The only remarkable macroeconomic news overnight was out of Japan where we got the Q1 GDP print of 2.4% coming in well above consensus of 1.6%, and higher than the 1.1% in Q4. Did it not snow in Japan this winter? Does Japan already use double, and maybe triple, “seasonally-adjusted” data? We don’t know, but we do know that both Japan and Europe have grown far faster than the US in the first quarter.

And yet after briefly sliding on this “better than expected” news, the USDJPY ramped up to a multi-month high as the algos seemingly smelled a rat. And indeed, even a cursory look behind the numbers revealed that just like in the US, well over 80% of the “growth” was as a result of a massive inventory restocking, which contributed to 2.0% of the final 2.4% print, suggesting that Q2 GDP may once again be negative if imports continue to be a substantial detractor to growth.

Aside from Japan, it has been a quiet session, with an odd plunge in the EURUSD right around the time the ECB released its delayed press release from the Coeure private meeting with hedge funds the day before. One wonders what the ECB may have leaked to asset managers this time. We will never know, of course, until the “people’s” central bank decides to advise its non-hedge fund clients.

Volumes remain depressingly low which as even the dumbest algo by now know is a green light to resume levitation, and sure enough, after treading water overnight, the ES is now starting its gradual, daily climb higher.

On the key news front, we finally got the terms of the latest and greatest UBS as a “recidivist” settlement with the US government, over Libor, Gold, FX rigging, this time paying $545 million, getting slapped with a 3 year probation this time – one which the bank will promptly flaunt – and not getting criminal charged. In other words, business as usual.

The main other newsflow continues to revolve around Greece, which again reiterated it will not make its June 5 payment to the IMF without more aid (from the IMF) and where the ECB’s Governing Council is set to meet today to debate whether to tighten rules on Greek access to Emergency Liquidity Assistance as the country veers toward default. As Bloomberg reports, the ECB may “imminently” raise discount it applies to collateral Greek banks pledge in exchange for Emergency Liquidity Assistance, Kathimerini newspaper reports, without citing anyone; ECB will, at the same time, expand pool of assets it accepts as collateral.

According to an MNI leak, which lately have been 100% wrong as they serve merely some conflicted hedge fund “source” to exit positions, the Bank of Greece has been said to accept an extra €6 billion in ELA, with the ECB somehow agreeing to accept government-guaranteed bank bonds as collateral. Somehow we very much doubt this.

Far more notable was a note by Moodys, which offloaded on Greek banks and said there is a high likelihood of a deposit freeze for Greek banks. Now even the rating agencies are desperate to accelerate the Greek bank run in hopes of overthrowing the government.

The key event looking ahead will be the FOMC Minutes for the April 28-29 meeting. Look for any instance of “double seasonal adjustment” which will be codeword that the Fed will raise rates oblivious of what the actual data represents.

Asian equities traded mixed following a lacklustre Wall Street close (S&P: -0.06%), as investors squared positions ahead of the FOMC minutes release. Shanghai Comp (+0.65%) continued to outperform, as participants eye the April 28th highs (4,572.39), this time lifted by IT, while the Hang Seng (-0.39%) was dragged lower by energy stocks. Nikkei 225 (+0.85%) touched a fresh 15yr high underpinned by Japanese Q1 Prelim GDP data, which showed the fastest quarterly growth in a year (0.6% vs. Exp. 0.4%, Prev. 0.4%). The ASX 200 (-0.09%) briefly broke below its 200 DMA in volatile trade, after a technical break below long-term support at 5,600.

Ahead of tomorrow’s Eurogroup two-day showdown on Greece, reports this morning in Greek press suggested raising haircuts and widening the asset pool accepted by the ECB are to be discussed at today’s ECB non-monetary policy meeting. This, as well as comments from the Greek Parliamentary Speaker that if a deal is not reached, Greece will not pay its June 5th debt obligation to the IMF weighed on equities, while bolstering Bunds.

Major European equity indices all now trade in the red (Euro Stoxx: -0.35%) after opening in mixed territory as news surrounding Greece guides sentiment, with the European calendar fairly light with the exception of this news and BoE minutes. US earnings today include Target and Lowe’s premarket and Salesforce.com aftermarket.

In fixed income markets, Bunds (+16 ticks) continue to outperform their US equivalent with USTs (-3 ticks) remaining weighed on by the large corporate issuance this month. Any source comments regarding Greece throughout the session could prove significant as the ECB are not expected to make any official statement, with any potential decisions to make their way to the market via source comments.

