Overnight Sentiment: Overbought, Underconfident

After rising in the overnight session following the overbought momentum chasing yesterday's hawkish tone by the Fed (don't ask), futures, European stocks, and sovereign spreads took a turn for the worse following the big miss in European confidence and sentiment, all of which posted material declines, and slid to two and a half year lows. And while the traditional upward stock levitation will resume once the European market close is in sight, only one thing can spoil the party and derail the most recent pseudo-hawkish statement out of the Fed: initial claims, which are expected to decline to 375-380,000 from 386,000 last week. Instead what will most likely happen is a print in the mid to upper 380,000s, while last week's number will be revised to a 390K+ print, allowing the media to once again declare that the number was an improvement week over week. In other words, SSDD.

Summary from BofA:

Market action

Overnight, Asian equity markets finished mixed but the MSCI Asia Pacific Index managed to increase 0.6% on the strength of the strong rally in the Hang Seng which climbed 0.8% easily offseting the modest weakness in the Shanghai composite (-0.1%) and the Indian Sensex (-0.1%). The Korean Kospi managed to finish 0.1% higher while the Japanese Nikkei finished mixed.

Earlier in the day in Europe, equity markets were trading higher but made a turn for the worse after an April report showed confidence remains weak in the Euro area and borrowing costs for Italy are on the rise. In the aggregate, European equities are down 0.3%. In the US, futures are pointing to a 0.1% sell off today after rallying 1.4% yesterday.

In bondland, Treasuries are bid as investors worry about the risks that the continued weakness in Europe poses to the global economic backdrop. Both the 10-year and 30-year Treasuries are 3bp lower to 1.95% and 3.12% respectively. In Europe, yields on the Italian 10-year are 4bp higher to 5.66% and the Spanish 10-year note is 8bp higher at 5.83%. Meanwhile, the UK gilt and German bund are both bid as investors rush to safe havens.

The dollar is weakening marginally in the currency markets with the DXY index down 0.1%. Commodities are mixed: WTI Crude oil is 19 cents cheaper at $103.93 a barrel and gold is $3.10 an ounce higher at $1,646.73.

Overseas data wrap-up

Korean's economy grew by 2.8% yoy in the first quarter of 2012, a bit lower than market expectations of a 3.0% yoy increase. The growth rate slowed modestly from the fourth quarter when the economy expanded by 3.3% yoy. Despite the weaker than expected GDP growth rate our Korean economist was encouraged by the strength of private consumption - which has been the main source of concern for Korea's 2012 growth prospects. We maintain our forecasts for 3.0% growth for the country in 2012 but the strength of the consumer puts upside risk to that forecast.

Today's events

The only thing on the economic calendar today is the initial jobless claims report released at 8:30 am. Initial jobless claims are expected to drop modestly to 380,000 for the week ending April 21 from 386,000 the week prior.