US futures entered the last day of a brutal week in the green ahead of key US jobs data, as regional banks clawed back some of their recent selloff, even as the S&P 500 benchmark was still poised for its worst weekly performance in almost two months. The S&P 500 contracts climbed 0.7% as of 7:30 a.m. ET while Nasdaq 100 futures gained 0.6%. European stocks were higher but on pace for their biggest weekly drop in 7 weeks. Treasury yields are ticking higher amid a more risk-on day, while the dollar is still weakening on recession risks and a potential pause in interest rate hikes. Oil is staging a rebound, though is still set for the worst week since mid-March, continuing its third weekly decline. Meanwhile, gold is headed for its biggest weekly advance since the middle of March, up around 2% this week, as traders look for havens. Iron ore slides, while copper is little changed.   

In premarket trading, distressed bank PacWest added 13% in US premarket trading, after it slumped 69% in the previous four sessions amid concerns that the collapse of First Republic Bank may not be the last in the troubled industry. Western Alliance Bancorp also rose 12% in premarket trading, having wiped out 51% of its market value earlier this week. While some investors have warned of further pain to come, others have suggested the bank rout has gone too far. “The tension between poor market sentiment and strong liquidity at regional banks is difficult to reconcile,” said Bloomberg Intelligence analyst Herman Chan. Apple rose as much as 2.5% after it reported better-than-expected revenue on robust iPhone sales, raised its dividend and expanded its buyback program. Coinbase and dating app Bumble were also among the best performers on Friday. Here are some other notable premarket movers:

• Atlassian falls as much as 16% in premarket trading after the software company forecast revenue for the fourth quarter that missed the average estimate. Analysts noted that a steep deceleration at its cloud business and the weak current-quarter forecast offset better-than-expected 3Q results.
• Carvana shares surge as much as 37% in US premarket trading, and are set for their biggest one-day gain in three months after the online second- hand-car retailer’s earnings beat estimates and it predicted a return to profitability in the second quarter. Analysts raised their price targets, positive on the company’s cost-cutting efforts even as challenges remain.
• Lyft slumped as much as 17% in premarket trading after the company forecast revenue for the second quarter that trailed the average analyst estimate. New CEO David Risher faces several challenges as he attempts to turn around the struggling ride-hailing company.
• Trupanion tumbled 48% in premarket trading, on course for its biggest-ever drop, after the pet-health insurer reported a first-quarter loss per share that was more than twice the average analyst estimate. Analysts note that price increases at vets during the quarter deepened losses.
• DoorDash shares rose as much as 5.1% in premarket trading, after the food-delivery company beat estimates, driven by strong demand for deliveries despite higher prices and a cloudy economic outlook.
• Bill Holdings Inc. shares climbed 15% in extended trading, after the financial software company raised its full-year forecast. Analysts are positive on the report.

While banking jitters will remain front and center, the focus on Friday shifts to the US jobs report (full preview here) and speculation that the Federal Reserve might start lowering interest rates in response to tighter credit conditions. Swap contracts are now showing around one-in-two odds of a cut as soon as July. Economists forecast that employers scaled back hiring in April, adding 185,000 jobs, and that the unemployment rate ticked up slightly from historically low levels last month; risks could be skewed to upside following blowout ADP report that estimated private payrolls rose 296k in April (vs. consensus 150k). Gordon Shannon, portfolio manager at TwentyFour Asset Management, predicts a jobs print below 150,000. “That’s going to cause a rally in risk assets as that further feeds into the idea that Powell is data-driven and therefore going to pivot soon,” he said in an interview with Bloomberg Television.

Following two months of gains, the S&P 500 kicked off May with a drop as investors fret over rising recession risks and the regional banking crisis. At the same time, swap traders are betting that the Federal Reserve is likely to reverse this week’s quarter-point interest-rate increase by July in response to tightening credit conditions. The Fed tightening pause, combined with signs of a slowing inflation and cooling labor market suggest the US might avoid a recession after all, according to Aneka Beneby, a senior portfolio manager at Julius Baer.

“I think equities are going to keep climbing the wall of worry because of the lack of a recession this year,” she said on Bloomberg TV. “The sectors that we like are tech, and those mega cap stocks show that they’ve been quite resilient. We also like healthcare, which is still quite cheap.”

