Markets have slowed down modestly ahead of today's key event, the ECB's monetary policy decision and Draghi press conference, which will likely feature repeated versions of the same question: how worried is the ECB president? From sagging business confidence to falling industrial output, the region seems to be losing economic momentum after the best performance in a decade last year. We did a full ECB preview overnight; the summary scenario analysis of what to expect is shown below:

Meanwhile, despite generally muted volumes, there has been a lot of action with European stocks rising after an early drop amid a deluge of earnings, while Asian stocks were mixed led lower by selling out of China as investors digested the latest flood of company earnings, including a blockbuster beat by Facebook overnight.

The Stoxx 600 was up 0.5%%, nearing its 200-DMA which was tested earlier this week. Energy stocks gained ground, helped by rising oil prices and good quarterly results from a number of companies. Utilities showing strength (+0.9%) with the energy sector underperforming (-0.5%) following Shell earnings (-2.5%). Conversely with positive results for Total (+0.6%), Telefonica (+0.1%) and Volkswagen (+3%) but negative results for Deutsche Bank (+0.3%) and Roche (-0.1%%).

Asian stocks were generally downbeat, despite strength from the Nikkei 225 (+0.5%) which was underpinned by recent JPY weakness while the KOSPI (+1.1%) was the biggest gainer amid optimism ahead of tomorrow’s inter-Korean summit and after tech giant Samsung Electronics released its Q1 final results. Elsewhere, the Shanghai Comp. (-1.3%) and Hang Seng (-1.0%) were downbeat amid the backdrop of rising money market rates and another substantial consecutive net liquidity drain of CNY 150bln by the PBoC while tech stocks continued to reel from an FBI probe into Huawei.

Despite yesterday's huge beat by Facebook, which sent its share 7% higher after hours, US equity futures were only modestly in the green.

The big story of the early half of the week, the level of the benchmark 10Y Treasury, fluctuated and recently dipped back under 3% as oil climbed. As Bloomberg adds, TSY futures rallied after early block trades, similar seen in bund futures as curves flatten; Open Interest changes hint that yesterdays huge German/UST 5s10s box trade was a new risk trade.

Meanwhile, the dollar hovered at a three-month high, although it has followed the 10Y lower and was trading at session lows. The biggest decliner versus the greenback was the krona after the Riksbank delayed its tightening; the Swedish currency touched its weakest level since December 2009 against the euro after the decision (more below).

In other FX news, the euro halted the previous day’s decline versus the dollar and inched higher from an almost two-month low. The common currency has weakened on each of the past four Draghi press conferences, and charts and trader positioning suggest it may do so again on Thursday on a dovish tone; ECB President will speak at 2:30pm Frankfurt time.

In notable central bank announcements, the Swedish Riksbank kept its overnight Rate unchanged at -0.50% as expected, however it surprised the market by announcing the rate will begin to increase towards the end of the year which is somewhat later than forecast previously. Underlying inflation has been somewhat lower than expected recently, which raises questions regarding the strength of the development in inflation. Deputy Ohlsson dissented at keeping the interest rate unchanged, advocating a hike to -0.25%

In key geopolitical news overnight, South Korea said that President Moon will meet with North Korea leader Kim at the border on Friday at 0930 local time In related news, there were also comments from a BoK official that any economic cooperation with North Korea will bolster South Korean consumer sentiment. Separately, French President Macron said he thinks US President Trump will not want US to remain in Iran nuclear deal based on prior statements.

In Brexit news, UK PM May is said to issue a wish list of her trade demands for a Brexit trade deal. UK PM May has held a cabinet meeting with Conservative Brexiteers whereby she was asked to stick to her plan of making a clean

break from the EU.

WTI and Brent crude futures sit in modest positive territory, continuing yesterday’s recovery. Prices remain firmer in spite of the latest DoE release which had an overall bearish impact on the market as traders continue to assess the plausibility of the US re-imposing sanctions upon Iran as well as declines in Venezuelan oil output. In metals markets, spot gold trades with little in the way of firm direction and in close proximity to 5-week lows as a firmer USD keeps a lid on gains for the precious metal. Elsewhere, aluminium has continued to face selling pressure in London amid the fallout from the latest updates for Rusal, whilst Chinese steel futures were supported overnight by domestic construction demand.

Economic data on Thursday include initial jobless claims, durable goods orders. PepsiCo, Bristol-Myers Squibb, General Motors and Intel are among companies due to release results.

