Global stocks were higher, with European markets and US equity futures a sea of green on the last day of the week, as China and Japan remained closed for holidays, as world stocks battled to avoid their first weekly fall in six weeks on Friday while investors waited to see if April US jobs data would give the Federal Reserve another reason to dismiss rate cut calls.

While Asian stocks were broadly flat, mostly due to subdued volumes as China and Japan remain closed, and the MSCI Index of Asian stocks closing just 0.02% higher, it appears that Asia once again was instrumental in pushing US futures higher as the Emini rebounded as Hong Kong shares rose 0.4 percent, while Australia gained 0.1%, while Korea’s KOSPI dipped 0.5 percent.

There was more action in Europe, whose bourses were higher across the board as earnings from banks HSBC and Societe Generale cheered traders and encouraging Adidas profits sent the German sportswear firm’s shares surging 7% to a record high.

On Thursday, the S&P dropped on concerns about the US-China trade deal, giving up an initial attempt to regain their record highs and closed in the red, weighed down by energy shares. Oil prices had plunged again after U.S. crude production output set a new record, though the losses were capped by the intensifying political crisis in Venezuela and the stopping of Iranian oil sanction waivers by Washington.

Yet while stocks were broadly higher, bond and commodity markets remained firmly on the backfoot with most benchmark government bond yields up and Brent sliding back toward $70 a barrel again for what will be its worst week in over two months.

Quoted by Reuters, UBP strategist Koon Chow said it all pointed to a little bit of the steam coming out of the markets after a flying start to the year: “For the last four months it has been the unwinding the extreme pessimism that had built up (last year)” he said, referring to trade war nerves and the slowdown in many of the world’s largest economies. “So here we are now in search of the next big thing, and I think today, and for the last few weeks, it is a views and portfolio repositioning exercise.”

Some of the overnight bullishness was attributed to trader expectations for today’s jobs report. The only problem is that nobody knows if it’s better for the report to show bad or good news: since the recent surge in markets has been due to a dovish Fed, any unexpected overheating in job or wage gains, will likely further pressure risk. April payrolls, due at 830am ET, are forecast to show 185,000 net new jobs were added in April and the unemployment rate at a steady 3.8%. Average hourly earnings are expected to rise 3.3%, just shy of the post-crisis highs.

Over in the UK, the latest local council elections results show Labour Party councillors dropped by 53 councillors to 601 and Conservative party councillors dropped by 117 to 512 in England. Instead, voters turned to alternative parties which saw a significant swell in support for the Liberal Democrats, the Greens and independent candidates.

In the currency markets, the dollar strengthened, and the BBDXY rose to session highs ahead of the payrolls report although it may dip soon as an army of Fed doves hits the microphones: there are no less than eight Federal Reserve policymakers due to speak on Friday.The euro stayed lower even as inflation data beat estimates. The pound led G-10 losses but was still set for its biggest weekly gain in almost two months amid optimism a compromise Brexit deal may be struck next week. Australian and New Zealand dollars both fell as speculators wagered both countries could see interest cuts next week. The Aussie slipped below psychological support of $0.7000 overnight to the lowest since early January while the kiwi dollar drifted closer to a recent five-month trough of $0.6581. The weakness in the antipodean currencies also came as the U.S. dollar gained on remarks by U.S. Federal Reserve Chair Jerome Powell earlier this week that a recent weakness in inflation owed to “transitory” factors. That led traders to start paring expectations for a Fed rate cut. Futures now imply about a 49 percent probability of an easing at year-end, down from 61 percent late on Wednesday, according to CME Group’s FedWatch program.

In commodities, West Texas crude steadied, but was in the red in early London trade down 0.3% at $61.65 a barrel, while Brent slipped 0.5 percent to $70.42. Copper fluctuated, still on course for the biggest weekly drop since August. Bitcoin climbed to its highest level since November, advancing toward $6,000.

Other economic releases include wholesale inventories, Markit services PMI. American Tower, Dominion Energy are among companies reporting earnings. There is an avalanche of Fed speakers today including Williams, Bowman, Bullard, Daly, Kaplan and Mester.

