U.S. markets are closed for the Memorial Day holiday, and with UK and Chinese markets also closed for various holidays, it has been a quiet start to the week, with S&P futures essentially unchanged, trading at 2,415, up 0.06%, a new all time high.

European stocks opened marginally lower in quiet trading but have since erased the dip to trade little changed, while shares in British Airways owner IAG dipped in early Spanish trading as the airline pushed to recover from a massive technology failure that disrupted hundreds of flights. The Stoxx Europe 600 Index was flat at 391.24, down 0.03%. Italian assets underperformed after Renzi comments on early elections, with banks selling off and bund/BTP spread widening. BTP futures have extended their slide in thin liquidity, with the 10y yield now higher by 7bps fueled by Renzi comments and supply concession.

In Asia, South Korea's Kospi fell for the first time in seven sessions, slipping from an all time high. North Korea tested another missile although the launch had little impact on risk assets.Australian bonds pared opening gains and slip into negative after sluggish 20-year auction; 10-year yield rises two basis points; ASX 200 down. Nikkei little changed; Chinese developers surge in Hong Kong.Chinese developers lifted the Hang Seng Index, with China Evergrande Group surging to a record in Hong Kong. Bunds have meandered through the session with a speech from the ECB president Mario Draghi at 2:00pm BST in focus, but volumes are also especially light.

Global Equities Wrap:

• S&P futures: 2415: +0.06%
• Stoxx 600: 391.12, -0.06%
• NIkkei -0.02%
• Hang Seng +0.24%
• Kospi -0.14%
• ASX -0.78%

The EUR has drifted higher against the USD, paring back some of the losses seen in the Asia-Pacific region after the Fed's Williams said three highs in 2017 made sense and balance sheet normalization should begin this year. The pound posted the biggest gain among G-10 currencies, though the bounce wasn’t enough to erase Friday’s plunge when polls showed the coming election may be closer than expected. South Africa’s rand reversed a rally after President Jacob Zuma survived a bid by some members of his party to remove him from office.

Oil trades back under $50/bbl as boost in U.S. drilling activity threatens OPEC’s efforts to reduce a global supply glut. On Friday Baker Hughes revealed U.S. explorers added 2 rigs to 722, highest level since April 2015. After the market was unimpressed with accord Thursday to prolong output limits, Saudi Arabia’s Energy Minister Khalid Al-Falih said the strategy is working, global stockpiles will drop faster in 3Q

“It’s huge inventories around the globe that are really keeping a lid on prices, combined with the ability of those agile U.S. producers who scramble back into action should the oil price rise,” says Michael McCarthy, chief market strategist at CMC Markets in Sydney .

As Bloomberg notes, despite the longest winning streak for U.S. stocks since February and record highs posted by equities globally, the ongoing bond rally hints at an undercurrent of investor caution. With the fate of the Trump administration’s pro-growth stimulus plans uncertain, the dollar is one of the weakest-performing major currencies this year, even as the Federal Reserve prepares for more rate hikes. Gauging the ability of the global economy to withstand rising borrowing costs will be key for traders.

“The U.S. economy is about as close to the Fed’s dual-mandate goals as we’ve ever been,” Federal Reserve Bank of San Francisco President John Williams said in Singapore on Monday. “With the attainment of our dual-mandate goals close at hand, it’s more important than ever for monetary policy to work toward what I like to call a ‘Goldilocks economy’ -– an economy that doesn’t run too hot or too cold.”

Key overnight/weekend highlights

• In the US, the Trump Twitter-feed has been active on the Russian question. German Chancellor Merkel, whose country was described as "bad, very bad" by US President Trump, has suggested that Europe may not be able to rely on the US. North Korea has fired a ballistic missile. Markets basically have ignored it all.
• US Fed President Williams believes three is a magic number when it comes to rate increases this year (in total). A June rate hike is widely expected, but it is the nature of the quantitative policy plan that offers the most interest.
• North Korea fires a ballistic missile into Sea of Japan; neighbors protest
• G-7 pledges to keep markets open, fight protectionism
• South Africa’s Zuma said to survive ANC proposal to remove him
• ECB President Draghi is due to speak today, and it seems rather unlikely that his addiction to easing will be challenged. However, it is not necessarily clear whether Draghi's dovishness represents the ECB's views, and the central bank may shift tone this summer.
• In the UK, the weekend opinion polls showed the Conservative Party's lead reduced, but not as drastically as some of last week's polls had suggested. The prime minister and the leader of the opposition are being interviewed today

Top Market News

• Merkel Signals New Era for Europe as Trump Smashes Consensus
• Payment Delays Soar as EU’s Small Businesses Offer Reality Check
• Draghi’s Riddle of Missing Inflation Makes Case for ECB Patience
• Greece needs clear roadmap for the debt, SYRIZA MEP Papadimoulis
• Rio Tinto Hires At Least 5 Metals Analysts in Singapore: Reuters
• Hang Seng Bank, Bank of East Asia Lift H.K. Mortgage Rates: HKEJ

In global markets, the Stoxx Europe 600 Index was little changed as of 11:29 a.m. in London. IAG dropped 2.2 percent. S&P 500 futures rose by less than 0.1 percent after the underlying gauge closed at a record high on Friday. The Korean Kospi fell for the first time in seven sessions, slipping from a record, after North Korea tested yet another ballistic missile, its 9th for the year.