While the Fed may have signaled this week its willingness to pause rate hikes, BofA's Michael Hartnett said it’s not yet time to buy equities as outflows accelerate amid elevated inflation and recession fears. Redemptions from global stock funds reached $6.6 billion in the week through May 3 — the most in more than two months, according to a note from the bank citing EPFR Global data. A “new structural bull market requires big Fed easing,” which in turn needs a “big recession,” Hartnett said.

To protect themselves against that threat of a downturn, investors are likely to favor gold and technology stocks as those bets are expected to provide a buffer, strategists at JPMorgan Chase & Co. said. “The US banking crisis has increased the demand for gold as a proxy for lower real rates as well as a hedge against a ‘catastrophic scenario,’” strategists including Nikolaos Panigirtzoglou and Mika Inkinen wrote in a note.

In geopolitics, the Pentagon is seeking a meeting between US Defense Secretary Lloyd Austin and his Chinese counterpart Li Shangfu in Singapore next month, in a renewed effort by the Biden administration to restart lines of communication with China’s military leaders. If Beijing accepts, this would represent the most senior in-person meeting between the two sides since an alleged Chinese spy balloon transited the US in February and sent relations to a new low. China has rebuffed multiple requests for a phone call with Austin or the chairman of the joint chiefs of staff, General Mark Milley, since then. A long-anticipated call between US President Joe Biden and China’s President Xi Jinping has also yet to take place.

European stocks are higher although still on course for their largest weekly fall in seven weeks. The Stoxx 600 is up 0.2% led by outperformance in the energy, mining and bank sectors. Adidas shares rise as much as 7.6%, the most intraday since February, after the German sportswear maker reported first quarter results that beat estimates and kept its outlook for the year. IAG shares gain as much as 5.8%, with analysts saying consensus estimates are likely to rise after a very strong first quarter, with the British Airways owner delivering an operating profit in the quarter. Here are some of the other most notable movers:

• Grifols gains as much as 6.7%  after Citi said it expects the blood plasma producer to report 1Q results at the top end of guidance, while fresh data from Argenx will be a “clearing event” for Grifols
• Scatec gains as much as 14%, the most since November, after the Norwegian renewables firm beat expectations on operating profit and Ebitda, marking a “good start to the year,” DNB writes
• Arkema shares climb as much as 3.1% after the France-based chemicals company reported 1Q Ebitda beat. Company confirms full-year 2023 Ebitda guidance, with Citi attributing the beat to core divisions
• Raiffeisen bounces as much as 4.3% after the Austrian lender’s earnings topped expectations and it raised its guidance, even as analysts flagged that it did not provide any update on its Russia operations
• Evotec shares fall as much as 10% after the German stock exchange operator said the biotech firm will be removed from the MDAX, HDAX and TecDAX indexes following the delaying of the release of its annual report
• InterContinental Hotels shares fall as much as 3.1% with analysts saying the net unit growth for the hotel operator in the first quarter was a touch light, as it also announced an unexpected CEO change
• Moncler falls as much as 2.7% after earnings, with analysts saying the solid print may not be enough to excite given high expectations into the print after a strong season for its luxury rivals
• Galp shares drop as much as 3.5% after the Portuguese oil company’s first quarter adjusted net income missed the average analyst estimate, with Jefferies highlighting weak operating cash flow
• Clariant falls as much as 2% after the Swiss chemical company’s 1Q adjusted Ebitda missed estimates, as analysts flag weaker demand and a difficult macroeconomic environment

Earlier in the session, Asian stocks advanced for a second day as the dollar continued to weaken, with traders shrugging off concerns over further stress among regional US banks. The MSCI Asia Pacific Index rose as much as 0.4%, led by real estate shares. Some markets in the region, including Japan and South Korea, were shut for holidays. Hong Kong shares outperformed their regional peers. Asian lenders have been resilient amid deepening US banking woes, with a regional financials gauge poised for a 0.8% increase this week. Investors will watch for any potential moves by US authorities to limit further contagion risks. Also helping sentiment were signs that the Federal Reserve may be reversing its policy tightening campaign. The regional stock benchmark headed for a 1.2% increase this week, the first weekly gain in three. US payroll figures due later Friday will give further cues on the strength of the job market and where interest rates are headed.  