Market Snapshot

• S&P 500 futures up 0.4% to 2,928.00
• STOXX Europe 600 up 0.3% to 390.15
• MXAP up 0.02% to 162.61
• MXAPJ up 0.02% to 540.03
• Nikkei down 0.2% to 22,258.73
• Topix down 0.2% to 1,617.93
• Hang Seng Index up 0.5% to 30,081.55
• Shanghai Composite up 0.5% to 3,078.34
• Sensex up 0.4% to 39,153.64
• Australia S&P/ASX 200 down 0.04% to 6,335.80
• Kospi down 0.7% to 2,196.32
• German 10Y yield rose 1.3 bps to 0.043%
• Euro down 0.07% to $1.1164
• Brent Futures down 1% to $70.06/bbl
• Italian 10Y yield fell 0.3 bps to 2.181%
• Spanish 10Y yield rose 0.2 bps to 0.999%
• Brent Futures down 1% to $70.06/bbl
• Gold spot down 0.05% to $1,270.07
• U.S. Dollar Index up 0.06% to 97.89

Top Headline News from Bloomberg

• Temporary federal government hiring for the U.S. Census Bureau’s 2020 count may give nonfarm payrolls a boost starting with the April jobs report due Friday, economists say
• A Brexit backlash hit both main parties in U.K. local elections, with smaller parties gaining seats. The news increases hopes that a compromise Brexit deal could be struck next week as both Labour and the Conservatives attempt to bring an end to the divisive issue
• ECB’s Weidmann sees signs of pickup in Germany economy, with the current weak phase only “temporary”. Urges the ECB to press ahead with its exit from unconventional monetary policy if inflation allows
• ECB’s Rehn also sees evidence of a recovery, but warns not to ‘jump the gun’ on first green shoots
• Oil tumbled as much as 4% in New York, lowest levels in a month, as American crude inventories hit highest level in two years and Russia missed targets for production cuts in April
• PIMCO Chief U.S. Economist Tiffany Wilding says many on the Fed may favor preemptively cutting rates if they see risks as to the downside, even if a recession is not expected
• European Commission president Jean-Claude Juncker is reported to have said that Bundesbank chief Jens Weidmann is a suitable candidate to take over from Mario Draghi as ECB president
• Global Times said in analysis that many observers are wondering if China-U.S. trade talks have hit an impasse as there were few details revealed after the latest meetings on Wednesday
• Billionaire investor Warren Buffett told CNBC in an interview that Berkshire Hathaway Inc. has been buying Amazon.com Inc. shares and the purchases will show up in a regulatory filing later this month
• Inflation in the euro area accelerated more than expected and a core measure jumped the most in nearly a year, capping a week of encouraging data for the European Central Bank
• Donald Trump doesn’t want anyone to see his tax returns. Not the public. Not Congress. But at least one group has peered into the carefully guarded trove and could provide some insight — a team from Deutsche Bank AG

Asian equity markets were mixed with the region cautious ahead of the looming US NFP data and after losses on Wall St where the fallout from the FOMC disappointment persisted and the energy sector underperformed on weaker oil prices. ASX 200 (U/C) swung between gains and losses with notable weakness seen in energy names after WTI crude declined by more than 3% and with financials subdued after Macquarie’s full-year results which improved from the prior year although it flagged a decline for FY20. KOSPI (-0.7%) and Hang Seng (+0.4%%) were negative with South Korea heavily focused on earnings and with risk appetite in Hong Kong sapped by poor GDP data which showed its economy grew at the slowest pace in nearly a decade. However, the Hang Seng is well off intraday lows as trade related news provided a glimmer of optimism with Chinese Foreign Minister Wang to travel to the US on Tuesday and is expected to close the trade deal next week, while US Commerce Secretary Ross suggested they are in the end-game of trade negotiations. As a reminder, mainland China and Japan remained closed for holidays.

