With all eyes on crude, following last night’s mini flash crash which sent WTI lower by 3% from just above $ 45 to under $ 43 in under 10 minutes, equity markets, generally quiet overnight, have taken on a secondary importance ahead of today’s key risk event, the April payrolls report (full preview here). In global equities, Asian and European stocks are lower, while S&P futures are little changed.

The main in the overnight session was oil’s sudden slide below $ 45 a barrel for the first time since OPEC agreed to cut output in November. As noted earlier, in less than 10 minutes on Friday, U.S. futures slumped more than $ 1 amid a surge in volume, launching a modest scramble into safe haven assets such as Treasurys, yen and gold. They have collapsed 8.6 percent this week, erasing all gains since the Organization of Petroleum Exporting Countries signed a six-month deal in November to curb production and ease a global glut.

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Things only began to stabilize when Saudi Arabia’s OPEC chief did the usual jawboning routine, hitting the wires in European hours and saying there was a growing consensus among oil pumping countries that they needed to continue to “rebalance” the market. Specifically, the Saudi OPEC governor’s comments that: “A six-month extension (to production cuts) may be needed to rebalance the market, but the length of the extension is not firm yet.” Which while nothing new, provided a floor to the overnight dump and a signal to BTD.

As a result of the plunge, which has since mostly recovered, the Bloomberg Commodity Index slumped to lowest in a year, weighed by oil and iron ore. “Markets are losing faith that the global inventory glut will disappear on OPEC’s cuts,” said Michael Poulsen, an analyst at Global Risk Management Ltd.

Following the unexpected snap, stocks flinched both in Asia and Europe, catching investors that had been expecting to spend the day mostly looking ahead to U.S. jobs data and Sunday’s French elections, on the back foot. “The whole commodity complex has been affected by this and it could have some pretty big implications if it continues for much longer,” said Saxo bank’s head of FX strategy John Hardy. “If you look at global risk appetite, equities have been pretty quiet and that feeds into FX as well if carries on and there is a risk switch.”

As Reuters adds, oil wasn’t the only commodity that suffered, with Chinese iron ore futures falling almost 7% in Shanghai after tumbling 8% on Thursday. The Canadian dollar, the Australian dollar and Russia’s rouble – the world’s commodity- sensitive currencies – were all sent spinning, falling respectively to 14-month, four-month and seven-week lows.

Today’s key event is the April payrolls number. Following that soft 98k reading in March (which was more than likely weather-related) the market consensus for today’s print is a more sturdy 190k number. DB expects this rebound to be driven by two main factors. The first is initial jobless claims remaining near a roughly four-decade low and the second being that employee tax withholding receipts are growing at a very healthy rate, indicating a pick-up in income growth. It is worth adding though that while the ADP print earlier this week was fairly solid the employment components from the two ISMs has revealed some softening so that might sound some caution. As always keep an eye on the other components of the employment report including unemployment (expected to nudge up one-tenth to 4.6%), average hourly earnings (+0.3% mom expected) and the participation rate. The report is due out at 8.30am.

European shares declined and the dollar was mixed against its peers ahead of U.S. employment report. The Stoxx 600 index’s fall tracked declines in much of Asia and in U.S. futures. Gold climbed from a seven-week low and iron ore fell for a third day.

In Asia, the Shanghai Composite Index was down 0.8 percent at 3,103 after earlier dropping below 3,100. The gauge neared its lowest close this year

S&P 500 futures were steady ahead of the U.S. monthly jobs report, with energy shares understandably in the spotlight as oil prices remained volatile after dropping below $ 45 a barrel for the first time since November. S&P 500 contracts expiring in June were little changed at 2,386 at 6:30 a.m. ET. The benchmark has been moving in a tight range this week, despite relatively strong corporate results. Contracts on the Dow Jones Industrial Average were steady at 20,857.

