It has been a very quiet session so far, and despite the slow-mo levitation in the USDJPY, its impact on US equity futures has been minimal if not negative. In fact, following yesterday's latest late day tumble, which Goldman summarized as follows, "Equities tried and failed again to break 1885, it continues to be the level that we can’t escape"... it would appear we are increasingly changing the trading regime, and as Guy Haselmann explained simply, markets are slowly but surely coming to the realization that the Fed's crutches are being taken away (that they may well return following a 20%, 30%, or more drop in the S&P is a different matter entirely) and that the economy will not grow fast enough to make up for this. Perhaps the most notable "event" is the sheer avalanche of banks pushing up their forecasts for an ECB rate cut (and or QE start) to June following Draghi's yesterday comments. And so the 1 month countdown begins until the end of forward guidance, or until the ECB "shatters" its credibility as expained yesteday.

Taking a quick look at overnight markets, it’s a bit more of mixed tone this morning in Asia with the Nikkei (+0.4%) leading the way on the back of some strong earnings results. Meanwhile the Hang Seng (-0.2%) and HSCEI (-0.6%) are lagging. China’s April inflation numbers printed below consensus with CPI at +1.8% YoY (vs 2.1% expected and 2.4% previous) and PPI at -2.0% (vs - 1.9% expected and -2.3% previous). The CPI print was an 18-month low, prompting renewed calls for the government to loosen policy particularly amid the downward pressure on Chinese property prices. The AUD has pared recent gains following a downward revision of the RBA’s underlying inflation forecasts for Dec14 to 2.5% from a range of 2.25% to 3.25% a few months ago. Asian EM sovereigns remain very well supported, especially following yesterday’s upgrade of the Philippines sovereign to BBB. There is also some focus on the Indonesia today ahead of the publishing of results from last month’s parliamentary vote.

In M&A news, Apple tipped its desperation at coming up with organic growth ideas when it announced it would acquire Beats (by Dre) for over $3 billion, meaning it will have to issue another $3 billion in debt as its domestic cash pile suddenly dropped to $27 billion when adding the proceeds from the recent bond offering and it will also have $3 billion less in cash buybacks, or as dry powder for the long-rumored purchase of a company such as Yelp. More importantly, the previously slated $35 billion merger between Omincom and Publicis has been called off, foundering on issues ranging from its complex tax structure to the firms' divergent cultures.

Later today, the Dallas Fed’ Richard Fisher speaks at the Louisiana Bankers Association on the topic of the limitations of US monetary policy. As we go to print Moody’s are due to announce their reviews of the Portuguese sovereign rating. Over the weekend, China will release its latest lending and money supply data for April.

Bulletin headline summary from Bloomberg and RanSquawk

• Treasuries steady overnight, intermediates headed for weekly gain while 10Y and 30Y yields trade below auction stops; Yellen said Fed’s intention is to continue policies that support recovery and Draghi said ECB could act against deflation risk in June.
• Tanks rumbled across Red Square to mark the Soviet victory over Nazi Germany as Putin put on a show of Russian power in the Ukraine standoff; the EU is ready to expand sanctions to some Russian companies, two officials said
• Consumer inflation in China rose 1.8% in April, less than forecast, while producer prices fell 2%, the 26th straight monthly decline
• U.K. manufacturing production rose 0.5% in March, more than 0.3% median forecast in Bloomberg survey. Industrial production fell 0.1%, less than estimated, as oil and gas extraction fell
• An advance in euro-area government bonds that pushed the 10Y yields of Ireland, Italy and Spain to all-time lows is reaching its peak, according to investors at BlueBay Asset Management LLP and BlackRock Inc
• Obama chose a Wal-Mart Stores Inc. location for his attempt to gain public support for an energy and environment initiative that’s been met with skepticism from business groups and Republicans, who say it will kill jobs
• Former Treasury Secretary Timothy F. Geithner said in his new book that members of the Obama administration “talked openly” about nationalizing banks such as Citigroup Inc. in the aftermath of the financial crisis, according to an article in the New York Times Magazine
• Sovereign yields mostly lower. Nikkei +0.5%, Shanghai -0.2%. European equity markets, U.S. stock futures fall. WTI crude higher, gold and copper little changed

