In a world where fundamentals don’t matter, everyone’s attention will be on Janet Yellen who speaks at 1:15pm today in Harvard, hoping to glean some more hints about the Fed’s intentions and next steps, including a possible rate hike in June or July. And with a long holiday in both the US and UK (US bond market closes at 2pm today), it is no surprise overnight trading volumes have been dreadful, helping keep global equities poised for the highest close in three weeks; this won’t change unless Yellen says something that would disrupt the calm that’s settled over financial markets.

Traders are now predicting a higher than 50% chance of an increase in July, so a misstep by Yellen risks upsetting a lull that has sent currency volatility to the lowest since January.

Looking at global markets, stocks were poised for the steepest weekly advance in more than a month on speculation financial risks around the world have eased. The dollar rose versus most peers, pushing oil lower with WTI falling below $49 after rising above $50 for the first time since NOvember yesterday. The British pound was the biggest gainer among major currencies this week on growing confidence the U.K. will remain in the European Union. As emerging markets rebounded, Russia and Qatar returned to international debt markets for the first time in at least three years.

Opinions about what Yellen would say varied from one extreme to the other.

“It will be a difficult task for Yellen,” said Ulrich Leutchmann, head of currency strategy at Commerzbank AG in Frankfurt. “The discussion today will center around her past achievements and not on actual monetary policy, but if she doesn’t give any hawkish signal, many in the market will interpret this as dovishness given recent hawkish comments” by other Fed officials.

Elsewhere, Ralf Zimmermann, a strategist at Bankhaus Lampe, said that “today certainly all investors’ eyes will be on Yellen,” said “The Fed is obviously willing to increase rates. But it is more a risk than a chance for stocks. I was surprised with the recent strength.”

Also chimed in Mark Lister, head of private wealth research at Craigs Investment Partners, who said that “wwe are still a little cautious. Yellen is likely to continue with the rhetoric of wanting to hike and that’s their plan. Equity markets still offer value on a medium-term basis and it’s certainly the only place where you’re getting any sort of yield. We’d welcome a pullback because that would give us a chance to do some buying at more reasonable prices.”

Others, most notably Jeff Gundlach, disagreed with expectations for a hawkish Yellen. The DoubleLine CEO said he expects a dovish speech from Yellen and predicts the Fed will refrain from raising interest rates in June unless traders in the futures market assign a probability of at least 50 percent to such a move.

In short: nobody has any clue as usual what happens next, and certainly not the Fed.

As nothed above, market moves have been subdued. The MSCI AC World Index rose 0.1% in early trading, leaving it up 2.1 percent for the week. The Stoxx Europe 600 Index slipped 0.2% trimming a third weekly advance, with trading volumes 37 percent below the 30-day average before holidays in the U.K. and U.S. on Monday. Futures on the S&P 500 rose 0.1%, with the index up 1.8% this week, its biggest increase in more than two months.

Market Snapshot

• S&P 500 futures down less than 0.1% to 2089
• Stoxx 600 down less than 0.1% to 349
• FTSE 100 up less than 0.1% to 6268
• DAX down less than 0.1% to 10264
• S&P GSCI Index down 0.7% to 368.9
• MSCI Asia Pacific up 0.6% to 128
• Nikkei 225 up 0.4% to 16835
• Hang Seng up 0.9% to 20577
• Shanghai Composite down less than 0.1% to 2821
• S&P/ASX 200 up 0.3% to 5406
• US 10-yr yield down less than 1bp to 1.83%
• German 10Yr yield down 2bps to 0.12%
• Italian 10Yr yield down 3bps to 1.34%
• Spanish 10Yr yield down 2bps to 1.49%
• Dollar Index up 0.14% to 95.3
• WTI Crude futures down 1.3% to $48.86
• Brent Futures down 1.6% to $48.78
• Gold spot up less than 0.1% to $1,221
• Silver spot down 0.2% to $16.29