EUR/USD broke below its May low this morning after falling 90 pips on the aforementioned headline regarding Greece, however pared some of these losses throughout the session helped by corporate demand following the news that Altice (+7.5%) are to acquire Suddenlink in a deal which could be worth USD 8bln-10bln including debt. Elsewhere, BoE minutes proved slightly hawkish, stating that two members on the committee have stated their decision was finely balanced between pushing for a rate hike and keeping rates on hold thereby seeing some upside in GBP, despite the vote itself showing 9-0 as expected.

Of note, Fed’s Evans (Voter, Dove) stated this morning that if wage growth were to increase, it could be persuasive of an earlier rate rise however he does not anticipate strong wage growth.

The commodity complex has seen strength in WTI and Brent crude futures this morning on the back of a larger drawdown than previous in yesterday’s API inventory (-5200K vs. Prev. -2000K) ahead of today’s DoE inventories scheduled for 1530GMT, with the headline expected to show a drawdown of 1750. Deutsche Bank became the latest investment bank to adopt a bearish stance on oil after Goldman Sachs earlier in the week and expect the recent rally to subside as the bounce back in oil prices will be mitigated by the stronger USD, with OPEC expected to maintain their output in June.

In Summary: European shares little changed having risen from intraday lows with the real estate and autos sectors underperforming and basic resources, telco outperforming. Japanese 1Q GDP ahead of expectations. Euro declines for third day against dollar. Portugal sells 6-month bills at negative yield for first time. Bank of England says interest-rate vote was unanimous. The German and French markets are the worst-performing larger bourses, the Swiss the best. Japanese 10yr  bond yields rise; U.K. yields increase. Commodities gain, with nickel, zinc underperforming and Brent crude outperforming. U.S. mortgage applications due later.

Market Wrap

• S&P 500 futures unchanged at 2124
• Stoxx 600 down 0.1% to 404.6
• US 10Yr yield down 2bps to 2.27%
• German 10Yr yield down 1bps to 0.59%
• MSCI Asia Pacific little changed at 153
• Gold spot up 0.1% to $1208.5/oz
• Eurostoxx 50 -0.3%, FTSE 100 -0%, CAC 40 -0.4%, DAX -0.4%, IBEX -0.1%, FTSEMIB -0.3%, SMI +0.1%
• Asian stocks little changed with the Kospi outperforming and the Hang Seng underperforming; MSCI Asia Pacific little changed at 153
• Nikkei 225 up 0.8%, Hang Seng down 0.4%, Kospi up 0.9%, Shanghai Composite up 0.7%, ASX down 0.1%, Sensex up 0.7%
• 6 out of 10 sectors rise with health care, utilities outperforming and energy, materials underperforming
• Euro down 0.3% to $1.1117
• Dollar Index up 0.23% to 95.48
• Italian 10Yr yield up 1bps to 1.81%
• Spanish 10Yr yield up 2bps to 1.77%
• French 10Yr yield down 0bps to 0.87%
• S&P GSCI Index up 0.6% to 439.9
• Brent Futures up 1.3% to $64.9/bbl, WTI Futures up 1% to $58.6/bbl
• LME 3m Copper down 0.2% to $6210/MT
• LME 3m Nickel down 1.5% to $12900/MT
• Wheat futures down 0.4% to 508.3 USd/bu

Bulletin Headline Summary from Bloomberg and RanSquawk

• Greek press suggest raising haircuts and widening the asset pool accepted by the ECB are to be discussed at today’s ECB non-monetary policy meeting
• BoE minutes proved slightly hawkish, stating that two members on the committee have stated their decision was finely balanced between pushing for a rate hike and keeping rates on hold
• Today’s highlights include Fed minutes, DoE inventories and earnings from Target and Lowe’s
• Treasuries gain before Fed releases minutes of April FOMC meeting; may be seen by some as leaning dovish and/or slightly more optimistic, based on published research.
• ECB’s Governing Council meets today to debate whether to tighten rules on Greek access to Emergency Liquidity Assistance as the country veers toward default
• ECB may “imminently” raise discount it applies to collateral Greek banks pledge in exchange for Emergency Liquidity Assistance, Kathimerini newspaper reports, without citing anyone; ECB will, at the same time, expand pool of assets it accepts as collateral
• Greek government said to mull imposing 0.1%-0.2% fee on bank transactions, Kathimerini newspaper reports, without citing anyone. Fee won’t include ATM withdrawals, transactions up to EU500; Greek govt projects EU300m-EU600m annual revenue from measure
• Portugal sale of $300m 182-day bills drew an average yield of -0.002%, first time the debt has drawn a negative yield
• UBS Group AG said its main unit will plead guilty to fraud in the U.S. for manipulating Libor and pay $203m in fresh fines after the Swiss bank violated an agreement that had allowed it to avoid prosecution
• Japan’s economy expanded 2.4% in 1Q, more than forecast, as businesses increased spending and built up inventories after a recession last year
• Yemen’s exiled leaders met in Saudi Arabia’s capital to discuss conflict resolution and post-war rebuilding, as analysts warned that their plans suggest a growing disconnect from the realities in the country
• The Obama administration threatened to veto trade legislation if it includes a proposed amendment aimed at preventing currency manipulation, with Treasury Secretary Jacob J. Lew recommending such action in a letter to Senate leaders
• Sovereign bond yields mostly higher.  Asian stocks gain, European stocks, U.S. equity-index futures decline. Crude oil higher; gold little changed, copper lower