US Event Calendar

• 10:00am: JOLTs Job Openings, March, est. 4.100m (prior 4.173m)
• 10:00am: Wholesale Inventories m/m, March, est. 0.5% (prior 0.5%)
• Wholesale Trade Sales m/m, March, est. 1.1% (prior 0.7%) Central Banks
• 12:00pm: Fed’s Fisher speaks in New Orleans
• 8:10pm: Fed’s Kocherlakota speaks in St. Paul, Minn.
• 11:00am POMO: Fed to purchase $1.5b-$2b notes in 2020-2021 sector

Asian Headlines

Chinese CPI (Apr) Y/Y 1.8% vs. Exp. 2.1% (Prev. 2.4%); PPI (Apr) Y/Y -2.0% vs. Exp. -1.9% (Prev. -2.3%). China's Statistics Bureau said April CPI rise Y/Y may be lowest in H1 and consumer prices will keep moderately rising. JGBs traded flat amid subdued trading volumes, with Asian markets ending the week mixed. Notable outperformance for today's session was observed in the Nikkei 225 (+0.25%), supported by a raft of strong earnings releases. Both Chinese CPI and PPI readings missed expectations with the latter showing the slowest rise since October 2012.

EU & UK Headlines

Investment banks and research analysts have accelerated their expectations of ECB easing in June with Goldman Sachs now expecting an ECB interest rate cut and negative deposit rate in June with Citi also saying a June ECB rate cut is a foregone conclusion. This follows a number of banks changing their forecasts following the ECB press conference yesterday, including UBS, JPMorgan, Morgan Stanley and Deutsche Bank.

Russia are currently celebrating their Victory Day holiday, whilst Pro-Russian activists in eastern Ukraine are still planning to carry out this Sunday's referendum on independence and Ukrainian civil unrest continues as further exchanges of gunfire and mobilisation of troops is reported in Mariupol, eastern Ukraine.

US Headlines

Newsflow out of the US remains light with a lack of tier 1 data or earnings on the schedule. However 1700BST/1100CDT does see Fed's Kocherlakota on the speaker slate.

Equities

Equities have fallen victim to profit taking (EuroStoxx -0.56%), with the IBEX 35 being led lower by a disappointing earnings update by Telefonica, while Italian banks are exerting pressure on the FTSE MIB.

FX

FX markets have seen a continuation of yesterday’s post-ECB EUR weakness which has consequently lifted USD against its major counterparts, with EUR/USD now firmly below the 1.3900 handle and USD/JPY seen higher by over 60 pips. While GBP managed to shrug of a mild increase in UK Manufacturing Production.

Commodities

WTI and Brent futures trade higher amidst increasing supply concerns from Libya and as the market looks to cover shorts. Putin dropped his support for the elections in Eastern Ukraine on Wednesday. However, this dovish sentiment has since been shrugged off, raising the geopolitical premium, as separatists on the ground appear unresponsive and plan to go ahead with the elections this Sunday.

The White House is to review its crude oil exports ban, according to a senior official. This sees the Obama administration offer their most detailed statement yet on the issue.