Top Asian News

• Chip Makers Lead Asia Gains on Hope of Better Earnings, Orders
• Foreign Fund Inflows Into Indonesian Bonds Surpass 2018 Level

Major European indices have been gradually grinding higher throughout the session [Euro Stoxx 50 +0.3%], diverging from the cautious trade seen overnight where sentiment was somewhat deterred by the upcoming US jobs report and mixed US-China trade reports. There is no real standout European bourse this morning with gains relatively broad based; although, the SMI (+0.2%) while positive is underperforming its peers, with the index weighed on by Swiss Re (-2.6%) after the Co. posted a miss on Q1 net. In a similar fashion sectors are predominantly in the green with the exception of the Technology sector which is weighed on by heavyweight Sap (-0.4%) in the red following on from reports yesterday that up to 50k companies which are using the Co’s software are at risk of a security breach; the Co. state that guidance on resolving these issues was published in both 2009 and 2013. Other notable movers this morning include banking giant HSBC (+2.4%) who are firmer post-earnings where they beat on both Q1 revenue and pre-tax profit. Separately, but also boosted by earnings are Adidas (+6.1%) with the Co. also topping the Dax (+0.3%) after confirming FY guidance and reporting strong net income & operating figures. Elsewhere, and at the other end of the Stoxx 600 are Intu Properties (-6.4%), after stating that they see FY19 LFL retail income falling by 4-6% and forecast the remainder of the year as being challenging.

Top European News

• Norway’s Wealth Fund Surges $84 Billion After Snapping Up Stocks
• Merkel Weighs German Carbon Prices to Speed Pollution Cuts
• U.K. Economy Seen Stagnating in April as Services Eek Out Growth
• Societe Generale Shares Gain on Surprise Strong Capital Beat

In FX, the Greenback remains on a firmer footing ahead of the monthly BLS jobs report, and the index has just notched a new post-FOMC peak at 97.971 amidst expectations that payrolls will post another solid gain, with average earnings forecast to tick up in m/m and y/y terms. The DXY has eclipsed Fib resistance at 97.881 in the process and is now eyeing another retracement level just above 98.000 at 98.059.

• CHF/EUR/GBP/JPY/AUD – All weaker, albeit marginally vs the Usd, with the Franc straddling 1.0200 after a further deterioration in Swiss consumer sentiment and in line/steady y/y CPI, but still well shy of the SNB’s 2% target. Meanwhile, the single currency is grinding down further having relinquished the 1.1200 handle on Thursday with Fibs marking out support and resistance at 1.1147 and 1.1186 respectively, and hefty option expiry interest also likely to influence trade/direction ahead of NFP if not the NY cut. Note, firmer than forecast Eurozone inflation has been largely shrugged off given national numbers indicating an upside bias vs consensus. Similarly, Cable failed to glean and positive momentum from confirmation that the UK services sector joined its construction counterpart back into expansion from contraction, with the pair having dipped below the 1.3000 level to circa 1.2990 (just shy of the 100DMA at 1.2983) while Usd/Jpy is pivoting 111.50 and the 30 DMA (111.47) in advance of the aforementioned US labour data and a 111.70 Fib. Last, but by no means least, the Aussie is trying to keep sight of the psychological 0.7000 mark following extended losses to a fractional 2019 low (0.6985) where decent expiry interest (877 mn) resides, but still wary about a potential RBA rate cut next week.
• CAD/NZD – Marginal G10 outperformers, or at least holding their own as the Loonie meanders between 1.3458-75 and Kiwi hovers above 0.6600, albeit also conscious that the RBNZ could ease policy at the May meet.
• EM – The Lira remains in the spotlight and under pressure in wake of weaker than anticipated Turkish CPI on perceived less hawkish CBRT policy implications, with Usd/Try at the upper end of 5.5800-9595 trading parameters.

In commodities, Brent (-0.5%) and WTI (-0.2%) prices are subdued this morning, as the general uptick in risk appetite this morning has not been able to outweigh the bearish pressure from the stronger dollar. WTI prices are still relatively secure above the USD 61/bbl level, currently trading around the USD 61.40 figure; however, the session lows for Brent did briefly breach the USD 70/bbl level. UBS note that of central concern for oil on the upside are the recent reports that US-China trade talks may have reached an impasse, ahead of next week’s negotiations in Washington. News flow this morning includes sources commenting that Saudi Arabia’s production may increase in June but will still be below the 10.3mln BPD quota under the OPEC+ agreement. For reference, surveys indicate that Saudi Arabia’s output as of April 30th is 9.85mln BPD. Gold (U/C) is relatively lacklustre this morning with the yellow metal torn between the firmer dollar, mixed US-China trade reports and the general improvement in risk sentiment; as such the metal is left pivoting the USD 1270/oz level. Elsewhere, copper is still suffering from the absence of China, although industrial metals in general have strengthened somewhat with some attributing this to recent comments from Tesla, stating that they foresee shortages of minerals which are used in electric vehicles.