Top Global News

• KKR Buckles Up for Wild Ride Chasing Air-Bag Outcast Takata: Scope of recall creates ‘really high’ hurdle to sale: Aoki. Private equity bets in auto industry have had mixed success
• Valeant Rejected Takeda-TPG Takeover Bid in Spring, WSJ Says: No acquisition talks under way for the drugmaker. Takeda-TPG approach made before new Valeant CEO Papa arrived
• Axa Says U.K. Divestments to Generate Loss of EU400m: Co. will sell Sunlife to Phoenix Group
• Abe Fails in Bid to Have G-7 Leaders Warn of Global Crisis Risk: Statement says G-7 has strengthened resilience to avoid crises. Brexit would be risk to global growth, communique says
• Gundlach Says Yellen Remarks to Be Dovish as Treasury Bid Soars: Fed will hold off in June if odds below 50%, Gundlach says. Yellen to speak at Harvard University at 1:15pm local time

Looking at regional markets, we start in Asia where equities ignored yesterday’s flat US close to trade mostly higher, although China lagged following slower growth in industrial profits. Nikkei 225 (+0.4%) was underpinned by the latest set of reports (now the 3rd or 4th) PM Abe could delay the sales tax hike as soon as next week while a continued decline in CPI data further added to calls for BoJ action. ASX 200 (+0.5%) was also upbeat led by defensive stocks and climbed above the 5400 level. Elsewhere, Chinese markets bucked the trend with the Shanghai Comp (-0.1%) and Hang Seng (+0.9%) with the Shanghai composite in negative territory following a slowdown in industrial profits growth which tumbled from 11.1% to 4.2%. 10yr JGBs traded higher despite the increased risk-appetite in Japan, underpinned by the BoJ’s presence in the market for a total JPY 460b1n of government debt including inflation-linked bonds. Because there is nothing quite like free, central-bank free “markets.”

Top Asian News

• Goldman Sees 0.2% China Bond Default Rate as Zombies Kept Alive: Global note default rate is 0.8% and U.S. 0.9%: Moody’s says
• Terex Ends Chinese Suitor Talks, Proceeds With Konecranes Deal: Zoomlion had made an unsolicited offer at $30/share in Jan.
• Abe to Decide on Japan Sales Tax Increase Before Summer Election: Abe says parallels between global economy and time of Lehman crisis
• Japan CPI Falls 0.3%, Raising Pressure on BOJ for More Stimulus: Core inflation rate declines for 2nd month in April
• Yuan Bears Once Compared to Soros in His Prime Now Look Subdued: Options, offshore trading show bears are reluctant to pile in

Like in Asia, European trading has been very light this morning as participants look towards the UK bank holiday and US Memorial Day, leading to very thin volumes. European equities initially traded in modest negative territory but have since pared this loses (Euro Stoxx 0.2%) with the IBEX (0.1%) yet again underperforming amid the extension of losses in Banco Popular shares, while the likes of Credit Agricole (-7%) and Natixis (-7.3%) weigh on French equities as they go ex-div. Elsewhere, the SMI notably outperforms led by Roche (+3.6%) in the wake of reports of a successful trial with their blood cancer drug.

Top European News

• Axa Sells SunLife, Appoints Harlin CFO of Chief Buberl’s Team: Axa SA sold its SunLife unit in the U.K. to Phoenix Group Holdings and announced the top-management team
• Philips Lighting Shares Soar After $839m Dutch IPO: Shares sold at EU20 each, near midpoint of marketed range. Spinoff underscores shift by Philips to health-care market
• Barclays Said to Raise Severance Offer Again for Tokyo Employees: Bank asked about 100 equity staff to leave in January: people familiar. Original offer was below market standards, union says
• Anglo Appoints Cleaver as De Beers CEO as Mellier Steps Down: Diamond producer resumes tradition of promoting from within. Bruce Cleaver has held strategy roles at Anglo, De Beers
• Oil Price Surge Can Trigger Writebacks, Dong Energy CEO Says: Writebacks in energy sector are rare: Bloomberg Intelligence. Chairman says oil unit now worth keeping after sale dropped
• Currency Traders Look Beyond the Pound to Combat Brexit Turmoil: Unigestion buys franc, krona options to hedge risk of EU exit. Aberdeen Asset Management sees euro as best sterling proxy