Bulletin Headline Summary from RanSquawk

Equity markets largely subdued after negative trading on Wednesday ahead of ECB’s rate decision

SEK at eight year lows, however, following Riksbank rolling back rate hike expectations

Looking ahead, highlights include, ECB’s rate decision and press conference, US durables, weekly jobs,

advanced goods trade balance and a slew of earnings

Market Snapshot

S&P 500 futures down 0.06% to 2,643.00

STOXX Europe 600 up 0.5% to 381.95

MXAP down 0.06% to 171.77

MXAPJ down 0.2% to 556.79

Nikkei up 0.5% to 22,319.61

Topix up 0.3% to 1,772.13

Hang Seng Index down 1.1% to 30,007.68

Shanghai Composite down 1.4% to 3,075.03

Sensex up 0.3% to 34,593.88

Australia S&P/ASX 200 down 0.2% to 5,910.77

Kospi up 1.1% to 2,475.64

German 10Y yield fell 1.5 bps to 0.619%

Euro up 0.1% to $1.2177

Brent Futures up 0.5% to $74.33/bbl

Italian 10Y yield rose 1.0 bps to 1.523%

Spanish 10Y yield fell 1.1 bps to 1.291%

Brent Futures up 0.5% to $74.33/bbl

Gold spot up 0.03% to $1,323.59

U.S. Dollar Index up 0.03% to 91.20

Top Overnight News from Bloomberg

Mario Draghi’s press conference on Thursday may well feature repeated versions of the same question: how worried is he? From sagging business confidence to falling industrial output, the region seems to be losing economic momentum after the best performance in a decade last year

French President Emmanuel Macron said he thinks U.S. President Donald Trump will withdraw from the Iran nuclear accord, dealing a blow to the six-nation agreement reached in 2015 and endorsed by world powers

Fox News says Trump will join “Fox & Friends” at 8:00 a.m. New York time for an interview

The European Union will begin surveillance of aluminum imports as part of a plan for possible curbs resulting from the controversial U.S. tariff imposed last month

Brexit-backing Conservatives held private talks with U.K. PM Theresa May to demand that she sticks to her plan for a clean break with the EU; At the Tuesday meeting, May reassured euroskeptics she will deliver the kind of Brexit they want, according to two people familiar with the conversation

The Riksbank again pushed back a plan to raise interest rates, announcing on Thursday they don’t see a tightening until “towards the end of the year,” while also holding their key rate at minus 0.5%

This was a delay from their previous assessment that they could see tighter policy by the second half of this year

China is considering proposals to cut import duty on passenger cars by about half, according to people with direct knowledge of the matter, a move that’s set to give a lift particularly to luxury-car makers such as BMW AG and Toyota Motor Corp.’s Lexus unit

Deutsche Bank AG’s new chief executive officer can claim his first success. The European Central Bank has granted Germany’s largest lender an exemption from rules limiting how it can use funds at its Postbank retail subsidiary, a bank spokesman confirmed on Wednesday

The major Asia-Pac bourses traded mixed as markets failed to fully benefit from a mild tailwind after the gains in Wall St and as focus across global stock markets turned to a deluge of earnings. Nikkei 225 (+0.5%) was underpinned by recent JPY weakness and with Tokyo Electron the outperformer after its FY net firmly topped estimates, while the KOSPI (+1.1%) was the biggest gainer amid optimism ahead of tomorrow’s inter-Korean summit and after tech giant Samsung Electronics released its Q1 final results. Elsewhere, ASX 200 (-0.2%) was indecisive as Australia also reflected on the broad weakness during the prior day’s holiday closure, while Shanghai Comp. (-1.3%) and Hang Seng (-1.0%) were downbeat amid the backdrop of rising money market rates and another substantial consecutive net liquidity drain of CNY 150bln by the PBoC. Finally, 10yr JGBs were quiet with markets focused on earnings releases and amid a lack of Rinban announcement. Furthermore, the BoJ also kick-started its 2-day policy meeting today in which the central bank is expected to maintain policy settings, while focus would also be on the forecasts in the Outlook Report and whether there will be any changes to inflation estimates with the inclusion of the newly appointed Deputy Governors including known-reflationist Wakatabe. China MOFCOM repeated its opposition to unilateralism and protectionism, while it added that some Chinese firms have given up on the US market amid uncertainty. In other news, a China MIIT official said China is working on a significant tariff reduction for auto imports, while there were also reports that China is mulling lowering car import tariffs to 10% or 15% from the current 25%, with a decision possibly as early as next month

Top Asian News

Komatsu Full Year Operating Income Forecast Misses Estimates

Nomura Holdings 4Q Net Income 22.7b Yen

Nippon Steel’s Operating Profit Misses Estimate, Stock Drops

Philippine Bank of Communications Elects New Treasurer

Tencent Wipeout Topping $118 Billion Reveals Depth of Tech Gloom

SoftBank Names Ex-Goldman, Japan Post Bank Executive to Board

European equities (Eurostoxx 50+0.2%, DAX flat) trade with little in the way of firm direction as traders await today's ECB meeting (albeit fireworks expected from the event); IBEX (+0.4%) and FTSE MIB (+0.5%) outperform. Utilities showing strength (+0.9%) with the energy sector underperforming (-0.5%) following Shell earnings (-2.5%). Conversely with positive results for Total (+0.6%), Telefonica (+0.1%) and Volkswagen (+3%) but negative results for Deutsche Bank (+0.3%) and Roche (-0.1%%). Looking ahead for Shire at 12:00 today, which may give some indication on the Takeda news