Mainland Chinese stocks slipped on Friday after latest data showed the pace of expansion in services activity softened in April, adding to jitters about an uneven economic recovery. The surge in tourism spending during the Golden Week holidays did little to offset the surprise weakness in the manufacturing sector and lackluster earnings. Right now sentiment is “frustratingly weak” as the market is looking at economic data “with a glass-half-empty lens,” James Wang, head of China strategy at UBS Investment Bank, told Bloomberg TV. “Investors will be more ‘data-dependent’ going forward, and they are also wondering if they should invest directly through Chinese equities or other asset classes.”

Australian stocks gained led by property: the S&P/ASX 200 index rose 0.4% to close at 7,220.00, boosted by real estate and mining shares. Still, the benchmark dropped 1.2% for the week, a third straight loss. The advance comes as investors weighed the prospect of the Federal Reserve reversing its policy-tightening campaign ahead of US jobs data due later Friday. Oil edged higher. In New Zealand, the S&P/NZX 50 index fell 0.7% to 11,889.01.

Indian equities were the worst performers in Asia, dragged down by a sharp selloff in top lender HDFC Bank and its mortgage lender parent, which plunged on worries over potential outflows upon completion of their merger. The S&P BSE Sensex fell 1.1% to 61,054.29 in Mumbai, while the NSE Nifty 50 Index declined 1%. For the week, the gauges were little changed. Domestic stocks had largely rallied from their April lows through Thursday as the earnings season progressed, with banks reporting strong profit growth for the March quarter. The gains were also a result of inflows from foreign investors. “The market has rallied sharply in the last one month and such short term corrections would relieve the overbought set-ups and form a base for the next rally,” according to Ruchit Jain, analyst with 5paisa.com said.

In FX, a gauge of the dollar fell as much as 0.2% as traders waited for US jobs data due later on Friday for more clues on the Federal Reserve’s interest-rate path. The Swiss franc is the weakest of the G-10 currencies, falling 0.6% versus the Greenback after data showed CPI slowed in April.  “Markets will watch closely the US non-farm payrolls tonight,” Michael Wan, senior currency analyst at MUFG Bank Ltd., wrote in a note. “Any whiff of meaningful labor market softening will be seen as validating the Fed’s recent decision to turn more data dependent and dovish”

In rates, treasuries were slightly cheaper across the curve ahead of April jobs report, as stock futures advance and pare portion of Thursday losses. Regional banks are higher in pre-market, while Apple also rose after reporting that sales of iPhones rebounded last quarter. Wider losses seen across core European rates adds to downside pressure on Treasuries. Treasury yields cheaper by 2bp to 3bp across the curve with spreads broadly within one basis point of Thursday close; 10- year yields up to around 3.40%, toward top of Thursday range with bunds and gilts underperforming by 5.5bp and 8bp in the sector.  Bunds have given back some of Thursday’s post-ECB rally with German two-year yields rising 6bps to 2.54%. Treasuries are also lower ahead of the US jobs report due later today.

In commodities, crude futures advance with WTI rising 1.4% to trade near $69.50. Spot gold falls 0.6% to $2,039.

Bitcoin is firmer and holding steady above the USD 29k, holding towards the top-end of USD 28.7-29.5k.

To the day ahead now, and the main data highlight will be the US jobs report for April. Otherwise, we’ll get German factory orders and French industrial production for March. From central banks, we’ll hear from the Fed’s Bullard and Book, along with the ECB’s Simkus and Elderson.

Market Snapshot

• S&P 500 futures up 0.3% to 4,089.50
• MXAP up 0.3% to 162.20
• MXAPJ up 0.4% to 517.18
• Nikkei up 0.1% to 29,157.95
• Topix down 0.1% to 2,075.53
• Hang Seng Index up 0.5% to 20,049.31
• Shanghai Composite down 0.5% to 3,334.50
• Sensex down 0.8% to 61,250.67
• Australia S&P/ASX 200 up 0.4% to 7,220.01
• Kospi little changed at 2,500.94
• STOXX Europe 600 little changed at 460.59
• German 10Y yield little changed at 2.24%
• Euro up 0.1% to $1.1026
• Brent Futures up 1.1% to $73.32/bbl
• Gold spot down 0.5% to $2,039.77
• U.S. Dollar Index down 0.11% to 101.29