In FX, the BBG Dollar Spot Index climbed 0.2% after losing 0.2% in each of the last two trading sessions. The MSCI Emerging Markets Currency Index rose 0.3 percent this week, snapping a run of three weekly losses. Turkey’s lira and Russia’s ruble led gains, climbing more than 1 percent in the period. The currencies of oil-exporting nations pared their weekly advance on Friday as oil retreated. The Canadian dollar, Norwegian krone and the ruble weakened at least 0.3 percent. The pound strengthened 1 percent this week. A poll by former Conservative lawmaker Michael Ashcroft showed almost 65 percent of voters believe the U.K. will remain in the European Union after a June 23 referendum.

In commodities, oil trimmed its third weekly advance as Canadian energy producers moved to resume operations after wildfires eased. West Texas Intermediate dropped 1% to $49 a barrel, paring the weekly gain to 2.5 percent. Brent slid 1.6 percent to $48.84. Prices climbed above $50 a barrel on Thursday for the first time in more than six months as a decline in U.S. crude stockpiles and production accelerated. The Organization of Petroleum Exporting Countries may stick to its strategy of prioritizing market share over prices when it meets next week.

Iron ore futures in Dalian rebounded from the lowest level since February as authorities in China said there’s room to boost growth. Group of Seven leaders pledged to fix excess industrial capacity and a global glut of the metal caused by government subsidies and support. Industrial metals also advanced, with copper heading for its first weekly gain this month. The metal rose 0.7 percent, bringing the gain the week to 2.5 percent. Nickel climbed 0.7 percent and zinc advanced 1.1 percent. Gold was little changed at $1,221.77 an ounce. The precious metal is heading for the biggest monthly loss since November as investors anticipate higher borrowing costs in the U.S.

n the US event calendar, the focus will be on that aforementioned second revision to Q1 GDP and Core PCE, while there will also be some attention paid to the final May reading for the University of Michigan consumer sentiment data. The data comes before what may or may not be an important speech by Fed Chair Yellen this evening.

Bulletin Headline Summary from RanSquawk and Bloomberg

• This morning has been a rather light affair as participants look towards the UK bank holiday and US Memorial Day, with European equities initally trading in modest negative territory
• FX markets have largely been in favour of the USD, and that of minor losses in commodities and stocks
• Looking ahead, today will see data highlights in the form of the secondary US GDP reading and University of Michigan sentiment
• Treasuries little changed in overnight trading as global equities rally and oil sells off; G-7 meeting ends “amid discord over the best policy mix of fiscal spending, monetary stimulus or structural reforms.”
• U.S. fixed income markets early close today (2pm ET) and closed Monday for the Memorial Day holiday
• FX, interest rate futures trading floors early close (1pm ET) and closed Monday
• It’s one of the biggest dilemmas facing currency managers: how to protect against the fallout from the U.K. leaving the European Union without losing money should it vote to remain
• Italian business and consumer confidence unexpectedly declined this month, signaling growing pessimism among executives and households over the strength of the recovery in the euro region’s third-biggest economy
• Jeffrey Gundlach said he expects Janet Yellen will “be dovish” today and the Fed will refrain from raising interest rates in June unless traders in the futures market assign odds of at least 50% to the move
• Japan’s consumer prices dropped for a second month as central bank Governor Haruhiko Kuroda struggles to spur inflation with record asset purchases and negative interest rates
• Japanese PM Shinzo Abe is getting closer to a potential announcement on delaying an increase in the sales tax after his warning at a Group of Seven leaders meeting that the global economy faces significant risk of another crisis
• Miami’s crop of new condo towers, built with big deposits from Latin American buyers and lots of marketing glitz, are opening with many owners heading for the exits. A third of the units in some newly built high-rises are back on the market
• Sovereign 10Y yields mixed; European, Asian equities higher; U.S. equity-index futures rise; WTI crude oil, precious metals lower