DB’s Jim Reid completes the overnight recap

We started the week speculating that it’s possible (although not the most likely scenario) that the US economy may have shrunk in H1 2015. 48 hours later and we’ve seen the San Fran Fed paper on faulty Q1 seasonals gather traction and yesterday we saw blockbuster housing starts and permits so perhaps we’re actually in boom time? However before we crack open the champagne its worth pointing out that the Atlanta Fed Q2 GDPNow has stayed at 0.7% after the housing numbers partly because of a big downgrade in real business fixed investment growth (-0.6% to -2.3%) following last Friday’s IP report.

So clarity on the US economy remains elusive for now and no doubt the FOMC minutes from April meeting released later today will add to the confusion. It was another day to not trade/ or trade bonds depending on which side of the swing you were. As before the housing related sell-off we saw a big rally in the early European session due to remarks from ECB executive board member Benoit Coeure that they are going to be accelerating bond buying ahead of expected low liquidity in the summer. European bonds stayed well bid into the close but US Treasuries were a lot more volatile as the initial 5bps of tightening post Coeure comments to an intraday low of 2.181% was quickly pared back following the housing data to reach an intraday high of 2.301%. Yields eventually closed near these highs at 2.289%, a +5.5bps move higher on the previous close but with an intraday range of 12bps. 10y Bund yields actually fell some 10bps immediately following Coeure’s comments to an intraday low of 0.550%, before then retracting slightly as Treasury yields moved higher to eventually close at 0.592% – still 5.4bps lower on the day. Other core European markets followed a similar trend in price action as similar maturity yields in France (-6.3bps), Netherlands (-6.0bps) and Switzerland (-3.8bps) moved lower. The peripherals generally outperformed, closing 7-9bps lower.

Before we dig further into yesterday’s data, refreshing our screens this morning markets in Asia are off to a strong start, supported partly by a better than expected Q1 GDP reading in Japan. The +2.4% annualized qoq print came in well ahead of market expectations of +1.6% qoq, and is up from 1.1% last quarter. Our colleagues in Japan note however that despite the healthy headline reading, the contents are perhaps more disappointing with weak growth in real final sales as a result of a build-up of inventories, as well as a temporary boost in nominal GDP growth as a result of a fall in oil prices in particular. The Nikkei (+0.98%) and Topix (+0.78%) are both higher as we type, in turn helped by a fifth consecutive day of weakness for the Yen, while the Shanghai Comp (+1.33%) and CSI 300 (+1.23%) have continued their strong run. The Kospi (+0.75%) is also firmer while 10y Treasury yields (-1.8bps) have retraced some of yesterday’s move higher.

Staying in the region, our China Chief Economist Zhiwei Zhang noted yesterday that he now believes that the risks of a hardlanding in H2 have been reduced in light of the loosening of control on financing of local government financing vehicles last Friday. He highlights in particular that the move is more important that a rate cut as its boosts investment much more effectively, reduces policy risk and had a certain ‘surprise element’ to it. Zhiwei continues to expect growth recovery in H2 to 7.1% as a baseline case, but now notes that risks are no longer tilted to the downside and are instead more balanced. Keeping with our ‘plate spinning’ analogy it seems China are the latest country to give the plates another big spin trying to offset the natural effects of gravity. It should see some success in the near-term but will it just make the end game more damaging to have another big stimulus round now?