The euro meanwhile touched six-months highs of almost $ 1.10 ahead of France’s weekend election, in which polls now expect centrist Emmanuel Macron to convincingly beat right-wing and anti-euro rival Marine Le Pen. The gap between French and German 10-year government borrowing costs also hit a six-month low and despite the dip on the day, European shares were heading for a healthy 1.2 percent rise for the week.

The dollar and U.S. government bond yields had both been nudged lower by the commodity market worries. It is set to be the fourth weekly fall on the trot for the greenback which is now at its lowest since November. The yen and gold rose in tandem as investors took refuge in safe havens, though the latter remained on track for its biggest weekly decline in nearly six months on bets that U.S. interest rates will rise again in the coming months.

A handful of bearish comments emerged overnight, such as Hermes chief economist Neil Williams who said that “I think the payrolls will be under consensus. It fits with my view that the U.S. is going to peak out at a far lower interest rate than markets expect. The Fed’s dot plots says 3 percent, but I’m going closer to 1.5 percent.”

Bulletin Headline Summary from RanSquawk

  • European equities trading in tentative fashion ahead of US NFP report.
  • GBP slightly firmer with the Conservative party receiving strong support in local elections.
  • Looking ahead, highlights include US NFP, Canadian jobs report as well as a slew of Fed speak.

Market Snapshot

  • S&P 500 futures little changed at 2,386.00
  • STOXX Europe 600 down 0.1% to 391.42
  • MXAP down 0.3% to 148.64
  • MXAPJ down 0.7% to 483.87
  • Nikkei up 0.7% to 19,445.70
  • Topix up 0.7% to 1,550.30
  • Hang Seng Index down 0.8% to 24,476.35
  • Shanghai Composite down 0.8% to 3,103.04
  • Sensex down 0.7% to 29,909.09
  • Australia S&P/ASX 200 down 0.7% to 5,836.56
  • Kospi up 1% to 2,241.24
  • German 10Y yield fell 1.8 bps to 0.376%
  • Euro down 0.2% to 1.0969 per US$
  • Brent Futures up 0.9% to $ 48.79/bbl
  • Italian 10Y yield fell 0.9 bps to 1.958%
  • Spanish 10Y yield fell 1.8 bps to 1.582%
  • Gold spot up 0.4% to $ 1,232.79
  • U.S. Dollar Index little changed at 98.81

Top Overnight News from Bloomberg

  • Within minutes of U.S. crude-oil futures tumbling through $ 45/barrel, signs of broader risk-off emerged, exacerbating what was already brewing as worrying week for commodities
  • Chinese stocks sank in Shanghai and Hong Kong as concern over Beijing’s efforts to reduce leverage in financial system persisted and as selloff in commodities spilled into equity
  • Trump Takeaway From Health Bill Fight: Do Your Own Arm- Twisting
  • Bosch Said to Win Some IPhone Orders in Blow to InvenSense
  • BHP Said Planning to Meet Tribeca in Investor Talks This Month
  • Nickel Drops to Lowest Since June as Supply Worries Fade
  • U.K. Local Votes Bode Well for May’s Bid for Bigger Majority
  • Decision Time for France as Polls Show Macron’s Lead Holding
  • InterContinental 1Q Revpar Grows, Names Keith Barr as CEO
  • VW Brand Sees ‘Substantial’ Improvement as Turnaround Takes Hold
  • Vestas Rises to 9-Year High as Quarterly Profit Quadruples
  • Thai Internet Providers to Pressure Facebook on Content: Nation

Asia equity markets traded negative amid commodity weakness in which oil continued its sell-off, while the looming US NFP data also added to the subdued tone. ASX 200 (-0.8%) was led lower by miners and energy names after metals remained weak and WTI crude futures extended on yesterday’s 5% drop amid oversupply concerns. However, telecoms outperformed as Telstra shares surged after ACCC ruled the Co. doesn’t need to share its network infrastructure with competitors. Shanghai Comp. (-0.7%) and Hang Seng (-0.4%) also reflected the downbeat tone amid tighter liquidity by the PBoC, after it refrained from open market operations which resulted to a CNY 60bIn net daily drain. Finally, Japan and South Korea remained closed for Children’s Day. PBoC refrained from open market operations today, for a net injection of CNY 10bIn vs. Prey. CNY 70bIn net injection last week. PBoC set CNY mid-point at 6.8884 (Prey. 6.8957)