Top Overnight News from Bloomberg

• China’s Caixin services PMI for April falls a bit short, but holds solidly above 50 (it came in at 56.4, down from 57.8 in Mar and below the Street’s 57 forecast). BBG
• Australia’s RBA cut its forecasts for inflation, wages, and GDP this year as monetary tightening weighs on the economy. BBG
• Eurozone retail sales dropped by a bigger than expected 1.2 per cent as inflation and rising borrowing costs took their toll on consumer spending in March. The decline meant retail sales had fallen 0.4 per cent in the first quarter, following a 1 per cent drop in the previous quarter, economists said, as they pointed to a weakness in underlying demand. FT
• German factory orders fell 10.7 per cent in March from the previous month, a much bigger drop than economists expected, raising concerns about a sharp slowdown in Europe’s biggest economy. The slide in new orders for manufacturers, the biggest since pandemic lockdowns hit in April 2020, reflected declines in all sectors except consumer goods, the federal statistical office said on Friday. FT
• Rishi Sunak’s Conservatives on Friday faced crushing losses in UK local elections as voters in many parts of England turned against the party after a tumultuous year. FT
• Adidas shares rally in Europe after the company’s Q1 results reassure investors (numbers came in ahead of plan and mgmt. reaffirmed guidance for the year). RTRS  
• U.S. federal and state officials are assessing whether "market manipulation" caused the recent volatility in banking shares, a source familiar with the matter said on Thursday, as the White House vowed to monitor "short-selling pressures on healthy banks." RTRS
• Fed balance sheet data – outstanding balances on the Big 3 categories being watched closely (Primary Credit/Discount Window, Bank Term Funding Program, and Other Credit) totaled $309.2B as of 5/3, down from $325.4B as of 4/26. Fed
• Activist investor Nelson Peltz told the Financial Times that the deposit insurance limit should be increased, with wealthy account holders paying a small insurance premium to the federal insurance fund to safeguard balances of more than $250,000. FT
• GIR estimates nonfarm payrolls rose 250k in April (mom sa), above consensus of +182k but a slowdown from the +345k average pace of the last three months. We believe high but falling labor demand more than offset continued layoffs in the information and financial sectors and a roughly 25k hiring drag from reduced credit availability. Big Data employment indicators were strong on net, arguing against a large credit drag. GIR

A more detailed market look courtesy of Newsquawk

APAC stocks traded mixed after the weak lead from the US where risk sentiment was subdued by banking-related headwinds and amid holiday-thinned conditions in Asia due to closures in Japan and South Korea. ASX 200 was choppy amid indecision in the top-weighted financial industry after ANZ Bank’s earnings which showed H1 cash profit rose to a record although the Co. warned of increased difficulties in H2, while the RBA’s quarterly Statement on Monetary Policy stuck to the hawkish script. Hang Seng and Shanghai Comp. diverged with the Hong Kong benchmark led higher by strength in tech and property stocks, while the mainland is pressured after Chinese Caixin Services and Composite PMI data which showed the pace of China’s services activity slowed by more than expected but remained at a firm expansion.

Top Asian News

• A bipartisan group of US senators introduced legislation that would allow US President Biden to sign a tax agreement with Taiwan and which addresses an issue viewed as a barrier for further investment, according to Bloomberg.
• RBA Statement on Monetary Policy reiterated to do what is necessary to return inflation to the target and that some further tightening may be required to reach the target in a reasonable timeframe. RBA added that the longer inflation remains above target, the greater the risk of a price-wage spiral, as well as noted that goods disinflation is limited so far and energy price inflation is to stay high this year, while rent growth is to pick up and materially added to inflation out to mid-2025.
• Earthquake early warning issued for Japan's Ishikawa prefecture, intensity of 6 on Japan's 1-7 scale, prelim magnitude of 6.3 (rev. 6.5), according to JMA; Japan earthquake has shaking intensity of 6+ on scale of 7, according to NHK; No tsunami warning issued.
• China's State Planner to study a new round of pork purchases for reserves, amid weakening prices..