Back to the data in the US yesterday, the April readings for both housing starts (+20.2% mom vs. +9.6% expected) and building permits (+10.1% mom vs. +2.1% expected) came in well above market expectations to paint a rosier picture for the sector so far this quarter and appears to have put an end to the weather-related weakness that affected much of the housing market data in Q1. The monthly reading for housing starts saw the annualized rate jump to 1.14m from 944k back in March which marks the highest level since November 2007. The bumper building permits reading saw the annualized rate tick up to 1.14m, from 1.04m back in March to mark the highest rate since June 2008.

Yesterday’s data certainly helped support a stronger day for the Dollar as the DXY closed +1.11% for its second consecutive day of gains and also the second consecutive +1% move higher. The two-day move higher for the Dollar has in fact taken the DXY back into positive territory (+0.71%) for the month of May. US equities were a tad more mixed yesterday as indices traded between gains and losses for the most part. The Dow (+0.07%) ended slightly higher, however the S&P 500 (-0.06%) declined modestly off Monday’s record high as energy stocks (-1.23%) in particular helped drag the index lower following a fall for both WTI (-3.74%) and Brent (-3.40%). Gold (-1.44%) also added to the weakness in the commodity complex yesterday.

In the European session yesterday, stocks were certainly given a lift post Coeure’s comments as the Stoxx 600 (+1.68%), DAX (+2.23%) and CAC (+2.09%) all continued their stronger start to the week. The comments also sent the Euro lower as the single currency ended the day -1.46% versus the Dollar at $1.115. Touching on Coeure’s comments in more detail, the ECB board member said that the ECB is set to ‘moderately frontload its purchase activity in May and June, which will allow us to maintain our monthly average of €60bn, while having to buy less in the holiday period’ given the seasonal liquidity issues around that time. He then when on to say than the frontloading before summer may well be complemented by some backloading in September when liquidity is expected to improve again. Coeure also noted that the recent moves in the bond market are ‘no cause for concern’ and instead ‘reflects a market correction, recreates two-way risk in the market and reflects the fact that, as our program takes effect, some of the more pessimistic assumptions of future growth and inflation trends are being revised’.

With the bulk of the headlines being taken up by the US data and Coeure’s comments, yesterday’s negative CPI print out of the UK was put to one side somewhat. The lower than expected +0.2% mom (vs. +0.4% expected) reading for April was enough to push the annualized rate down to -0.1% yoy. This was the first yoy deflation reading for 55 years having teetered on the edge over the previous two months. The core meanwhile fell to +0.8% yoy, below market consensus of +1.0% with transport services and air and sea fares in particular having the biggest downward effect. The drop in the core is to the lowest since 2001. Sterling declined around 0.8% against the Dollar following the reading while 10y Gilts initially fell as much as 8bps lower in yield, only to then pare those moves and end the day more or less unchanged at 1.946%. Given the expectations that the weakness in inflation is temporary and expected to unwind later this year, the print will unlikely shift rate hike expectations materially from the mid-2016 timeframe, although it perhaps puts greater focus on today’s BoE minutes.

In terms of other data releases yesterday, there were no changes to the final April CPI report for the Euro area with the headline at 0.0% yoy and core at +0.6% yoy. Had it not been for Coeure’s comments meanwhile, the German ZEW survey expectations (41.9 vs. 49.0 expected) for May would have likely had a bigger effect on price action yesterday, however markets were relatively unmoved following the print. The current situations (65.7 vs. 68.0 expected) print also disappointed to the downside however still remains at high levels for the recent range.

Staying in Europe, talks between technical teams from Greece and its creditors continued again yesterday. The ECB’s governing council will today discuss access for Greek banks to the ELA facility which is coming under greater scrutiny as the weeks pass. Yesterday we heard from both German Chancellor Merkel and French PM Hollande pushing for acceleration in talks and citing an end-May deadline. The urgency was reiterated by German finance minister Schaeuble who, while praising Greece for making progress in ‘sub-areas’, also said that negotiations are too slow. Bloomberg headlines suggesting that Greek PM Tsipras had told lawmakers that the proposed tax overhaul plan won’t gain creditors approval and another offer will need to be submitted will only weigh on the time pressures.

In terms of today’s calendar the bulk of today’s focus will of course be on the FOMC minutes of the April meeting due out at 7.00pm BST. This meeting took place before the April payrolls print and weak retail sales report so it’s a little out of date. Before this and in the European timezone we’ve got more Central Bank attention with the Bank of England minutes due out. The only notable data release meanwhile will be German PPI due out first thing this morning.

