While the US is waking up in anticipation of what is once again said to be the “most important nonfarm payrolls number” at least since the last most important such number, because anything 250,000 and above puts the June rate hike right back on the Fed calendar, while a collapse in this lagging indicator will be explained away with harsh rain showers in April, and send stocks soaring (not to mention the 10Y promptly back under 2%) due to yet another delay in tightening expectations despite Yellen’s outright warning of overvalued stocks, the UK has been up all night following a dramatic election, whose outcome has been largely the opposite of what the experts predicted, with Conservatives set to win an outright majority, resulting in embarrassment for Labor, the Liberal Democrats and the UKIP, both of which have already seen dramatic changes in their leadership, and moments ago both Nick Clegg and Nigel Farage announced they would stand down as party leaders.

The biggest losers so far:

As noted previously, the conservative victory is unleashed a risk on mode for UK assets, and has sent both cable and the FTSE higher on what were ubiquotous expectations of outcomes that were only negative for risk, once again confirming that the so-called experted usually have no idea what they are talking about.

To summarize, the Conservative Party look set to retain their grip on Parliament as they unexpectedly gained a majority in Parliament bolstering UK assets, especially the FTSE 100 (+1.7), as it outperforms continental Europe (Eurostoxx50 +0.6%). A long list of sectors including UK financials, gambling names, homebuilders have been supported by the Conservative victory, with utilities the best performing in Europe as this was the sector that was widely expected to be the worst hit if the Labour Party did come into power. Elsewhere, the upside in the FTSE has filtered through to European stocks which sits in mild positive territory. Syngenta (+17%) are among the best performing stocks in Europe following the approach from US listed company Monsanto for CHF 449/shr, which was later rejected.

In fixed income markets, a relief rally took place in Gilts (+81 ticks) lifting Bunds (+16 ticks) in sympathy, and saw UK paper trade open higher by over 150 ticks in reaction to the results of the UK election however, Gilts have since pulled off best levels following a bout of profit taking. This now opens the door for foreign investment as short-term uncertainty has abated which has attributed to the upside in Gilts. Moreover, analysts at UBS said that there will be a relief rally in UK markets in the short term, however warned that ongoing fears of a Brexit will soon present themselves. Furthermore, analysts at Deutsche Bank suggest that despite the premise of an EU referendum in 2017, it is not expected for investors to focus on this in the short term.

In FX markets, GBP/USD surged to its highest level since February 26th overnight and printed its largest move since 2009 after reports began to emerge that the Conservative could have a majority, although GBP/USD has pared back some of the move higher. Elsewhere, the USD-index (0.00%) trades flat heading into today’s release of Non-Farm Payrolls which is expected to pick-up from last month poor figure of 126K.

Overnight, AUD/USD was weighed on by the Chinese trade data and the latest quarterly SOMP from the RBA. The bank cut CPI and GDP forecasts, as expected, but struck a sombre tone on the economy in comparison to Tuesday’s decision. They noted that non-mining investment pick-up was unlikely in the next year and unemployment rate is to stay elevated for longer. Further moves lower in AUD/USD were capped by the 100 DMA at 0.7860, prompting a pullback in the pair to trade flat heading into the North American crossover.

WTI (-0.1%) and Brent (-0.2%) Crude futures trade relatively flat amid little fundamental news driving much direction as the USD-index holds a neutral bias ahead of today’s non-farm payrolls release. Elsewhere, spot gold (+0.4%) has recovered from yesterday’s selloff with following suit spot silver (+0.5%).

In summary: European shares maintain gains, though are off intraday highs, with the real estate and travel & leisure sectors outperforming and autos, construction  underperforming. David Cameron set to return as U.K. prime minister as Conservatives win unexpected majority. SNP wins 56 of 59 seats in Scotland. Sterling rises most since 2009, FTSE 10 gains most since Jan. German 10-yr bond yields pare earlier losses to rise for 10th session. The U.K. and Swiss markets are the best-performing larger bourses, Swedish the worst. The euro is weaker against the dollar. Irish 10yr bond yields fall; U.K. yields decline. Commodities gain, with Brent crude, soybeans underperforming and natural gas outperforming. * U.S. nonfarm payrolls, unemployment, average earnings, labor  force participation, wholesale inventories due later.