European bourses are firmer, Euro Stoxx 50 +0.3%, somewhat shrugging off the mixed APAC handover where regional banking concerns served as a headwind in holiday thinned conditions. The DAX 40 +0.7% is the marked outperformer, aided by German electricity adjustments and strong Adidas earnings, +7.8%; sectors are more of a mixed bag, with Energy outperforming while Travel/Healthcare lag. Stateside, futures are firmer and have been edging slightly higher in typically contained pre-NFP trade after yesterday's regional banking induced pressures, ES +0.5%. Alibaba's (BABA) Ant Group's transformation into a fully regulated company has reportedly been held up by a reshuffle of China's financial-regulatory system, according to WSJ sources. Cigna Group (CI) Q1 2023 (USD): Adj. Operating EPS 5.41 (exp. 5.22), Revenue 46.4bln (exp. 45.55bln); raises FY23 outlook.

Top European News

• German Economy Ministry is proposing a industrial electricity price of EUR 0.06/KWh until 2030, would cost EUR 25-30bn. Funding to be taken from fund initial created for COVID. Reduced price would be valid for 80% of base power consumption.
• Sky News noted it is early days regarding the UK local council election results but suggested there are currently encouraging signs in the data for the opposition Labour Party, whilst Conservative MP Mercer said his party is having a "really terrible night".
• ECB's Villeroy says the alteration in rate increase rhythm is an important signal, favours smaller ECB hiked. Will likely be several more hikes; though, we have done the essential. Goal is to win the fight against inflation, without sparking a recession. Will bring inflation back to target by 2025 maybe even by end-2024.
• ECB's Simkus says May's hike was not the last, concerns that core inflation remains high.
• ECB's Muller says yesterday's rate hike will not be the last; no sign yet of core inflation easing.
• ECB Survey of Professional Forecasters: 2023 inflation cut to 5.6% from 5.9%, 2023 growth upgraded to 0.6% from 0.2%.

FX

• Hawkish RBA SOMP helps Aussie outperform and probe 200 DMA vs Greenback at 0.6728.
• Franc deflated after softer than forecast Swiss CPI even though SNB Chief Jordan repeats that further hikes cannot be ruled out given still very high underlying inflation; USD/CHF and EUR/CHF above 0.8900 and 0.9800 respectively
• Dollar drifting into NFP with DXY keeping afloat to 101.000 within a tight 101.110-370 range.
• Sterling sets fresh 2023 best beyond 1.2600, Loonie pares losses on 1.3500 handle ahead of Canada's LFS and Euro retains 1.1000+ status amidst more big option expiries, disappointing EZ data and hawkish ECB rhetoric.
• PBoC set USD/CNY mid-point at 6.9114 vs exp. 6.9128 (prev. 6.9054)
• Russia's Lavrov says we accumulated billions of IMR in Indian banks and needs to convert them into other currencies.

Fixed Income

• Debt retraces further from post-Fed/ECB peaks as risk appetite recovers ahead of NFP.
• Bunds also take heed of hawkish-leaning ECB commentary between 136.74-19 bounds.
• Gilts down in sympathy within a 101.71-23 range and T-note treading water above 116-00 inside tight 116-03/12 band.

Commodities

• Crude benchmarks are firmer, in a continuation of the complex's upward momentum which commenced in Thursday's session; albeit, WTI and Brent are still markedly down on the week.
• Overall, the complex remains firmly focused on growth concerns and banking-sector woes with broader market action awaiting the upcoming NFP report for the next scheduled catalyst.
• Spot gold is incrementally lower, in a USD 2038-2053/oz range after a week of marked gains for the yellow metal. Conversely, base metals are predominantly softer as the DXY attempts to lift off worst levels and after the mixed APAC trade.

Geopolitics

• Chinese Foreign Minister Qin, on meeting with Russian Foreign Lavrov, said China will persist in promoting peace talks and is willing to maintain communication and coordination with Russia to make tangible contributions to a political settlement of the Ukraine crisis, according to Reuters.
• White House said it is not clear right now that China can put forth a peace plan that Ukrainian President Zelenskiy will support, according to MSNBC.
• White House National Security Adviser Sullivan said we will take the necessary action to ensure Iran does not acquire a nuclear weapon and said the US still wants a diplomatic solution to Iran's nuclear program. Sullivan also commented that he will be in Saudi Arabia this weekend to meet with Saudi leaders and that the US is still working towards the goal of a deal normalising relations between Israel and Saudi Arabia.
• Reports suggest a drone attack causes fire at Ilsky refinery in Southern Russia, according to Tass.
• Russia's Foreign Minister Lavrov reiterates we will not say if the drone attack on the Kremlin is a case for war, but we will respond.
• Russia's Wagner group head Prigozhin says their forces will leave Bakhmut on May 10th, forces have to do this due to a lack of ammunition.