US Event Calendar

• 8:30am: Change in Nonfarm Payrolls, est. 190,000, prior 196,000
  • Unemployment Rate, est. 3.8%, prior 3.8%
  • Average Hourly Earnings MoM, est. 0.3%, prior 0.1%
  • Average Hourly Earnings YoY, est. 3.3%, prior 3.2%
  • Underemployment Rate, prior 7.3%
  • Wholesale Inventories MoM, est. 0.2%, prior 0.2%; Retail Inventories MoM, est. 0.1%, prior 0.3%
• 9:45am: Markit US Services PMI, est. 52.9, prior 52.9; Markit US Composite PMI, prior 52.8
• 10am: ISM Non-Manufacturing Index, est. 57, prior 56.1
• 10:15am: Fed’s Evans Speaks at NABE International Forum in Stockholm
• 11:30am: Fed’s Clarida Speaks at Hoover Institute Policy Conference
• 1:45pm: Fed’s Williams Speaks at Hoover Institute Policy Conference
• 3pm: Fed’s Bowman Speaks at Hoover Institute Policy Conference
• 7:45pm: Fed’s Bullard, Daly, Kaplan and Mester Speak at Hoover Event

DB’s Craig Nicol concludes the overnight wrap

The last 24 hours was always going to be a little bit of a no man’s land for markets given that it fell in-between the Fed meeting and a payrolls Friday. That said, the Fed-inspired plunge for equities continued, albeit at a much more moderate pace, with the S&P 500 ending -0.21% lower by the time the closing bell rung last night. That was admittedly 0.59% off the intraday lows, with the NASDAQ also bouncing off its low of -0.91% to end the session only -0.16% lower. The DOW fell -0.46%, dragged lower by poor earnings from Dow Chemicals, whose management said they see “discrete” headwinds in the second quarter, and by Caterpillar after investors were unimpressed with its latest dividend announcement.

In Europe we had the PMIs to focus on – more on that below – however equities were playing catch up to the US moves from the day prior with the STOXX 600 ending -0.58%. Cash HY spreads widened by +4bps in Europe but tightened -1bp in the US. It was at least a bit more exciting in the rates market where 2y and 10y Treasury yields rose +4.0bps and +4.1bps respectively, and thus extending Wednesday’s move, while Bunds ended +1.7bps. Those moves were completely driven by real yields, as inflation expectations fell notably. That move was in turn driven by lower oil prices, as investors noted rising US stockpiles unconfirmed reports about increases to Russian and Saudi output. WTI ended -2.81% lower. The USD rose +0.15% which weighed on EM FX once again, as a basket of currencies retreated -0.40%. Oil exporting countries saw bigger falls, led by the Russian Ruble’s -1.24% retreat. In other commodities, Gold and Silver fell -0.48% and -0.32% to fresh year-to-date lows.

So before we can finally take a breather from what has felt like a fairly non-stop week, there’s the small matter of getting through this US employment report in about seven hours’ time. Our US economists expect nonfarm payrolls to slow to 160k versus 196k in March, while the consensus is for 190k. Our colleagues do note though that their forecast should be enough to keep the unemployment rate at 3.8%, while for earnings they forecast +0.2% mom, a tenth below what the market expects. That should still be enough to see the annual rate nudge up to +3.3% yoy though and just shy of its post-recession high.

It’s worth noting that as well as payrolls today we’ve got a number of Fed speakers due up this afternoon. Evans, speaking at 3.15pm BST, should be interesting given that Monday’s inflation data nudged closer to the 1.5% level that Evans said would make him “extremely nervous”. As you’ll see in the day ahead at the end we’ve also got Clarida, Williams, and Bowman speaking at the Hoover Institution Conference this afternoon.

This morning in Asia there isn’t a huge amount to report with markets fairly directionless. Thin trading volumes are still a factor however with Japan and China closed. The Hang Seng (-0.02%) is little changed while the Kospi (-0.69%) has struggled, in contrast to the ASX which is up +0.18%.

