Crude

Well, risk is on. Not so much because of the ECB, or BOE, both of which did nothing, but because everyone is hoping and praying that in two weeks the Princeton professor will unleash the 4th round of quantitative easing in the US (yes, Twist was a flow-shifting operation and thus QE3). And the reminder that China is not immune, and did its first rate cut since 2008 only validated the realization "that they have every idea just how bad it is", as Cramer would say. Sure enough, risk is ripping, although considering the world's 2nd largest economy just joined the monetary easing pants party, the 10 point ES response is oddly subdued. Where the reaction is yet to manifest itself is in gold: we expect the PBOC will take a little longer before it announces its meager 1000 tons of gold holdings have at least doubled following 100 ton/month gold imports as recently announced. But announce it will. In the meantime, China's aggressive step likely means that unless we get a global coordinated intervention at 9 am today, as was the case on November 30 after the last notable move by the PBOC, which was the first reserve cut also since 2008, there will be none this time around and Bernanke will be on his own. God save the markets if he does not deliver, either today at the JEC testimony at 10 am or at 2:15 pm on June 20, as the S&P has now priced in at least 75 points of NEW QE intervention.

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That former San Fran Fed chairman Janet Yellen would demand more easing is no surprise: she used to do it all the time. That Fed Vice Chairman, and Bernanke's second in command, Janet Yellen just hinted that she is "convinced that scope remains for the FOMC to provide further policy accommodation either through its forward guidance or through additional balance-sheet actions", and that "while my modal outlook calls for only a gradual reduction in labor market slack and a stable pace of inflation near the FOMC's longer-run objective of 2 percent, I see substantial risks to this outlook, particularly to the downside" is certainly very notable, and confirms everyone's worst dream (or greatest hope assuming they have a Schwab trading platform or Bloomberg terminal) - more cue-EEE is coming to town.

10 Minutes to go until the ECB.... very likely disappoints again. As it usually does. There is simply too much pent up hope in what Mario Draghi will say or do, as always happens at critical junctions for the insolvent continent. Recall the same happened in November, only for the world to have to bail out Europe following a non-announcement by the ECB as Europe was imploding. Finally, why should the ECB do anything, when the public debate has already started about the US bailing out Europe: why should Draghi further infurtiate Germany's taxpayers when it has a free put option on Bernanke doing what he does best in two weeks. But for now: RISK ON. For at least a few more minutes.

Germany remains vehemently opposed to any euro-wide deposit guarantee scheme as the head of the association of savings banks believes it: "would lead to a spreading of risks to the detriment of German financial institutions" and that this would "increase the burden for national protection schemes, which is not in the interest of German banking clients". Not exactly encouraging and along with the fact that Goldman notes that Germany's 'growth plan' (which includes increasing EIB capital and redirecting existing funds to the periphery) with which it will attempt to bolster its opposition to soaking up more peripheral risk, contains 'nothing really new in it'. For this reason Goldman is far less sanguine heading into the ECB meetings as they hope for the best and prepare for the worst. They expect Draghi's forward-looking statements on being ready to act, conditional on events in the periphery, will be the most important headlines but expect him to remain stoic in his position on governments contributing to the solution. Goldman's view remains that, at least for the time being, the ECB has to play a leading role in stabilising the system (though SMP remains marginalized given its potential to sit outside of the ECB mandate) given that it can operate more quickly and more effectively, given the many political constraints governments face. A genuine long-term solution, however, falls once again in the domain of governments.

