Markit

This week, markets are likely to focus on US ISM Nonmanufacturing, services and composite PMIs in the Euro area (expect increases), ECB’s Monetary Policy Decision (expect no change in policy until further ahead), and Congressional testimony by Fed’s Yellen.

• Fed’s Fisher Says Economy Strengthening as Payrolls Rise (BBG)
• Russia Knows Europe Sanctions Ineffective With Tax Havens (BBG)
• EU Cuts Euro-Area Growth Outlook as Inflation Seen Slower (BBG)
• U.S. Firms With Irish Addresses Get Tax Breaks Derided as ‘Blarney’ (BBG)
• Portugal exits bailout without safety net of credit line (Euronews)
• Puzzled Malaysian Air Searchers Ponder What to Try Now (BBG)
• Barclays, Credit Suisse Battle Banker Exodus, Legal Woes (BBG)
• Germany says euro level not an issue for politicians (Reuters)
• Alibaba-Sized Hole Blown in Nasdaq 100 Amid New Stock (BBG)
• Obamacare to save large corporations hundreds of billions (The Hill)

After months of ignoring events in Ukraine, HFT algos suddenly, if one for the time being, have re-discovered just where the former USSR country is on the map, and together with the latest economic disappointment out of China in the form of its official manufacturing PMI which missed expectations for the sixth month in a row, futures are oddly non-green at this moment now that talk of a Ukraine civil war is the new black (after two months of ignoring the elephant in the room... or rather bear in the room). Lighter volumes, courtesy of holidays in Japan and UK, have not helped the market breadth and stocks in Europe are broadly lower with the DAX (-1.33%) and CAC (-1.19%) weighed upon by risk off sentiment and market positioning for the eagerly anticipated ECB policy meeting especially after the EU cuts its Euro-Area 2014 inflation forecast from 1.0% to 0.8%. But what's bad for stocks continues to be good for equities, and moments ago the 10Y dropped to a paltry 2.57%, the lowest since February... and continuing to maul treasury shorts left and right.

For the 6th month in a row, China HSBC Manufacturing PMI missed expectations. With a 48.1 flash print for April (vs 48.3 expectation) this is a very modest rise from March's 48.0 but is the 4th month in a row of contraction for the broader-based HSBC-version of the PMI (as opposed to the official more-SOE-biased version which remains in modest expansion). This is the longest streak of contraction since Oct 2012 (and the 3rd consecutive month of new order contraction). As if that was not enough to upset the 'recovery is around the corner' crew, home sales in China in the most recent (most frenetic typically) period, collapsed 47% year-over-year (and a stunning 65% in tier-2 cities). But apart from that - everything's great in the newly appointed largest economy on earth...

From Markit: "Although GDP may bounce back in the second quarter, the updated manufacturing numbers are not strong enough to offset the softer trend in the flash services PMI, suggesting that the underlying growth rate of the economy has weakened since late last year. The manufacturing sector continues to benefit from rising domestic demand, but weak overseas demand continues to mean export performance disappoints, with only modest growth of new export orders recorded again in April."

It is May Day, which means half the world - the half where welfare contributions to one's standard of living are off the charts - celebrate labor, or rather the lack thereof, by taking a day off. Which means virtually all of Europe is closed, as are Eurex and Euronext futures, and most European markets expect the UK. In light of the non-existent volume, futures are relatively unchanged despite the latest Chinese Mfg PMI disappointment (50.4, below the 50.5, expected but just above the prior print of 50.3), and of course yesterday's US GDP debacle which helped push the DJIA to a record high. The good news is that with volume even more miserable than usual, the few momentum ignition algos that are operating will have a field day with the now standard low-volume levitation that happens like clockwork if the news is bad, and also happens just in case if the news is bad.

On the heels of disappointing March data in China for Services and Manufacturing, China's "official" manufacturing PMI saw its lowest 'April' print on record (typically a period of renaissance post-New Year data snafus) missing expectations for the first time in 2014 and just marginally above last month's data (50.4, exp. 50.5, prev. 50.3) China is still in Schrodinger-land with "official' data (biased towards larger SOEs) in very modest expansion and Markit (weighted towards smaller - more realistic - entities) in considerable contraction. That China disappointment follows earlier data which saw Aussie PMI collapsed over 3 points in April to its lowest in 9 months with the deterioration broad-based across the key sub-components. As Goldman notes, production is now at its weakest in a year, employment remains in contraction and, most worryingly, new orders printed their largest contraction in 13 months. This is the 6th month in a row of Aussie manufacturing contraction.