US Event Calendar

• 8:30am: GDP Annualized q/q, 1Q S, est. 0.9% (prior 0.5%)
  • Personal Consumption, 1Q S, est. 2.1% (prior 1.9%)
  • GDP Price Index, 1Q S, est. 0.7% (prior 0.7%)
  • Core PCE q/q, 1Q S, est. 2.1% (prior 2.1%)
• 10:00am: U. of Mich. Sentiment, May F, est. 95.4 (prior 95.8)
  • Current Conditions, May F (prior 108.6)
  • Expectations, May F (prior 87.5)
  • 1 Yr Inflation, May F (prior 2.5%)
  • 5-10 Yr Inflation, May F (prior 2.6%)

Central Banks

• 1:15pm: Fed’s Yellen speaks in Cambridge, Mass.

DB’s Jim Reid concludes the overnight wrap

Today would normally be very quiet given it’s the Friday before Memorial Day in the US and Bank Holiday Monday in the UK. Indeed the US bond market closes early today. However we do have Yellen speaking at Harvard University at 6.15pm BST (shortly after lunch in NY) so it’ll be slightly busier than it could have been. It’s not clear whether she’ll mention current policy but it will delay a few in the US from leaving early. That speech will aHer appearance a week on Monday June 6th when she is due to
address the World Affairs Council in Philadelphia has been billed as a
bigger event so that’s the more likely venue for her to validate her
FOMC colleagues’ recent hawkish bias or to put a more dovish spin on
future policy.lso come with the added benefit of the May employment report which is the highlight of what’s set to be a busy calendar next week.

Before that though and also in focus today will be the second revision to Q1 GDP in the US due out this afternoon. Current expectations are for an upward revision from the first estimate of +0.5% qoq to +0.9%, while the Core PCE reading is expected to be unchanged at +2.1% qoq. We’ll also get a first sight at corporate profits which given recent weakness is an important sub complement. So something else to keep markets busy into the long weekend.

It was the data yesterday which was the main talking point for investors in what was a relatively lacklustre day of price action with the rally in risk assets coming to a stuttering halt. Indeed the S&P 500 (-0.02%) closed little changed by the end of play after failing to move with much conviction either way during the session. Markets in Europe had largely closed in positive territory (Stoxx 600 +0.10%, DAX +0.66%) although the rally for banks which had been driving moves this week abated somewhat. Spanish banks in particular were under the most pressure with Banco Popular slumping 26% and to the lowest in 26 years following the announcement of a rights issue plan to cover losses. Spanish equities (-0.50%) were the notable underperformers as a result and it was a reminder that the sector is still a long way from being out of the woods just yet.

With regards to that data it was bit of a mixed bag in the US, with the latest durable and capital goods orders in April getting most of the attention. Headline durable goods orders were up a bumper +3.4% mom last month, well exceeding the +0.5% consensus although that number was boosted by a huge rise in the volatile aircraft and parts orders series. Excluding transportation orders, durable goods orders rose more in line with expectations (+0.4% mom vs. +0.3% expected) although the concerning trend was in the core capex orders which declined -0.8% mom after expectations had been for a modest +0.3% rise. Our US economists noted that the three-month annualized change in core durable goods orders, which was slightly below +1% in March, plunged to -11% this month. That being said, the overall report was however enough for the Atlanta Fed to revise up their Q2 GDP forecast to 2.9% from 2.5% previously which is the highest forecast we’ve seen so far for the quarter.