Top Asian News

  • India Said to Be Concerned on Potential INR Carry Trade Reversal
  • Chinese Shares Tumble as Oil Slump Exacerbates Drop on Crackdown
  • China’s New Jet Takes Off to Challenge Boeing and Bolster Xi
  • BHP Hit With New Activist Plan From Top Hedge Fund Performer
  • Kuroda Confident Can Raise Wages, Prices ’Significantly’: CNBC

European equities have kicked off the final trading session of the week in modest negative territory (Eurostoxx 50 -0.1%) amid tentative trade ahead of NFP later today. In terms of sector specifics, energy names are the notable outperformers as European trade has seen a modest recovery in energy prices despite the market appearing to lose confidence in OPEC’s ability to continue to prop up prices. Elsewhere, European earnings have been on the light side today with markets pausing for breath ahead of NFP. Similar rangebound price action has also been observed in fixed income markets with Bunds trading in close proximity to recent losses seen in the wake of the FOMC on Wednesday. OATs are also relatively stable ahead of this weekend’s French election.

Top European News

  • Capital Levels Slide at Italy’s Paschi After Run of Losses
  • Czech Premier Withdraws His Offer to Resign in Surprise Move
  • European Company 1Q EPS Rises 27%, Heads for Beat: Deutsche Bank
  • Saxo Bank Co-Founder Agrees to Sell His 25% Stake to Geely
  • BofAML Expects Euro, Dollar Gain This Summer, Sees Sterling Dip
  • Vestas Climbs to 9-Year High After Quarterly Profit Quadruples
  • Iron Ore’s Brutal Week Opens Pathway for Retreat Into the $ 50s

In currencies, focus early was on GBP with the Conservatives cleaning up in local elections at the expense of their rivals ahead of next month’s general election with prices moving ever closer towards 1.3000. USD/JPY continues to attract the bulk of US data driven trade, but we saw 113.00 holding firm on Thursday before fading risk sentiment added to the pullback which now sees us trading in the low 112.00’s. AUD continues to edge lower, now sub 0.74, but momentum has been slowing. Base metals and Copper in particular have been the primary drag with Dalion iron ore futures slipping yet again, and this in light of an RBA strongly suggesting rates will stay on hold.

In commodities, a bulk of the focus has been on energy markets with WTI crude futures falling off a cliff overnight in extension of Thursday’s 4.8% losses. There was no fresh immediate catalyst for the decline but there are currently a multitude of bearish factors in the market, most notably; Increasing cynicism about OPEC’s ability to ease the global supply glut, Increasing output from US shale producers, Increasing production from Libya and demand-side concerns. That said, European hours have seen a modest recovery as buyers have entered the market ahead of the touted support zone seen in WTI at USD 44.00. Elsewhere, the majority of commodities remained subdued with Dalian iron futures down a further 6% in early trade to a near 4-month low, although gold found slight reprieve as the oil sell-off spurred safe-haven flows.

Looking at the day ahead, all eyes will be on the aforementioned US April employment report. Also due out today is the March consumer credit reading for the US. Away from the data both the EU’s Juncker and Tusk are scheduled to speak today while over at the Fed it is a packed day for Fedspeak with Fischer (4.30pm BST), Williams (5.45pm BST) and Yellen (6.30pm BST) all speaking at separate.