In currencies, the GBP rose 0.3% after the biggest weekly decline since November. The euro was little changed at $1.1184. The Bloomberg’s Dollar Spot Index edged lower by less than 0.1 percent. The rand fell 0.5 percent after erasing a gain of 1.8 percent. The yen was little changed at 111.35 per dollar.

In rates, the yield on 10-year Treasuries was 2.25 percent at the end of last week. Cash trading on the securities is closed for the day. The yield on 10-year Italian bonds jumped seven basis points after former Prime Minister Matteo Renzi raised the prospect of an early election.

West Texas oil fell 0.4 percent to $49.61 a barrel. OPEC underwhelmed investors with its production-cut extension deal last week, while Baker Hughes said Friday that U.S. explorers added two oil rigs to take the count to 722, the highest level since April 2015. Gold edged higher by less than 0.1 percent to $1,267.33 an ounce.

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Jim Reid concludes the overnight wrap

A happy long weekend to all our readers in the UK and US today. It’s been an extended weekend made all the better by Arsenal lifting the FA Cup on Saturday. A rare moment of joy in what has otherwise been a fairly depressing season for Arsenal fans. So with a number of markets closed today it’s likely to be a fairly quiet day ahead with Mario Draghi’s speech this afternoon being the highlight but there are a few interesting releases to look forward to over the remainder of the week. In terms of data we’ll be able to test the European inflation pulse this week with May CPI reports scattered over the next few days. The US calendar is slated with a number of releases which should help to sharpen up Q2 GDP forecasts and it’ll conclude with the May employment report and all-important payrolls print on Friday.

All that to look forward to but before we get there we’ve got a couple of important snippets to note from the weekend. The first is the G-7 meeting which finished on Saturday and appears to be best remembered for an unusually short six page final statement which was less than a third of the length of last year’s statement. Discussions over climate change and specifically the Paris accord appears to have been the main talking point with the US taking a separate stance and Merkel saying after the meeting that discussions with Trump had been “very unsatisfying” and that there “was no indication that the US will stay in the Paris agreement”. Trump has since said that the US will make a final decision on the Paris accord this week. The discontent and lack of common ground between the G-6 and US has perhaps been even further exaggerated by comments from Merkel since. Speaking at a campaign rally in Munich yesterday the Chancellor said that “the times in which we can fully count on others are somewhat over, as I have experienced in the past few days” and that “we Europeans must really take our destiny into our own hands”.

The other story to highlight is here in the UK where opinion polls continue to show a tightening gap in the race for next month’s General Election between the Conservative and Labour parties. After a YouGov/Times poll last Thursday revealed that the gap for the Tories had shrunk to just 5% at 43%-38%, the same pollster yesterday showed the gap as widening back, albeit modestly, to 7% at 43%-36%. Still, that is down from as high as 19% earlier this month. It is however worth noting that we are seeing some reasonable divergence between pollsters now. Indeed since the YouGov/Times poll last week, we have had 5 further opinion polls (including the aforementioned one yesterday) with the lead for the Tories ranging anywhere from 5% to 14%. Those polls have the Conservatives between 43% and 46%, and Labour between 32% and 38%. It does appear that methodological differences can mostly explain the wide ranging forecasts.

For those polls with narrower leads, namely YouGov and ORB, the polls assign probabilities based wholly or primarily on the self-reported likelihood of casting a ballot. Those showing a bigger lead, namely ICM and ComRes polls, based turnout on historical figures for demographic groups. As the FT highlights this would have improved accuracy in most previous elections but does risk coming unstuck if voter behaviour changes significantly.

That all said there is no doubt that these polls are being closely watched especially with there being just 10 days until the election now. The possibility of a hung parliament through the loss of a Tory majority, or a Tory majority that fails to dilute the hard Brexit wing are outcomes seemingly not out of reach. Sterling took a knock on Friday (-1.07%) and was down -1.78% over the week for its worst weekly performance since November. It’s worth noting that PM May and Labour’s Corbyn are due to take part in a live TV Q&A tonight at 8.30pm BST so that should be one to watch given the political weather of the last week.

In FX markets this morning the impact from Merkel’s comments and the G-7 meeting over the weekend has been fairly muted with the Euro down only -0.15% as we go to print. Meanwhile Sterling (+0.15%) is actually a little stronger in the early going versus the Dollar. In equity markets, with China out it’s been fairly quiet with the Nikkei (+0.16%), Hang Seng (+0.10%) and Kospi (+0.44%) a little higher, but the ASX (-0.56%) in the red. Unsurprisingly volumes are well below the usual daily average. It’s worth also adding that North Korea conducted another missile test early this morning however it appears to have been largely ignored in markets.