Market Wrap

• S&P 500 futures up 0.2% to 2088
• Stoxx 600 up 1.7% to 395.4
• US 10Yr yield down 2bps to 2.16%
• German 10Yr yield up 1bps to 0.6%
• MSCI Asia Pacific up 0.5% to 151.1
• Gold spot up 0.2% to $1187.2/oz
• Eurostoxx 50 +0.6%, FTSE 100 +1.7%, CAC 40 +0.7%, DAX +0.5%, IBEX +0.5%, FTSEMIB +0.8%, SMI +1.3%
• Asian stocks rise with the Shanghai Composite outperforming and the Kospi underperforming.
• MSCI Asia Pacific up 0.5% to 151.1; Nikkei 225 up 0.5%, Hang Seng up 1.1%, Kospi down 0.3%, Shanghai Composite up 2.3%, ASX down 0.2%, Sensex up 1.9%
• 8 out of 10 sectors rise with financials, consumer outperforming and energy, staples underperforming
• Euro down 0.43% to $1.1218
• Dollar Index up 0.15% to 94.77
• Italian 10Yr yield down 4bps to 1.74%
• Spanish 10Yr yield down 1bps to 1.74%
• French 10Yr yield down 0bps to 0.89%
• S&P GSCI Index up 0.2% to 442.7
• Brent Futures down 0.1% to $65.5/bbl, WTI Futures up 0.3% to $59.1/bbl
• LME 3m Copper up 0.2% to $6413.5/MT
• LME 3m Nickel up 0.5% to $14205/MT
• Wheat futures up 0.4% to 474.5 USd/bu

Bulletin Headline Summary from Bloomberg and RanSquawk

• A Conservative majority victory in the UK election bolsters the FTSE 100 (+1.7%) and European stocks (+0.6%) alike
• Gilts (+77 ticks) outperforms while UST’s (+5.5 ticks) and Bunds (+15 ticks) follow suit, albeit off best levels
• Looking ahead today sees the release of Non-Farm payrolls, US employment, average hourly earnings, Canadian unemployment rate, ECB’s Constancio, Fed’s Dudley and SNB President Jordan
• Treasuries gain, paring weekly loss, before report forecast to show the U.S. economy added 228k jobs in April with unemployment rate falling to 5.4% from 5.5%.
• Payrolls report could signal that economy is emerging from first-quarter slump, economists say
• “With yeterday’s recent sell-off in core fixed income and the subsequent reversal, look for today’s Job figure to be a ‘buy on dips’ opportunity,” ED&F Man’s Tom di Galoma writes
• China’s exports fell 6.4% y/y, missing expectations of a 1.6%  rise; imports contracted 16.2%, worsening from a 12.7% contraction in March
• David Cameron is set to return as U.K. prime minister after steering his Conservatives to an unexpected majority, helped by a landslide for nationalists in Scotland at Labour’s expense
• Tory victory comes after campaign that saw Cameron’s pledge of a referendum on EU membership by 2017 share almost equal billing with his record of delivering economic stability
• German industrial production fell 0.5% in March vs expectations for a 0.4% gain
• Greek Finance Minister Yanis Varoufakis said his government is prepared to go “down to the wire” in talks with its creditors as policy makers signal they’re losing patience with the country after months of brinkmanship
• In its latest attempt to prop up struggling banks Greece plans to introduce a special tax on large ATM withdrawals and bank transfers
• Australia’s central bank lowered its growth forecast, predicted higher unemployment and said it was prepared to adjust policy if needed as business spending fails to fire and China struggles with an economic transition
• Sovereign bond yields fall.  Asian, European stocks gain, U.S. equity-index futures higher. Crude oil, copper and gold higher

DB’s Jim Reid concludes the overnight recap

Away from the UK election, trade data out of China has also kept the market on edge this morning. The print will only put more pressure on the PBOC for further easing measures after the country reported a -6.2% yoy fall for exports, well below expectations of a rise of +0.9%. Imports were also weak meanwhile, with the -16.1% yoy reading below market consensus of -8.4%. Despite the numbers, equity markets are higher as we go to print in China – no doubt buoyed by the hope of more stimulus – with the Shanghai Comp (+1.26%) and CSI 300 (+1.13%) both rising. Elsewhere, the Hang Seng (+0.72%), Nikkei (+0.67%) and Kospi (+0.03%) are all up.

Outside of this the main story in town continues to be European government bonds. A few weeks ago it was interesting to hear Jamie Dimon’s remarks about last year’s flash crash in US treasuries being a ‘1 in every 3 billion years or so’ event. Well on his abacus the moves in bunds yesterday couldn’t have been too far away from this. We closed pretty much where we opened at 0.588% but this masked a big lurch higher in yield to 0.775% intra-day. Indeed, 3 weeks ago 10 year bunds hit a low of 0.048% intra-day with the vast majority thinking it only a matter of time before they’d cross through zero. The scale of the move yesterday will likely add to the debate about liquidity in a regulation heavy post crisis world as there was little fundamentally to justify such volatility.

