The highlight of the overnight newsflow may have been the BOJ's preannounced statement that it is keeping its QE unchanged (which comes as no surprise after a few weeks ago the BOJ admitted it would be unable to keep inflation "stable" at the 2% in the required timeframe), but the highlight of overnight markets was certainly China, where the Banzai Buyers have reemerged, leading to another whopping +2.8% session for the Shanghai Composite which has now risen to a fresh 7 years high.

The catalyst? In addition to the PBOC's desire to reflate the biggest equity bubble ever, was follow through from the US zero volume levitation to its 4th record high close in 6 sessions. As a result expect US stocks to rise next to recorder highs because China surged because the US surged, and so on. That, and of course the slow motion economic collapse which is the best news a stock buyer can have: after all it means that more easing - if only for stocks - is all but assured.

A broader look at Asian equities in general shows Hang Seng (+1.7%) and Shanghai Comp (+2.8%) leading the way, with the latter touching another consecutive fresh 7yr high, as easing expectations continued to underpin sentiment. This also follows excess funds from yesterday’s conclusion of this week’s 20 IPO offerings, being channelled back to underperforming stocks.

European stocks (Eurostoxx50: -0.40%) started the session on a relatively tentative footing and trade lower amid light newsflow. Of relevance for Liberty Global, the FTSE 100 modestly outperforms due to Vodafone (+4.8%) who were lifted by comments from Goldman Sachs saying they were more likely to be sellers of assets rather than buyers. To the downside, luxury names have been weighed on by Richemont’s (-1.78%) pre-market update which revealed an unexpected 8% decline in April sales. Today’s only large cap earnings from the US is Deere & Co. who are scheduled to report at 1200BST/0700EDT.

USTs (+5 ticks) have moved higher in tandem with Bunds (+44 ticks) during the European morning, which have ebbed higher to retrace some of the downside seen yesterday and making a technical break above yesterday’s high at 153.99. Of note, analysts at BNP Paribas have stated they expect European bonds to trade in a tight range today and in the coming week.

In commodities, the metals complex has benefited from weakness in the USD while after market yesterday CME lowered COMEX 100 gold futures initial margins for specs by 6.3% to USD 4,125/contract from USD 4,400/contract and lowered COMEX 5000 silver futures initial margins for specs by 9.1% to USD 7,700/contract from USD 8,470/contract. WTI and Brent both reside in negative territory amid light newsflow. However WTI remains on track to finish higher for the 10th consecutive week, the longest streak since trading began in 1983.

USD (-0.5%) weakened throughout the European morning, with the greenback initially impacted by JPY strength in the wake of the BoJ policy decision to see USD/JPY pull away from the 121.00 handle. USD was further weakened on the back of better than expected German IFO Business Climate (108.5 vs. Exp. 108.3, Prev. 108.6), which bolstered EUR/USD (+78 pips) as market participants await comments regarding Greece from the Eurogroup meeting. Not surprisingly, the "good" German data (unlike the PMI or the ZEW earlier this week), has pushed not only the EUR higher, but the DAX lower which correlates inversely to the strength of the European currency with about 0.9 R-squared.

German Chancellor Merkel and French President Hollande have told Greek PM Tsipras that they would personally contribute toward the direction of a viable, long-term solution for Greece and accelerate the procedure, according to a senior Greek government official. Nonetheless, talks between Greece and its creditors failed to reach an agreement overnight, with a Greek government spokesman suggesting a deal could be finalised within the next 10 days and aims to meet all of its debt obligations in June.

Looking ahead, the pre-holiday US session sees US and Canadian CPI, with Greek news from the Eurogroup meeting in Riga once again on the radar but perhaps the most important event will come from Yellen, speaking at 1pm Eastern in Rhode Island just as the bond pit closes earlier ahead of Memorial Day. And since volumes today will be even more abysmal than usual, the zero volume levitation algos should have no problem pushing the S&P up at least another 10 points on a few thousands ES contracts.