Quickly recapping Friday’s session now where, with markets already mostly packed up for the long weekend, the focus was largely on the economic data in the US. Most significant was the second release of Q1 GDP which saw growth revised up more than expected to +1.2% qoq (vs. +0.9% expected) from +0.7% in the initial flash estimate. That pushed the YoY rate up to +2.0% from the +1.9% previously reported. The core PCE reading was also revised up to +2.1% qoq. Growth in capex was revised up while both government purchases and inventories made a less negative contribution than first predicted. We also got a first look at corporate profits which revealed a -1.9% qoq decline, although the YoY rate of +3.7% still appears fairly solid. The BEA also cited special factors impacting the corporate profits figure in Q1 including legal settlements and that stripping these out, profits would have been flat in QoQ terms.

Away from that other data in the US and particularly indicators for Q2 growth appeared less encouraging. While headline durable goods declined less than expected in April (-0.7% mom vs. -1.5% expected), ex-transportation orders fell -0.4% mom (vs. +0.4% expected) following a big upward revision to the March reading while core capex orders were reported as being unchanged in April versus expectations for a +0.5% mom uplift. The Atlanta Fed revised down their Q2 growth forecast by four-tenths to 3.7% while the NY Fed’s measure is at 2.2% from 2.3%. Finally the University of Michigan consumer sentiment reading for May was revised down to 97.1 from 97.7 following downward revision to both current conditions and expectations. However 1y inflation expectations were left unchanged at 2.6% while 5-10y inflation expectations were revised up one-tenth to 2.4%.

Closer to home there was very little data of significance in Europe although it is worth highlighting that manufacturing confidence in Italy slipped from a near 10- year high, while consumer confidence also tumbled 2pts in May and to the lowest in over 2 years. European sovereign bond markets were actually fairly well bid on Friday although that was largely attributed to a bit of month end positioning with yields down anywhere from 2bps to 5bps generally. On the other hand 10y Treasury yields ended just 0.9bps lower at 2.247%. There was a bit of Fedspeak to note but it didn’t move the dial with Williams reiterating the need for a gradual and well communicated balance sheet unwind.

Meanwhile in equity land European bourses mostly finished in the red, albeit on very low volumes. The Stoxx 600 ended -0.20% to finish the week pretty much unchanged. The FTSE 100 (+0.40%) did however get a boost from the weaker Pound, while over in the US the S&P 500 (+0.03%) eked out another record high and in doing so rose for the 7th consecutive session which matches the longest streak this year set back in February. Amazingly the S&P 500 has now gone 231 sessions without retracing 5% from the peak. That is the longest run since 1996 and the sixth longest since the 1950s. The record is 394 consecutive sessions set back in the mid 90s so there is still some way to go to match that.

To this week’s calendar now. As noted before, with markets closed in both the UK (Bank Holiday) and US (Memorial Day) today it’s an unsurprisingly quiet start to the week with M3 money supply growth for the Euro area in April the only data due. We kick off Tuesday in Japan where the April retail sales and employment data is due. In Europe tomorrow we get Q1 GDP in France, CPI in Germany in May and confidence indicators for the Euro area in May. Over in the US tomorrow we’ll get personal income and spending for April along with the PCE core and deflator readings, followed by the March S&P/Case-Shiller house price index reading, May consumer confidence reading and May Dallas Fed manufacturing activity index print. Turning to Wednesday, the overnight data in Asia comes from China where the official May PMIs are due. In Japan we’ll get industrial production and housing starts. In Europe on Wednesday we get May CPI in France, Germany unemployment in May, April money and credit aggregates in the UK and the May CPI report for the Euro area. In the US on Wednesday we’ll get the Chicago PMI for May and April pending home sales print. Thursday kicks off in Japan again where Q1 capex data will be released along with the final manufacturing PMI revision. Manufacturing PMIs dominate the European session on Thursday with final readings due in the Euro area, Germany and France along with a first look at the periphery and UK. In the US we’ll also get the manufacturing PMI along with Q1 unit labour costs and nonfarm productivity, May ADP report, initial jobless claims, May ISM manufacturing and April construction spending. It’s a quiet end to the week in Europe on Friday with PPI for the Euro area in April the only data due. In the US it’s all eyes on the May employment report, while we’ll also get the April trade balance print.

Away from the data we’re light on Fedspeak this week with Williams (today), Brainard (Tuesday), Kaplan (Wednesday) and Williams and Powell (Thursday) the only scheduled speakers. Over at the ECB we’ll hear from Nowotny and Draghi (today), Liikanen (Tuesday) and Villeroy (Thursday). The BoJ’s Harada also speaks on Thursday. Other things to note this week are UK PM May’s televised Q&A tonight with opposition leader Jeremy Corbyn and the China-EU summit beginning on Tuesday in Brussels.