US event calendar

• 08:30: April Change in Nonfarm Payrolls, est. 185,000, prior 236,000
  • Change in Private Payrolls, est. 160,000, prior 189,000
  • Change in Manufact. Payrolls, est. -5,000, prior -1,000
  • Unemployment Rate, est. 3.6%, prior 3.5%
  • Underemployment Rate, prior 6.7%
  • Labor Force Participation Rate, est. 62.6%, prior 62.6%
  • Average Weekly Hours est. 34.4, prior 34.4
  • Average Hourly Earnings YoY, est. 4.2%, prior 4.2%
  • Average Hourly Earnings MoM, est. 0.3%, prior 0.3%
• 15:00: March Consumer Credit, est. $17b, prior $15.3b

DB's Jim Reid concludes the overnight wrap

We have another bank holiday in the UK on Monday, and I'll be going to my first ever street party to help celebrate the Coronation. I've done well to escape one so far in life but my luck has now run out. If something significant breaks in the US regional bank world over the weekend we may still do an EMR on Monday but if not we'll see you on Tuesday.

There's no doubt that this is a nervous time for markets as we wait for the next series of resolutions in the US regional banking crisis. Will there be broader deposit guarantees, agreed sales, stressed takeovers or will they manage to organically work their way through their issues? Whatever happens in the next few weeks, the problem is we are not yet in the likely recession where there will be economy-led asset write downs rather than just the mark to market ones, often on high quality bonds, that we have today. The other scary thing is that the attacks are increasingly looking speculative but risk becoming self fulfilling. So it's certainly not just about fundamentals. Regardless, it's going to be a long, bumpy and stressful ride over the next few quarters.

Indeed it's a US regional bank headline crossfire at the moment and perhaps the most impressive thing over the last 24 hours was that the S&P 500 only closed -0.72% lower when the KRE regional bank index was down -5.45%. Having said that, the S&P 500 lost ground for a 4th consecutive day for the first time since February, just as the VIX index of volatility closed back above the 20-mark for the first time since March. The wider KBW Banks index (-3.82%) hit another two-and-a-half year low as every member of the index lost ground.

In terms of the latest developments, investors have continued to focus on a few specific regional banks, including PacWest Bancorp (-50.62%), Western Alliance Bancorp (-38.45%) and First Horizon (-33.16%). News about them continued to swirl through the day, with the FT reporting that Western Alliance were exploring options, “including a potential sale of all or part of its business”. However, Western Alliance themselves pushed back on this, saying that the story was “absolutely false”. Other banks weren’t immune to the contagion either, with losses for Zions Bancorp (-12.05%), Comerica (-12.28%), Citizens Financial Group (-5.22%) and Truist Financial Corp (-6.83%). Toward the end of the US trading session there were reports that the FDIC was planning to unveil a proposal as soon as next week that would see larger banks bear the majority of cost of refilling the Deposit Insurance Fund, which has been depleted in recent weeks. The reports indicated that banks with fewer than $10bn in assets would be exempt, additionally the size of deposits will also be a qualifying criteria. There was a bit of a recovery in US regionals after the bell with for example Western Alliance up around +9% and this erasing a quarter of its regular session losses. S&P futures are back up +0.38%, with the Nasdaq equivalent +0.48%, helped by Apple beating on earnings overnight.

Even in the regular session, the megacap tech stocks were impressively immune from the fallout, with the FANG+ index +0.95%. In terms of details on the Apple beat after the bell, they exceeded forecasts on revenue ($94.8bn vs $92.6bn estimates) even as sales fell 2.5% - which was not as bad as the company guided to. The technology company was trading up +2.5% in after-market trading even as revenues are expected to fall in the current quarter. Otherwise, the Dow Jones (-0.86%) was back in negative YTD territory (-0.06%) before this once again after its latest decline, with the Russell 2000 (-1.18%) index of small-cap stocks closing at a 6-month low.