Bulletin Headline Summary from Bloomberg and RanSquawk

• USD (-0.5%) weakened during the Asian session following JPY strength in the wake of the BoJ policy decision to see USD/JPY pull away from the 121.00 handle
• USD was further weakened in European hours on the back of better than expected German IFO Business Climate which bolstered EUR/USD (+78 pips)
• Looking ahead, the US session sees US and Canadian CPI, with participants looking out for any Greek news filtering out from the Eurogroup meeting in Riga and comments from Fed’s Yellen, BoE’s Carney and Shafik.
• Treasuries gain, paring weekly decline before CPI report, Yellen speech as bunds lead rally in EGBs; trading likely to be muted before long holiday weekend with futures closing at 1pm, cash market at 2pm.
• German Chancellor Merkel said that greater efforts are needed to unlock bailout funds for Greece after late-night negotiations with Greek PM Tsipras failed to yield any sign of a breakthrough
• Greece’s economy is faring even worse than a string of developing countries which suffered traumas in the last two decades, which leaves Commerzbank AG declaring the country is in little position to pare its debt and that default or a restructuring may loom
• Draghi said euro-area countries must speed up structural reforms not only to raise economic growth and bring down unemployment, but also to allow ECB policy makers to ensure price stability
• Germany’s Ifo institute business climate index dropped to 108.5 from 108.6 in April, falling for the first time in seven months; median estimate in Bloomberg survey was for a decline to 108.3
• China’s territorial maneuvers in the contested South China Sea are bringing its Communist neighbor Vietnam and the U.S. closer together, according to the new ambassador to Vietnam, Ted Osius
• The Bank of Japan refrained from increasing stimulus and signaled a more optimistic view on the economy, as Governor Haruhiko Kuroda bets on stronger growth fueling stalling inflation
• Sovereign bond yields fall. Asian stocks gain, European stocks decline, U.S. equity-index futures gain. Crude oil and copper lower; gold higher

US Event Calendar

• 8:30am: CPI m/m, April, est. 0.1% (prior 0.2%)
  • CPI ex Food and Energy m/m, April, est. 0.2% (prior 0.2%)
  • CPI y/y, April, est. -0.2% (prior -0.1%)
  • CPI ex Food and Energy y/y, April, est. 1.7% (prior 1.8%)
  • CPI Index NSA, April est. 236.580 (prior 236.119)
  • CPI Core Index SA, April, est. 241.130 (prior 240.793)
• 8:30am: Real Avg Weekly Earnings y/y, April (prior 2.1%)
• 1:00 pm Yellen speaks on U.S. economic outlook in Providence, RI

DB's Jim Reid Concludes the overnight recap

It’s a weekend of closed door, secret European meetings ahead with lots of behind the scenes maneuverings and no-one with any idea which way it'll go until the end. Yes, the annual Eurovision song contest is 60 years old tomorrow night and much of the continent will be glued to the action. Last year a man dressed as a lady but with a full beard won the contest so who knows what to expect and if anyone can explain to me why Australia are in tomorrow's event then I'd be grateful. Apparently Sweden is favourite and who knows we may revisit the glory days of ABBA. We should note for the record that Greece's entry is called "One last breath". Oh and the UK entry is awful in my opinion. Lots of 'nul points' await.

In this nul interest rate world, today's US CPI will further add to the lift-off debate as will a Yellen speech at 6pm London time. In terms of CPI the current Bloomberg consensus is for a fall in the headline (+0.1% mom from +0.2%) which in turn is expected to lower the annualized rate down to -0.2%. Meanwhile the core is expected to be unchanged for the month at +0.2% mom, but the annualized rate is expected to round down to +1.7% yoy. With a few large markets closed for a public holiday on Monday, it’s possible that we could see some exaggerated price action if the number is away from consensus. So one to look forward to this afternoon and it’s worth remembering that the reading follows last week’s weaker than expected PPI print for the same month.

Ahead of this bourses in Asia are generally firmer across the board with the Nikkei (+0.24%) and ASX (+0.11%) a touch higher, while there are large gains for the Hang Seng (+1.48%) and Shanghai Comp (+1.93%) with the latter back at 7-year highs. Credit markets are around a basis point tighter. Meanwhile, the Bank of Japan has announced that it has made no change to its QE programe as largely expected. The BoJ will continue to increase the monetary base at a pace of ¥80tn per year with the accompanying statement saying that the economy ‘has continued to recover modestly’. The BoJ also noted that the effect of the decline in energy prices means CPI is ‘likely to be about zero per cent for the time being’.

There was a lot of data to get through yesterday. It was kick started with some modestly weaker flash PMI’s in Europe and then followed up with a generally softer set of indicators in the US which once again illustrated a Q2 yet to fire on all cylinders. This helped send Treasury yields lower as we saw 5y (-4.0bps), 10y (-5.8bps) and 30y (-5.9bps) yields fall to 1.512%, 2.191% and 2.989% respectively. Risk assets closed firmer meanwhile as the S&P 500 closed +0.23% to make a new record high, supported also by a move higher for WTI (+2.95%) and Brent (+2.32%), while in credit CDX IG closed nearly a basis point tighter. The Dollar was a tad more muted as the DXY eventually finished 0.10% lower, bringing to an end three consecutive days of gains.