US Event Calendar

  • 8:30am: Change in Nonfarm Payrolls, est. 190,000, prior 98,000
    • Two-Month Payroll Net Revision
    • Change in Private Payrolls, est. 190,000, prior 89,000
    • Change in Manufact. Payrolls, est. 10,000, prior 11,000
    • Unemployment Rate, est. 4.6%, prior 4.5%
    • Average Hourly Earnings MoM, est. 0.3%, prior 0.2%
    • Average Hourly Earnings YoY, est. 2.7%, prior 2.7%
    • Average Weekly Hours All Employees, est. 34.4, prior 34.3
    • Labor Force Participation Rate, prior 63.0%
    • Underemployment Rate, prior 8.9%
  • 3pm: Consumer Credit, est. $ 14.0b, prior $ 15.2b

Central Banks

  • 11:30am: Fed’s Fischer Speaks at Hoover Event in Stanford
  • 12:45pm: Fed’s Williams Speaks in Keynote in New York
  • 1:30pm: Fed’s Rosengren, Evans and Bullard on Hoover Institution Panel
  • 1:30pm: Fed’s Yellen Speaks at Brown University

DB’s Jim Reid concludes the overnight wrap

The biggest news in the UK yesterday was that of Prince Philip who announced his retirement later this year at the age of 96 after seven decades of being at the Queen’s side. At this stage I can’t imagine still writing research for another 53 years but over the last few weeks I’ve compiled a spreadsheet of the extra costs that having twins will entail over the coming years (and maybe decades) and I can only conclude that I might need to marry the Queen myself to afford retirement. So here’s to the Early Morning Reid of 2070 where we’ll probably still be explaining that Bund yields are too low, US equities are overvalued, defaults remain structurally low and pondering why England haven’t won the World Cup for 104 years.

Back to the present and there’s been a fascinating face-off in markets over the last 24 hours between tumbling commodity prices but rising bond yields. On a day when 10y Bunds climbed +6.8bps to the highest yield in 5 and a bit weeks we saw WTI Oil slump -4.81%. It’s tumbled a further -2.99% this morning as well and at one stage went below $ 44/bbl for the first time since November last year. Needless to say the moves over the last 24 hours has seen Oil more than wipe out the post OPEC supply cut agreement gains (its currently at the lowest level since November 15th at $ 44.19/bbl). A few factors seem to be contributing to the move. Wednesday’s weekly EIA data provided further evidence of historically high crude stockpiles levels. Increasing production out of Libya is also contributing in addition to the shale production growth story in the US. There was also some chatter about Brent and WTI slicing through key support levels yesterday which only seemed to add fuel to fire.

It’s not just Oil which is having a rough time of late though as metals are also feeling the pain. Iron Ore tumbled -5.07% yesterday, Copper fell -1.02%, Aluminium -0.57% and Nickel -2.33% with the soft China PMIs in April following a soft Q1 GDP print in the US being billed as the main justification for the move, while tighter liquidity conditions in China is also contributing with onshore money-market rates at two-year highs. Gold (-0.81%) and Silver (-0.89%) also fell for a second day post the FOMC yesterday. Indeed the broad CRB commodity index closed down -1.88% last night and has now fallen 11 times in the last 14 trading days to the lowest level since April 2016.

In terms of the move in Bunds, the early rise for yields can be attributed to some catch-up to the Treasury move following the FOMC however there was some interesting ECB speak yesterday which also caught the bond market’s attention. Specifically it was the comments from ECB Chief Economist Peter Praet who, on the topic of when a tightening in rates might follow the end of QE, said “we say ‘well past’ but this is a judgement which will be very much data dependent” and that “it can be long, it can be short”. The most important element of his speech however was his well highlighted flag that June is the meeting  where the ECB is likely to formally change its balance of risk assessment and possibly forward guidance. Indeed Praet said that “looking forward to our next monetary policy in June, we will be able to draw on a more expanded information set than is available today, organised around new projections and including an updated assessment of the distribution of risks surrounding the economic outlook”. ECB President Draghi also spoke yesterday but his comments were a bit of a nonevent for markets.

