Overnight Sentiment: Off The Lows

With US markets already checked out ahead of the holiday day weekend, and Europe acting abnormally stupid (PIIGS bond spreads plunging, then soaring right back), there is little newsflow to report overnight, except for a key report that China loan growth is plunging in what is a major risk flag proudly ignored by all algos (but not the SHCOMP which dropped 0.7%). Futures have followed the now traditional inverse pattern of selling off early in the Asian session, then ramping following the European opening on nothing but vapors of hope. All that needs to happen today is a drop early in regular trading, following by a major squeeze on the third consecutive baseless rumor for the week to be complete, and for stocks to actually post an increase even as the EUR crashes and burns. Unless of course we get a rumor that Europe will be open on Monday even as the US is not there to bail out risk assets.

Full overnight summary via BofA:

Market action

The Asian bourses ended the week on a mixed note. Japan's Nikkei finished up 0.2%, the Hang Seng closed up 0.3% and the Korean Kospi rallied 0.5%. On the flip side, the Shanghai Composite dropped 0.7%, on concern that some of the biggest banks of China might not meet their loan targets amid an economic slowdown, dampening investor's sentiment. 

European equities are marginally higher, up 0.1% in the aggregate. If that holds for the rest of the day, the index will have advanced 1.3% over the past week. That would be the first weekly gain in May. At home, futures are pointing to a 0.3% higher opening, after closing 0.1% higher yesterday. 

In bondland, Treasuries are lower in the five- and ten-year maturities, while the long bond is unchanged, at 2.87%. Both the five- and ten-year yields are down 1bp, to 0.77% and 1.77%, respectively. In Europe, the UK gilt is bid 1bp, to 1.76%, while the German bund is 1bp higher, at 1.40%. Yields on the Italian and Spanish bonds are lower, but Spain's 10-year still remains above 6%, at 6.11%. 

The dollar is losing steam against other major currencies. The DXY index is down 0.4%. The weaker dollar is helping boost commodity prices. WTI crude oil is up 48 cents, to $91.14 a barrel, while gold is up $4.30 an ounce, to $1,563.55 an ounce. 

Overseas data wrap-up

Japan remains locked in deflation. The country's consumer price index excluding food and energy dropped 1.3% yoy in May, down from the prior month's 1.0% yoy drop. Japan suffers from deflation for several reasons, including a central bank that is reluctant to take the drastic measures necessary to break the country's cycle of deflation, a stronger yen that pushes the price of imported goods down and a relatively weak economy. All three conditions mentioned above are likely to continue for some time, meaning deflation will continue in Japan. 

Today's events

The only thing on the economic calendar today is the final release of the May University of Michigan Consumer Confidence index. Consensus is looking for no change from the preliminary reported 77.8.