Meanwhile, there was more bumper US housing market data to report with pending home sales in April rising a much better than expected +5.1% mom (vs. +0.7% expected). Elsewhere, initial jobless claims were down 10k last week to 268k and down for the second consecutive week following that huge spike up in the first week of the month. Finally the latest regional manufacturing data provided for further evidence of what’s been another difficult month for the sector. The Kansas City Fed’s manufacturing activity index was down 1pt this month to -5 after expectations had been for a modest 1pt rise. New orders extended their move lower into negative territory. Staying in the US we also heard from Fed Reserve Governor Powell (moderately hawkish usually) who said that a rate hike would be appropriate soon but that there is no reason ‘to be in a hurry’. Powell also echoed (Reuters) some of the comments from his colleagues in highlighting that the upcoming UK referendum vote is a reason for caution in tightening next month. It’s worth highlighting that we don’t hear from Powell too often so his comments are noteworthy.

Switching over to the latest in markets this morning where bourses in Asia are ending on a bit of a mixed note to finish the week. Leading the way is Japan where the Nikkei is +0.44%. That’s come after the April CPI report revealed a two-tenths of a percent drop in headline inflation to -0.3% yoy. While that was a little higher than expected (-0.4% expected) it still marks a move further into deflation for the second consecutive month. The ex-fresh food reading (-0.3% yoy vs. -0.4% expected) matched the headline and was unchanged from March. The so called core-core reading (ex food and energy) held steady at +0.7% yoy as expected. Nevertheless the data may have raised hopes that it could spark further action from the BoJ. Elsewhere we’ve also seen the ASX (+0.53%) gain overnight along with the Kospi (+0.32%), while the Hang Seng (-0.31%) and Shanghai Comp (-0.14%) are both lower. The latter perhaps on the back of the latest industrial profits data in China which showed profits of +4.2% yoy in April, down from the +11.1% yoy March reading. Elsewhere there was little interesting to report out of the conclusion of the G7 meeting in Japan this morning.

Meanwhile, there’s also been some interesting newsflow concerning Valeant overnight, with the WSJ reporting late last night that the pharma company rejected a takeover offer from Takeda and investment firm TPG in the spring. No price was quoted and the article states that there are no current talks, but it is another interesting twist in the long running saga for the company.

Moving on. Most of the interesting price action yesterday was reserved for rates markets where Treasuries in particular were well bid from the off. Indeed 10y yields ended the session just shy of 4bps lower in yield at 1.829% meaning they are lower now than where we closed last Friday. 2y yields were down even more (5bps lower) at 0.869% and much of the commentary is attributing this to another strong auction yesterday. Indeed such was the demand for investors at the 7y Treasury auction that primary dealers were left with just a 19% share of the allocation which is the second lowest on record. That actually follows a similar trend at 2y and 5y auctions earlier in the week with Bloomberg reporting that investors took down 80% of the $88bn across the three auctions. Despite the possibility of the Fed tightening as soon as this summer, the auctions are evidence that there’s still a decent hunt for yield in a world where global yields are so low.

Meanwhile, over in commodity markets it was Oil which had been generating the early headlines after WTI and Brent both broke through the $50/bbl level. Those moves faded however as the day wore on with both finishing below that at $49.48/bbl and $49.59/bbl respectively – a smidgen lower on the day although the moves were largely put down to some profit taking. It was a much better day for base metals though with Zinc (+2.32%), Copper (+0.15%) and Aluminium (+0.74%) all up, however the exception was Iron Ore which was down another couple of percent yesterday and tumbled back below $50/tn for the first time since February. It is now in fact nearly 30% off the highs for 2016 made just a month ago.

Looking at the day ahead, this morning in Europe the only data of note is the various confidence indicators which we’ll receive out of France and Italy. This afternoon in the US the focus will be on that aforementioned second revision to Q1 GDP and Core PCE, while there will also be some attention paid to the final May reading for the University of Michigan consumer sentiment data. The data comes before what may or may not be an important speech by Fed Chair Yellen this evening.