* * *

We conclude as usual, with Jim Reid's overnight recap

Yesterday’s ECB meeting tried to rival the song contest for excitement with Draghi raising expectations for a policy move next month. He will now find it difficult to deliver 'nil point'. There was initially little reaction to the “no change” policy decision but then significant moves during the post-announcement press conference and Q&A with the EUR rallying to 1.399 against the dollar before falling to lows of 1.385 (vs opening the day at 1.391). The press conference and Q&A gave ECB President Draghi the opportunity to suggest that this meeting was a “preview” of the June meeting, that “the Council is comfortable with acting in June” and that “the euro exchange rate is a serious concern”. As DB’s Moec and Wall note the June meeting is now going to be crucial. They argue that not doing anything would shatter the ECB’s credibility and trigger a further appreciation of the euro. As to what the ECB might do, our Economist’s expect a small move only, with an extension of full allotment. Whilst they do note that the probability of more decisive conventional action (such as negative deposit rates) has increased they think such a move would require two conditions to be met: some material change in the ECB’s economic outlook and/or further appreciation in the euro.

So we’ve had two consecutive days of supportive comments from the world’s two most-watched central bankers. This has provided a strong backdrop for assets with yield and duration. Indeed, government bond yields ticked lower across almost all markets yesterday, whether it was core or periphery, Europe or Americas, DM or EM. Core European bond yields rallied between 1-5bp, while Italian and Spanish bond yields were close to 10bp firmer. The UST curve was well supported in the intermediate and front end (down 1-2bp) but the 30yr bond underperformed slightly following a fairly lacklustre 30yr treasury auction. This led to the fourth straight day of steepening in the 2s/30s curve. On the credit side, there was no stopping European indices from tightening (European Crossover -11bp), while Stateside the USD iBoxx credit index reached a cyclical low of 49bp over treasuries. In the emerging markets world, the CDX EM index moved to its highest level since October last year.

Taking a quick look at overnight markets, it’s a bit more of mixed tone this morning in Asia with the Nikkei (+0.4%) leading the way on the back of some strong earnings results. Meanwhile the Hang Seng (-0.2%) and HSCEI (-0.6%) are lagging. China’s April inflation numbers printed below consensus with CPI at +1.8% YoY (vs 2.1% expected and 2.4% previous) and PPI at -2.0% (vs - 1.9% expected and -2.3% previous). The CPI print was an 18-month low, prompting renewed calls for the government to loosen policy particularly amid the downward pressure on Chinese property prices. The AUD has pared recent gains following a downward revision of the RBA’s underlying inflation forecasts for Dec14 to 2.5% from a range of 2.25% to 3.25% a few months ago. Asian EM sovereigns remain very well supported, especially following yesterday’s upgrade of the Philippines sovereign to BBB. There is also some focus on the Indonesia today ahead of the publishing of results from last month’s parliamentary vote.

Coming back to yesterday, the S&P500 (-0.14%) couldn’t hold onto early gains, despite better than expected jobless claims data (319k vs. 325k expected). The best performing S&P500 sectors were Telecoms (1.51%), Consumer Discretionary (0.24%), Financials (0.24%) and there were some tentative signs of better sentiment amongst internet stocks. In the EM world, one of the underperformers was Russia, though it did start the day yesterday trading quite strongly. Sentiment deteriorated after headlines suggested that the Ukraine region of Donetsk will press ahead with its independence referendum this weekend. Reports suggest that the Luhansk region will also proceed with its own referendum this weekend. This comes a day after Putin had encouraged the eastern Ukraine regions to postpone referendums to ease tensions ahead of crisis talks. Bloomberg reported that Putin had ordered the Russian military to start nationwide drills and it was also reported that Ukraine had amassed about 15,000 troops on its borders with Russia. Newswires are reporting overnight that EU ministers will meet on May 12th to decide on possible further sanctions on Russia. EU leaders are said to be readying more sanctions against Russian companies.

Looking at the day ahead, we have a relatively quiet end to the week with German March trade, UK and Italian industrial production, US jolts job openings and wholesale inventories on the data docket. Later today, the Dallas Fed’ Richard Fisher speaks at the Louisiana Bankers Association on the topic of the limitations of US monetary policy. As we go to print Moody’s are due to announce their reviews of the Portuguese sovereign rating. Over the weekend, China will release its latest lending and money supply data for April.