As well as the move for Bunds, Treasury yields edged up another 3.6bps to 2.355% and are now at the highest since April 10th. At the other end of the spectrum risk assets have proved to be incredibly  resilient to the selloff in commodities. Despite the energy sector doing its best to drag the broader index lower the S&P 500 closed +0.06% last night and has now moved up or down by less than 0.20% for each of the last 7 sessions which ties the longest ever run of such narrow ranges according to Bloomberg, set in 1972. US credit markets were similarly subdued with CDX IG fading into the close but still only closing 0.6bps wider. On the politics front, as expected the healthcare bill was voted on and was passed by House Republicans by a small majority of 217-213 votes, and so scoring a first big legislative victory for President Trump. The real test will now come in the Senate however where the bill’s passage is far from certain to be passed.

So these have been the key themes over the last 24 hours. A reminder that this Sunday brings the second round of the French elections with markets pricing in a very very low probability of anything other than a Macron victory which according to all the polls is fair enough. More immediate though is today’s US payrolls number. Following that soft 98k reading in March (which was more than likely weather-related) the market consensus for today’s print is a more sturdy 190k number while our US economists are a little bit above market at 200k. The team expect this rebound to be driven by two main factors. The first is initial jobless claims remaining near a roughly four-decade low and the second being that employee tax withholding receipts are growing at a very healthy rate, indicating a pick-up in income growth. It is worth adding though that while the ADP print earlier this week was fairly solid the employment components from the two ISMs has revealed some softening so that might sound some caution. As always keep an eye on the other components of the employment report including unemployment (expected to nudge up one-tenth to 4.6%), average hourly earnings (+0.3% mom expected) and the participation rate. The report is due out at 1.30pm BST.

Before we get there, overnight in Asia we’ve continued to see base metals remain under pressure and that, along with the move for Oil, is weighing on equity bourses with the ASX (-0.76%), Hang Seng (-1.07%) and Shanghai Comp (-0.85%) all in the red. Markets in Japan and South Korea are closed. Commodity sensitive currencies including the Aussie Dollar (-0.47%), Norwegian Krone (-0.42%) and Canadian Dollar (-0.27%) are also weaker in the early going. US equity index futures are also pointing towards a softer start.

With regards to the economic data yesterday, also helping the Bund move (and a strong session for European equities with the Stoxx 600 firming +0.67%) was a slight upward revision to the services PMI for the Euro area in April to 56.4 from 56.2, led by a big upward revision for Germany to 55.4 from 54.7. France was revised down 1pt to 56.7 while data in Italy (56.2 vs. 53.6 expected; 52.9 previously) was also a big upward surprise. Over in the UK the services PMI also printed at a better than expected 55.8 which was an increase of 0.8pts. That helped to push the composite to 56.2 and the highest since December.

Over in the the US yesterday Q1 non-farm productivity came in at a softer than expected -0.6% qoq (vs. -0.1% expected) which leaves through-year growth at just +1.1% yoy. Meanwhile unit labour costs were reported as rising +3.0% qoq which was a little more than expected. Away from that the March trade deficit of $ 43.7bn was marginally lower than what it was in February. Factory orders rose +0.2% mom in March (vs. +0.4% expected) while February orders were also revised up. Finally initial jobless claims were reported as declining 19k to 238k last week. Meanwhile the only other data in Europe aside from those  MIs came from the UK. Mortgage approvals in March fell to 66.8k (-1.1k decline) and a little bit more than expected while the M4 money supply rose +0.3% mom and +6.6% yoy (from +5.9%).

Looking at the day ahead, there’s nothing to report of in Europe this morning. Instead all eyes will be on the aforementioned US April employment report this afternoon. Also due out this evening is the March consumer credit reading for the US. Away from the data both the EU’s Juncker and Tusk are scheduled to speak today while over at the Fed it is a packed day for Fedspeak with Fischer (4.30pm BST), Williams (5.45pm BST) and Yellen (6.30pm BST) all speaking at separate events while Rosengren, Evans and Bullard are scheduled to take part in a panel debate on monetary policy at 6.30pm BST. On the earnings front it’s a quiet end to the week with Berkshire Hathaway the most notable release. Before we sign off, it goes without saying that the big event this weekend is the French election on Sunday. In terms of timing polls are due to close at 8pm BST in most of France and 9pm BST in the big cities.

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