The coming week will be busy in terms of data releases in the US; highlights include an improvement in consumer confidence, anemic 1Q GDP growth, and solid non-farm payrolls (consensus expects 215K). Wednesday brings advanced 1Q GDP - consensus expected a pathetic 1.1% qoq, on the back of what Goldman scapegoats as "weather distortions and an inventory investment drag", personal consumption (consensus 1.9%), and FOMC (the meeting is not associated with economic projections or a press conference). Thursday brings PCE Core (consensus 0.20%). Friday brings non-farm payrolls (consensus of 215K) and unemployment (6.6%). Other indicators for the week include pending home sales, S&P/Case Shiller home price index, Chicago PMI, ADP employment, personal income/spending, and hourly earnings.

Markit's US Services PMI dropped and missed expectations input and output prices soared, employment tumbled, and business activity slowed. Staffing levels increaed at the slowest pace since June 2012 and the latest expansion of new business was only slightly faster than the 18-month low seen in March, and weaker than recorded at any time in 2013. So much for that post-weather pent-up-demand surge...

• Russia raises interest rates to 7.5% (FT)
• Shanghai to Allow Raw Material Exchanges in Trade Zone (BBG)
• US, Japan Fail to Clinch Trade Deal (WSJ)
• 'We don't have a magic wand', says ECB's Constancio (Reuters)
• Tokyo Inflation Quickens to Fastest Since 1992 (BBG)
• Demand for Home Loans Plunges (WSJ)
• EU banks urged to grasp chance to raise capital (FT)

That February spike that was the catalyst for oh so much aggressive JPY selling and US equity buying and "see, we told you so, here comes the post-weather pent-up-demand exuberance" has been crushed by the sad and painful truth of reality. For the 2nd month in a row, Markit's US PMI dropped and missed expectations... despite weather being a thing of the past. Sadly the story gets worse, as Markit notes "on the inflation front, manufacturers experienced a further solid increase in average cost burdens in April," adding that pricing pressures, "will feed fears that the recovery remains on a weak foundation of intense price competition." Need moar snow...

• Ukraine's leaders say have U.S. backing to take on 'aggressors' (Reuters)
• Goldman Sachs Stands Firm as Banks Exit Commodity Trading (BBG)
• Obama reassures Japan, other allies on China as Asia trip begins (Reuters)
• China Challenges Obama’s Asia Pivot With Rapid Military Buildup (BBG)
• Google’s Stake in $2 Billion Apple-Samsung Trial Revealed (BBG)
• No bubble here: Numericable Set to Issue Record Junk Bond (WSJ)
• 'Bridgegate' scandal threatens next World Trade Center tower (Reuters)
• Supreme Court Conflicted on Legality of Aereo Online Video Service (WSJ)
• Barclays May Cut 7,500 at Investment Bank, Bernstein Says (BBG)

It has been exactly six days in which algos, reversing the most recent drop in the S&P with buying sparked by a casual Nikkei leak that the BOJ may, wink wink, boost its QE (subsequently denied until such time as that rumor has to be used again), have pushed the market higher in the longest buying streak since September, ignoring virtually every adverse macroeconomic news, and certainly ignoring an earnings season that is set to be the worst since 2012. Today, the buying streak may finally end on rumors even the vacuum tubes are scratching their glassy heads if more buying on bad or no news makes any sense now that even the likes of David Einhorn is openly saying the second tech bubble has arrived. Keep an eye on the USDJPY which has had seen some rather acute "trapdoor" action in early trading and is approaching 102 after breaching its 55-DMA technical support of 102.38. If the support is broken here we go again on the downside. Keep an eye on biotechs and GILD in particular - if the early strength reverts into more selling again (after the two best days for the biotech space in 30 months), the most recent euphoria phase is now over.

There is a reason why while Germany has been delighted to keep the Euro as its currency, in the process keeping a substantial discount to where the Deutsche Mark would be trading if it weren't for the implicit FX subsidies by ther Eurozone members, France has been increasingly more panicked and vocal about the soaring EUR. That reason became apparent this morning when Markit reported that France PMI for April both declined from the March print of 52.1, and missed expectations of 51.9, printing at 50.9. Same thing for the Services PMI which at 50.3, both missed expectations of 51.3, and dropped from 51.5. France's loss however was Germany's gain, which beat expetations across the board.

HSBC's (Flash) China Manufacturing PMI for April met expectations at 48.3 - holding at its 2nd lowest in 20 months. This is the 4 month of contraction and 4th month without a beat of expectations. April's flash (preliminary) print rose modestly over March's 48.0 but all sub-indices remain weak though some 2nd derivatives are shifting. Employment is worsening at a faster pace and new export orders contracted. While the world waits open-mouthed for the next Chinese stimulus (which they have now explained will be limited and targeted and not 2009-style) and bloviators expound on last night's RRR cut for rural banks (remember, they do not have a liquidity issue, banks are hording PBOC cash and not lending - due to credit risk concerns), it seems no matter what the PMI (weak, weaker, or weakest) the reforms are being stuck to, CNY is being allowed to weaken, and no new avalanche of credit creation (commodity-backed or not) is coming anytime soon.