In terms of details on the data, aside from a better than expected Conference Board leading indicator print for April (+0.7% mom vs. +0.3% expected) and an 'ok' initial jobless claims print which climbed 10k to 274k for the week but kept the four-week moving average at a 5-year low (266k), it was a day of disappointment in the US on the whole. The flash manufacturing PMI for May fell 0.3pts and below consensus to 53.8 (vs. 54.5 expected), marking three consecutive months of declines with new orders in particular hitting a 16-month low. The weakness in existing home sales for April also garnered attention after falling -3.3% (vs. +0.8% expected) in the month. As well as the weakness in the flash PMI, the May Kansas City Fed manufacturing activity index fell to the lowest level since April 2009 after the -13 print fell six points from the previous month. The components of the index made for no better reading as the volume of new orders (-19), number of employees (-17) and average workweek (-14) all fell into deep negative territory. Elsewhere, there was a 0.8pt fall for the Philadelphia Fed Business outlook to 6.7 (vs. 8.0 expected) while the Chicago Fed national activity index (-0.15 vs. 0.00) rose slightly but still came in below consensus.

Data flow in Europe was dominated by yesterday’s May flash PMI readings. On the whole the readings were slightly disappointing and although still suggestive of a modest recovery, it perhaps signaled some dissipating upward momentum – in line with the thoughts of DB’s Marco Stringa who highlighted a material risk that the upward trend in consensus forecasts for 2015 will not continue with the DB SIREN-Surprise index turning negative in mid-April and yesterday hitting its lowest value since November. On the data, the Euro-area composite weakened by 0.5pts to 53.4 which was below expectations of no change. The weakness wasn’t helped by a softening in the services print (53.3 vs. 53.9 expected) which fell 0.8pts and offset a modest 0.3pt rise in the manufacturing print (52.3 vs. 51.8 expected). Regionally, there was more disappointment in Germany as the composite (52.8 vs. 53.8 expected) declined 1.3pts while in France the composite rose 0.4pts in line with expectations to 51.0. Marco notes that although disappointing, the readings still point to a +0.4% qoq GDP growth rate for Q2.

Elsewhere, European consumer confidence for May was downgraded to -5.5 from -4.6 previously. There was a bright spot for data in the UK however as April retail sales both ex fuel (+1.2% mom vs. +0.2% expected) and including fuel (+1.2% mom vs. +0.4% expected) came in higher than expected. The ECB minutes meanwhile offered few surprises, noting that ‘members agreed that emphasis needed to be placed on a steady course of monetary policy with a focus on the firm implementation of the Governing Council’s recent monetary-policy decisions’. There was however some mention of the uncertainties with regards to structural reforms, with the minutes noting that ‘members expressed that the risk of insufficient reform progress was particularly pronounced with regard to structural policies, which were hampered by resistance to change’ and that ‘in the absence of structural reforms, there were serious risks that potential growth would remain low and investment demand would not pick up as strongly as expected’.

Just wrapping up yesterday’s price action, European equity markets finished slightly higher in most regions, rising into the close as US markets moved higher. The Stoxx 600 (+0.36%), DAX (+0.14%) and CAC (+0.26%) in particular led gains. It was more mixed in bond markets meanwhile as 10y Bunds finished 0.8bps higher at 0.637% while similar maturity yields in the periphery finished 1-4bps lower.

Talks between Greek PM Tsipras, French PM Hollande and German Chancellor Merkel at the European summit in Riga yesterday appeared to offer few clues that any material progress has been made. Headlines on the wires have suggested that the meeting appears to have been nothing more than a sign of political support so far with a joint statement released after saying that talks took place in a ‘friendly and constructive atmosphere’ and were based on ‘the successful fulfillment of the current program’. The statement went on to say that ‘it was agreed that the talks between the Greek government and the institutions will be continued’ while open issues discussed included pensions and tax reforms. Talks will continue at the summit today.

Looking at today’s calendar now, it’s a busy data docket this morning in the European session as we kick off with the final Q1 GDP print for Germany quickly followed by business and manufacturing confidence readings out of France. We’ll be back in Germany shortly after this when we get the May IFO business survey before we get Italian retail sales and UK public sector net borrowing data. In the US focus will be on the aforementioned CPI print while we’ll also get average weekly earnings data. The European summit continues in Riga for a second day while as mentioned at the top, the Fed’s Yellen is also due to speak later on the US economic outlook which will be worth watching.