held oil ports in the Country. Also of note, Gazprom has raised its Ukrainian NatGas prices 44%, to USD 385.5 pre 1,000 cubic metres, after a discount deal expired, also stating that Ukraine's debt for unpaid gas bills stand at USD 1.711bln.

* * *

We complete the overnight summary with Jim Reid's recap of the past 24 hours.

Yesterday was a day for the doves as the combination of a weaker than expected Euro CPI and a less-hawkish sounding Yellen gave a boost to equities, EM and carry assets. Yellen’s speech at an interagency development conference was titled “What the Federal Reserve Is Doing to Promote a Stronger Job Market” so it was clear from the outset that it would have a dovish bias. Nevertheless, the content on the speech turned out to have a number of dovish elements to it and was perhaps useful in highlighting Yellen’s own biases relative to those of the Committee that she highlighted a couple of weeks ago at her post-FOMC press conference. In her speech yesterday, the Fed Chair indicated a number of times that she thought that “the U.S. economy is still considerably short of the two goals assigned to the Federal Reserve by the Congress”. She noted that "The recovery still feels like a recession to many Americans, and it also looks that way in some economic statistics." On the jobs side, she focused on the “slack” in the jobs sector which she said she measured in four ways, outside of the unemployment rate. They were - the number of part-time workers who would like a full time job, low wage growth, share of long-term unemployed and the falling participation rate. On the unemployment rate itself, Yellen said that the full employment would be reached with unemployment between 5.2% to 5.6% (versus 6.7% in February).

Yellen’s comments gave equities a small lift but the dovish sentiment started earlier in the day with the keenly awaited Euroarea March inflation report. We learnt that headline March CPI fell to 0.5%, lower than the 0.6% consensus estimate, and the lowest reading since October 2009. Core CPI came in at 0.8%, and although it was consistent with Bloomberg consensus, it was still lower than last month’s 1.0% reading, and very much near the post-crisis lows. Interestingly, the Euro immediately printed at a low of 1.372 post-CPI, but the initial weakness was quickly unwound in a matter of minutes and the Euro finished the day at 1.377 (or +0.12% on the day). It was a similar story in bunds with yield ticking down to a low of around 1.55%, but promptly retracing the move and more, before finishing at 1.565%. Perhaps markets were already conditioned for a low CPI print following last Friday’s weaker than expected German inflation report, or perhaps markets were mindful of weekend’s hawkish comments from the Bundesbank’s Weidmann. Alternatively, it’s possible that the inflation number was not weak enough to prompt the ECB to act come Thursday. Nevertheless over the past week it does feel that expectations are rising again for an unconventional policy response from the ECB later in the year.

Across the Atlantic, there was more data weakness for the doves after the US Chicago PMI came in at YTD low of 55.9, almost 4 points lower than expectations and prior month’s number. DB US economics team notes that the slowdown came from a drop in new orders (58.8 vs. 63.6) and employment (50.0 vs. 59.3) but they expect some of these components to stabilise in the coming months as weather-induced effects wear off. The backdrop of weak inflation data and a dovish Yellen saw a number of EM and carry assets perform well. Italian and Spanish bond yields compressed by a basis point, despite the slightly higher bond yields in the core. Turkish and Russian USD bonds rallied by around 15bp apiece. The TRY (+2.3%) and RUB (+1.6%) both strengthened against the USD. The latter was helped by news that Russian President Putin had ordered a partial withdraw of troops from Ukraine’s eastern border. But the positive sentiment was partially offset by fears that Russia could focus on the Moldovan breakaway region of Transnistria, towards Ukraine’s south east, and the Russian Prime Minister’s appearance in Crimea only served to inflame tensions with Ukraine and the West. In France, there were political developments of a different kind as France’s president appointed a new prime minister (Manuel Valls, a former interior minister) after the previous PM resigned amid the Socialist’s poor showing at local elections. President Hollande pledged tax cuts to a bid to boost growth, and said that the government has work to do in convincing the EU that its efforts to boost growth “should be taken into account in how it respects its commitments” (Reuters).

Overnight markets are trading with a firmer tone today, with some relief after a consensus beating Chinese PMI. The official PMI came in at 50.3, against expectations of 50.1 and slightly better than February’s 50.2. Offsetting this partially, the final HSBC manufacturing PMI was revised down to 48.0 versus the preliminary reading of 48.1. Chinese equities have started the quarter on a positive note with the HSCEI (+0.15%) and Shanghai Comp (+0.7%) recording modest gains. On the topic of China, the domestic bond market recorded yet another default with small construction materials firm Xuzhou Zhongsen defaulting on a small US$30m bond today, according to the 21st Century Business Herald. The default is apparently the first in the country’s high yield market which was launched in June 2012, and it’s fair to say that we can probably expect more of these to occur during the year. In Japan, the tankan survey indicated that big manufacturers' sentiment rose by one point from three months ago to 17, the 5th consecutive quarter of improvement but slightly short of a median market forecast of 18. On a less positive note, both big manufacturers and non-manufacturers expect conditions to worsen three months ahead, possibly related to the sales tax hike which came into force today.

Looking at the day ahead, there are plenty of activity indicators to digest on the data docket. Beginning in Europe, the final Euroarea and UK PMIs will be released today together with the PMIs for Italy and Spain. Stateside, the focus will be on the ISM manufacturing and US auto sales data. There is market chatter that a number of US automakers will report strong March sales following the winter slump (Bloomberg). Right, onto the performance review.