Once again the moves were not just confined to Bunds, there were similar intraday moves for other core European yields as France (-0.6bps), Netherlands (+0.5bps), Sweden (+1.3bps) and Switzerland (+0.9bps) all eventually closed more of less where they started. It was a much better day in peripheral bond markets meanwhile as, despite a +10bps move higher in yield intraday, Italy (-14.1bps), Spain (-15.2bps) and Portugal (-13.5bps) all closed meaningfully tighter. Bunds appear to also be dictating a lot of the direction in US Treasuries as the benchmark 10y closed 6.3bps tighter yesterday at 2.180% after hitting an intraday high of 2.309%. We’ve highlighted before the substantial moves in percentage terms for Bunds – of course exaggerated by the low yields – but it’s still interesting to see that for the last 3 weekly moves, the +58.2%,+140.2% and +99.9% moves over the course of the week are the third, first and second highest in data going as far back as 1990.

Away from bonds, it was a better day for equities too meanwhile as the S&P 500 (+0.38%), Dow (+0.46%), Stoxx 600 (+0.08%) and DAX (+0.51%) closed higher. Energy stocks were the underperformer however after a rough day for oil markets with WTI (-3.27%) and Brent (-3.29%) coming off their recent 5-month highs to close at $58.94/bbl and $65.54/bbl respectively. Elsewhere, the Dollar snapped two-days of declines as the DXY closed +0.58% while Gold closed 0.65% lower at $1184/oz.

So with markets waking up to the UK election result, attention will quickly turn to the April payrolls print this afternoon in the US. In turns of current estimate, Bloomberg consensus is currently running at +228k while our colleagues in the US are slightly below that at +225k. After the poor March report, the hawks will be looking for some signs of a strong snapback to support any near term Fed liftoff view. Our colleagues note that jobless claims have been supportive through the month of April with the four-week moving average declining to 285k and close to its post recession low (and has since fallen further to the lowest reading since May 2000). This compares to a four-week moving average during the March reporting period of 305k. In any case, a lot will be riding on today’s print with the Fed and the market very much on data watch now with hopes that we see a rebound from the soft first quarter in the US.

On the topic of employment data, yesterday’s initial jobless claims print was certainly supportive as the 265k number came in better than expected (278k expected). Consumer credit for March was also encouraging with the $20.5bn reading ahead of $15.8b expected and the highest since July last year. It was the turn of the Chicago Fed’s Evans to speak yesterday who reiterated earlier comments from Yellen this week saying that ‘the stock market is high, there’s no doubt about it’. Evans did however reiterate his view that 2016 liftoff is more favorable in order to be confident that inflation is picking up. European data flow was fairly light yesterday, with just a softer German factory orders reading (+0.9% mom vs. +1.5% expected) and French industrial production (-0.3% mom vs. +0.1% expected) reading of note.

Overnight we have published our latest HY monthly where we take a look at supply and demand dynamics within the European HY market. We show that while issuance is running at record levels through the first 4 months of the year redemptions are also up strongly on the same period in 2014. Therefore net issuance is actually down marginally YTD. In addition we have seen continued demand with 16 consecutive weeks of inflows into Western European HY. That said our analysis also highlights that flows tend to follow performance and therefore are likely to offer limited insight into the future direction of HY credit.

For now we still think the search for yield driven by the combination of QE supported low government bond yields and low defaults should be supportive of HY, particularly as you move down the rating spectrum. That said there are potential macro headwinds to negotiate such as Greece and the Fed that could cause a few bumps in the road.

Moving on, the Greece talks look set to continue beyond next Monday as both Greek finance minister Varoufakis and his German counterpart Schaeuble reiterated their low expectations for an outcome on Monday. The latter said yesterday that ‘one shouldn’t expect spectacular results on Monday’ and that handing out aid to Greece without any reforms in place is a ‘bottomless pit that doesn’t make sense’, while Varoufakis was quoted as saying that Greece is prepared to go ‘down to the wire’ but that ‘certainly we’re going to have an agreement in the next couple of weeks or so’. One potential development to keep an eye on next week is the suggestions of any changes to haircuts to Greek collateral. Greek press Ekathimerini reported that the ECB is expected to decide after Monday’s Eurogroup whether or not to tighten the screws on liquidity with haircut changes being a potential measure. That decision will likely be based on whether or not enough ‘progress’ is being made on talks, for which we likely won’t know until leaks post the meeting.

Taking a look at today’s calendar now, German and UK trade data will warrant some focus this morning along with industrial production data in the firmer. Focus will of course however be on this afternoon’s payrolls print in the US while the usual associated employment data will be released alongside including the unemployment rate and average weekly earnings. Wholesale inventories and trade sales round off the releases today.

end