There is nothing else for it…

Thanks to the spoofing, stocks soared to record highs after the FOMC Minutes to prove that everything is awesome but then CNBC broke the news that BEA will double-seasonally-adjust GDP data – implicitly enabling Q1 to look better and thus giving Janet more room to hike in June  – and stocks sunk…

Which dragged AAPL up… and thus everything else… until the BEA news…

On the day, stocks were deadstick until the US Open BTFD and the FOMC/BEA debacle…

But by the close, Trannies were the biggest losers – worst day since January

As Airlines crashed….

Leaving stocks mixed for the week…

Credit remains unimpressed…

Bond yields leaked lower all day…

The Dollar trod water all day, with some vol around the European open and a small drop around the minutes.,..

Commodities were also very dull

Though Crude bounced around in the last 24 hours on inventory and p[roduction data… Narrow range but look at the swings…

The bottom line: stocks were so obvioulsy manipulated higher today after FOMC to prove the Fed is right it was disgusting… not just the actual indications of spoofing but the fact that stocks entuirely decoupled from the “DEADNESS” of every other asset class after the minutes hit.

Then when BEA hit with their agreement over double-seasonal-adjustments, the farce was complete, stocks tanked on the bad news (it’s bad news as we discussed here).

(courtesy Beige Book/the Fed)

Summing it all up…

With all eyes focused on the minutes – as markets play “tightening chicken” with The Fed with stocks flat, gold flat, and short-end bonds flat since the April FOMC – any hint that, despite the terrible data, The Fed has to move, will surely be met with horror…

• FED OFFICIALS GAVE NUMBER OF REASONS WHY 1Q WEAKNESS TRANSITORY
• MANY FED OFFICIALS SAW JUNE RATE RISE AS UNLIKELY
  
• FED OFFICIALS SAW DOLLAR EXERTING DRAG ON GROWTH ‘FOR A TIME’
• FED OFFICIALS HIGHLIGHTED RISKS OF VOLATILITY AFTER LIFTOFF

And yet:

• FED OFFICIALS GENERALLY DIDN’T RULE OUT RATE RISE AT JUNE FOMC

So, once again, just enough there for both bulls and bears from doves and hawks as it becomes increasingly clear that The Fed is cornered.

Pre-FOMC Minutes: S&P Futs 2123, 10Y 2.24%, EUR 1.1100, Gold $1210

Since the April 29th FOMC meeting, Trannies are ugly but the rest are holding modest gains…

Gold is unchanged, Silver and Copper higher…

And while the short-end is flatish, the long-end of the bond curve has been hammered…

*  *  *

Here are the minutes highlights:

June. June. June.

A few anticipated that the information that would accrue by the time of the June meeting would likely indicate sufficient improvement in the economic outlook to lead the Committee to judge that its conditions for beginning policy firming had been met. Many participants, however, thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising the target range for the federal funds rate had been satisfied, although they generally did not rule out this possibility. Participants discussed the merits of providing an explicit indication, in postmeeting statements released prior to the commencement of policy firming, that the target range for the federal funds rate would likely be raised in the near term. However, most participants felt that the timing of the first increase in the target range for the fed-eral funds rate would appropriately be determined on a meeting-by-meeting basis and would depend on the evo-lution of economic conditions and the outlook. In keeping with this data-dependent approach, some participants further suggested that the postmeeting statement’s description of the economic situation and outlook, and of progress toward the Committee’s goals, provided the appropriate means by which the Committee could help the public assess the likely timing of the initial increase in the target range for the federal funds rate.

The Fed is clearly terrified of bond market volatility. So much so, it finally admits we were right all along, and invokes the dreaded “high-frequency trader” phrase for the first time in FOMC history

In their discussion of financial market developments and financial stability issues, policymakers highlighted possi-ble risks related to the low level of term premiums. Some participants noted the possibility that, at the time when the Committee decides to begin policy firming, term premiums could rise sharply—in a manner similar to the increase observed in the spring and summer of 2013—which might drive longer-term interest rates higher. In this connection, it was suggested that the tendency for bond prices to exhibit volatility may be greater than it had been in the past, in view of the increased role of high-frequency traders, decreased inventories of bonds held by broker-dealers, and elevated assets of bond funds.

Good luck controlling not only that volatility, but the only mandate the Fed has had since 2009: the S&P 500.

The Minutes word cloud:

Full minutes below: see zero hedge for full minutes.

(courtesy Dave Kranzler/IRD)