With the turmoil continuing to gather pace, investors moved to price in the growing chance of rate cuts from the Fed over the rest of the year. For instance, the rate priced in by the December meeting came down by -7.2bps on the day to 4.18%, which is its lowest in nearly a month. The July meeting now sees a 52% probability of a rate cut. This all helped drive a move lower in sovereign bond yields, particularly at the front end, where the 2yr Treasury yield fell -1.5bps to 3.790%, which was its lowest level in almost 8 months. In the meantime, the 10yr yield saw a +4.3bps increase to 3.379%, after being down -4.3bps midday. 2s10s is no more than a couple of basis points off it's steepest levels of the last 7 months.

Back in Europe, the main news yesterday came from the ECB’s latest policy decision, where they announced a 25bps rate hike that leaves the deposit rate at a post-2008 high of 3.25%, in line with expectations. Although the hike was actually the smallest since their current hiking cycle began last July, there were plenty of hawkish details in the decision. First, they said that they expected to stop the reinvestments under their Asset Purchase Programme as of July. Second, ECB president Lagarde said there were still “significant” upside risks to the inflation outlook. And third, they made clear that there were more rate hikes to come, with Lagarde herself saying “we have more ground to cover and we are not pausing”. See our economists review of the meeting here. They continue to see a terminal of 3.75% with risks skewed towards 4% or even higher.

With the ECB striking a hawkish note, markets reacted by fully pricing in a 25bp hike at their next meeting in June. However, sovereign bond yields still fell back across the continent since investors were more concerned about the US banking system, meaning that yields on 10yr bunds (-5.7bps) and OATs (-3.9bps) were down while BTPs (+0.4bps) were just higher than unchanged on the day. It was much the same story for equities too, with the STOXX 600 (-0.47%) losing further ground as STOXX 600 banks (-1.46%) led the declines.

Whilst recession fears continued to gather pace in markets, one positive side effect for consumers has been the continued decline in commodity prices. Despite a marginal rise yesterday (+0.11%), the Bloomberg’s Commodity Spot Index hit its lowest level since December 2021 on Wednesday, which will be a positive tailwind on the inflation side over the coming months. In part that was driven by lower oil prices, with Brent crude down -8.80% on the week, despite a marginal rise yesterday (0.24%) to $72.50/bbl, which is a level we also haven’t seen since December 2021. At the same time, European natural gas prices (-2.72%) continued their relentless moves lower of late, with the latest move taking them to just €35.65/MWh, marking their lowest level since July 2021.

Looking forward now, the main highlight on today’s calendar will come from the US jobs report for April, which will be an important one for the Fed as they consider whether to pause on rate hikes at their next meeting. Our US economists at DB are looking for nonfarm payrolls to have grown by +150k, which if realised would actually be the slowest monthly growth since December 2020. In turn, that would lift the unemployment rate by a tenth to 3.6%. When it comes to wages, their view is that average hourly earnings growth will remain steady at +0.3%, keeping the annual rate at +4.2%. The release will set us up for the CPI report .

Asian equity markets are mixed this morning with the Hang Seng (+0.54%) leading gains alongside the S&P/ASX 200 (+0.30%). Meanwhile the CSI 300 (-0.58%) and the Shanghai Composite (-0.71%) are currently trading in the red. Elsewhere, markets in Japan and South Korea are closed for a holiday.

Early morning data showed that China's service activity grew for a fourth straight month in April, continuing its post-Covid recovery, albeit with the Caixin services PMI falling to 56.4 in April from 57.8 in March. Meanwhile, in central bank news, the Reserve Bank of Australia (RBA) in its May statement on monetary policy indicated that it still sees ‘further tightening’ of monetary policy in order to return inflation to target.

Here in the UK, we got some more positive data releases yesterday, which comes ahead of the Bank of England’s decision next Thursday. That included mortgage approvals for March, which came in at a 5-month high of 52.0k (vs. 46.0k expected). Furthermore, the final composite PMI for April was revised up a full point from the flash reading to 54.9, which takes it to its highest level in a year. Keep an eye out on the UK political situation as well today, since local election results will be coming through that’ll offer a better sense of how the political parties are performing ahead of the next general election. Early results don't look good for the ruling Conservative Party.

To the day ahead now, and the main data highlight will be the US jobs report for April. Otherwise, we’ll get German factory orders and French industrial production for March. From central banks, we’ll hear from the Fed’s Bullard and Book, along with the ECB’s Simkus and Elderson.