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We all know that things are bad and getting worse. Goldman's Jan Hatzius take this opportunity to summarize all the various ways in which the global economy is floundering and once again floats the Goldman solution to everything: More QE, this time with a Bill Gross twist, pun and all, where the Fed again pulls a 2009 and goes for MBS: "Our confidence that the FOMC will ease policy once more at the June 19-20 meeting has also grown... Our baseline remains that Fed officials will purchase a mixture of mortgages and long-term Treasuries, financed via balance sheet expansion and possibly coupled with an extension of the forward guidance into 2015. This would be considerably more powerful than an extension of Operation Twist or other ways of changing the composition of the balance sheet, which are possible alternatives but are limited by the relatively modest amount ($200bn) of short-term paper that is still available for sale on the Fed's balance sheet." Well, if anything, global or Fed-based easing will most likely not come before the Greek June 17 elections - after all Greek confidence has to be crushed heading into the Euro referendum, and the only way to do this is by facilitating collapsing markets. So those hoping for a groundbreaking ECB announcement on June 6 will be disappointed. But June 20? That is fair game. We look forward to seeing PIMCO MBS holdings rise to a new all time high when the monthly TRF update is posted in a few days. Also look for something like this in the EURUSD if and when Bernanke surprises few at 2:15 pm on June 20.

The absence of the UK from today’s trade is particularly evident, with volumes remaining particularly light across all asset classes. Nonetheless, European equities are largely seen drifting higher with the exception of the DAX index, which is yet to move over into positive territory. News flow remains light with the highlight of the day so far being comments from the Troika, confirming that Portugal remains on track with its bailout program, and have confirmed that the country will receive the next EUR 4.1bln tranche in July. FX moves remain in a tight range, with EUR/USD looking relatively unchanged, with the USD index slightly weaker as the US comes to market. Looking ahead in the session, participants can look forward to US ISM New York and Factory Orders data as the next risk events of the session.

One word explains the overnight action: confusion. After opening down 10 points just shy of unchanged for the year following fearful Asian trade, futures have rebounded and are now almost unchanged courtesy of a UK-market which is offline for the next two days, letting Europe take advantage of another day of impotent rumor-mongering and wolf-crying, this time focusing on a 7pm press conference in which Merkel will say more of the same vis-a-vis Europe's non-existence Banking Union, but at least Europe will have closed at the highs. Not much on today's docket so expect more kneejerk reactions to rumors, which have a positive half-life measured in the minutes.

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Just about an hour before the US non-farm payroll number is expected to print, and finally resolve the lingering question whether the Chairman will print in 3 weeks, things in Europe have gone from horrible to zombie.  A series of horrendous economic reports out of Europe including record Eurozone unemployment, a confirmation of the final European PMI plunge including the second largest monthly decline on record in UK manufacturing, and various soundbites from Syriza's Tsipras, have pushed the EUR to fresh two year lows, Spanish CDS to new all time wides German 2 Year bonds joining Switzerland in negative terriroty, and finally, Bloomberg, as noted earlier, to be "testing" a placeholder for a post-Euro Drachma.  As BBG summarizes: "European markets fall, led by consumer & tech stocks with the German market underperforming. The euro falls against the dollar and German 2-yr yields drop into negative territory. Chinese manufacturing PMI data below expectations, though above the 50 level; European manufacturing PMI in line with expectations, below 50. Euro-zone unemployment met expectations and seems likely Irish voters endorsed the EU fiscal treaty. Commodities fall, led by oil & natural gas. U.S. nonfarm payrolls, unemployment data due later." In summary - all data today fits with Raoul Pal's less than optimistic presentation from yesterday.

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Risk-averse sentiment dominated the session yet again as market participants continued to focus on Spain and speculated whether the country will soon be forced to seek some sort of monetary assistance. As a result, credit markets continued to deteriorate, with the EURUSD cross-currency basis-swaps under pressure, while the spread between Spanish and German benchmark bonds widened to a fresh Euro-era wide level. Less than impressive demand for the latest Italian debt issuance where 2017 was underbid by EUR 0.20, while the 2022 issue was underbid by EUR 0.30 also resulted in aggressive bond yield spread widening. However, as we head into the North American open, reports that the EU is willing to envisage direct ESM bank recapitalizations saw Bunds spike lower by around 33ticks and EUR/USD by 44pips to the upside. EU stocks made an impressive recovery, but remain in negative territory. Going forward, the second half of the session will see the release of latest housing data (pending home sales), as well as the weekly API report.

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All you need to read and some more.