In other news, yesterday Stephen Moore withdraw his name from consideration for a Fed governorship, though he gave an interview 2 hours before that decision in which he said he was still “all in.” In China trade talks reportedly concluded positively between the US and China, though subsequent reporting in the Chinese press suggested that officials “may have hit an impasse” which seemed to be the trigger behind the mid-afternoon plunge for equities. The details were less negative than the headline suggested, but the story could nevertheless be a signal from Chinese officials about their willingness to walk away from talks if a satisfactory deal isn’t soon completed.

Meanwhile, the CBO released its latest budget forecasts which turned out to be uneventful. There were no major changes to the forecast for deficits to average -4.3% of GDP over the next 10 years, taking the public debt from its current 78% of GDP level to 92%. Roughly half of that rise is due to the CBO’s projections for higher interest rates, which are above DB’s and consensus forecasts, which suggests the rise will be less severe, but on the other hand the forecasts only include ‘current law’ so there is plenty of scope for things to get worse as tax cuts are renewed and spending caps are lifted moving forward.

Here in the UK it was the turn of the BoE to take the spotlight. As expected there were no policy surprises and the message was fairly neutral at best with growth projections revised up and inflation forecasts down. Our UK economists summarised that the overall communication from the BoE yesterday confirmed that policy remains almost exclusively conditional on a Brexit resolution. And with the ongoing tension between the Bank’s inflation projections and market pricing, Governor Carney reiterated the need for more hikes (than currently priced in) to keep inflation in check. Indeed, Carney’s push back against more dovish pricing at the front end of the UK rate curve was consistent with the MPC’s hawkish bias for gradual and limited tightening over the Bank’s forecast horizon. And given that our colleagues’ base case is for a Brexit resolution in May, they retain their call for an August rate hike. Sterling faded from the highs yesterday to close down -0.14% while the Gilt curve was a touch weaker with 10y yields ending +3.5bps.

As for the details of those PMIs in Europe, the manufacturing reading for the Euro Area was revised up 0.1pts to 47.9. That included better than expected readings for Italy (49.1 vs. 47.8 expected) and Spain (51.8 vs. 51.2 expected) and a +0.4pt upward revision for France to 50.0. The winner? Greece at 56.6 and the highest since 2000. Imagine thinking that four years ago. More significant for Europe, Germany was revised down 0.1pts to 44.4 which puts the increase over March at just +0.3pts. However, the good news was that new orders were up +1.4pts. As our economists noted, the improvement in the southern periphery is welcome and confirms that German contagion is more limited to its cyclical neighbours with falls in the manufacturing PMIs for Switzerland, Sweden, and the Czech Republic, possibly as collateral damage from Germany’s slide. The services readings are due on Monday so that’s the next focal point. Despite some green shoots of optimism then, the reality is that the manufacturing reading for the Euro Area is still the second lowest level in the current cycle and well into contractionary territory.

Over in the US, jobless claims stayed steady at 230k and the final print for March core capital goods orders were revised up +0.2pp to 0% mom. Factory orders rose +1.9% mom, better than the +1.6% expected, and the prior month was revised higher as well. This is likely to present upside risks for the first revision to Q1 US GDP growth later this month. Separately, Q1 productivity rose by +3.6% qoq, the fastest pace since 2014. On a yoy basis, that was the fastest pace since the financial crisis. Our US economists have published research previously showing that productivity tends to lag wage growth, as companies respond to wage pressures by finding new ways to boost output per hour. That underlies DB’s house view for US growth to remain strong over the next several quarters and years, as opposed to the consensus which envisions a gradual slowing.

Finally, the day ahead is unsurprisingly headlined by the April employment report in the US this afternoon, however prior to that we’ll get April CPI data out of Turkey this morning which will be worth a close eye, followed by the April services and composite PMIs in the UK and the April CPI report for the Euro Area. The core reading is expected to rise two-tenths to +1.0% yoy. The other data due in the US today includes the March advance goods trade balance, March wholesale inventories, the April services and composite PMIs and April ISM non-manufacturing. As mentioned earlier the other potentially interesting event to watch is the raft of Fedspeak this afternoon. It starts with Evans who is speaking at an event in Stockholm at 3.15pm BST, before Clarida (4.30pm BST), Williams (6.45pm BST) and Bowman (8pm BST) speak at the Hoover Institute Policy Conference. The Bundesbank’s Weidmann is also due to speak this morning.