Top European News

Iberdrola Turns a Takeover War With Enel Into an EU Problem

BP Brings in Former BG Boss Lund to Succeed Svanberg as Chairman

Lufthansa Falls on Fare Drop, Cost of Assets From Air Berlin

Barclays Trading Gives Staley Momentum, But Misconduct Bites

Telefonica First-Quarter Sales Drop as Spain Recovery Not Enough

Nokia Sales Miss Estimates as Network Market Slump Persists

In currencies, the DXY continues to grind higher above the 91.000 level and eke out more fresh multi-month highs amidst widespread Dollar gains vs counterparts. 91.300 or so is the latest peak, as the DXY inches closer to then next upside technical targets circa 91.500 and then 91.750. CHF/GBP/CAD/NZD/AUD: All softer vs the Greenback, with Usd/Chf only a few pips below 0.9850 resistance, while Cable has breached the top of a support zone straddling 1.3900 to extend its sharp reversal from April highs (1.4377) and further undermine bullish seasonal dynamics, plus M&A factors that had been boosting the Pound. Usd/Cad towards the upper end of a relatively tight 1.2825-60 range with overriding Dollar strength marginally outweighing Loonie support from near term NAFTA deal expectations. Nzd/Usd looking more vulnerable just above 0.7050 as the Aud/Nzd cross climbs over 1.0700 and Aud/Usd derives a degree of traction from above forecast Aussie export/import price data overnight. EUR/JPY: The single currency has survived a stern test of support vs the Usd around 1.2155 to trade back up near the top of its trading parameters (1.2190), awaiting fresh/independent impetus from the ECB and still gleaning some direction from mega 1.2200 option expiries that run off later today. Usd/Jpy firmer above 109.00 between 109.25-50 amidst latest month end rebalancing models indicating a Jpy sell signal and with the BoJ not seen altering its easy/dovish stance at the culmination of the 2-day meeting early Friday

In commodities, WTI and Brent crude futures sit in modest positive territory (albeit off best levels) broadly continuing yesterday’s recovery. Prices remain firmer in spite of the latest DoE release which had an overall bearish impact on the market as traders continue to assess the plausibility of the US re-imposing sanctions upon Iran as well as declines in Venezuelan oil output. In metals markets, spot gold trades with little in the way of firm direction and in close proximity to 5-week lows as a firmer USD keeps a lid on gains for the precious metal. Elsewhere, aluminium has continued to face selling pressure in London amid the fallout from the latest updates for Rusal, whilst Chinese steel futures were supported overnight by domestic construction demand.

Looking at the day ahead, the highlight will be the ECB meeting just after midday followed by President Draghi's media briefing shortly after. The BOE’s Brazier and ECB’s Nouy will also speak. Data due out includes Germany consumer confidence for May and US initial jobless claims, March advance goods trade balance and flash durable and capital goods orders data for March. Amazon, Microsoft, Total, Intel, Royal Dutch Shell and Volkswagen are notable earnings releases due out.

US Event Calendar

8:30am: Initial Jobless Claims, est. 230,000, prior 232,000; Continuing Claims, est. 1.85m, prior 1.86m

8:30am: Durable Goods Orders, est. 1.6%, prior 3.0%; Durables Ex Transportation, est. 0.5%, prior 1.0%

8:30am: Cap Goods Orders Nondef Ex Air, est. 0.46%, prior 1.4%; Cap Goods Ship Nondef Ex Air, est. 0.3%, prior 1.4%

8:30am: Retail Inventories MoM, prior 0.4%, revised 0.4%; Wholesale Inventories MoM, est. 0.65%, prior 1.0%

9:45am: Bloomberg Consumer Comfort, prior 58.1

11am: Kansas City Fed Manf. Activity, est. 17, prior 17

DB's Jim Reid concludes the overnight wrap

Morning from Helsinki, it’s been a busy tour of the region but I did manage to watch the astonishing game of football on Tuesday night. I’m still recovering. Meanwhile bond markets aren’t really recovering even with what has been a negative risk reaction this week to the rising yield environment. Obviously our pieces highlighted at the top give chapter and verse on this theme so we won’t go into detail here but it is quite clear in 2018 that US treasuries are struggling to rally in risk off environments. That I think shows the direction of travel at the moment. The US 10y held above 3% yesterday and ended the day at 3.027% (just above 3.03% in Asia) with the latest move meaning that yields have risen for seven consecutive sessions which is the joint longest run since mid-April 2016.

Yields are up 29bps since early April and as discussed it appears that equity and credit markets are struggling a bit in the face of that. Having said that the Dow (+0.25%) climbed back into the close to rise for the first time in six days yesterday. The reaction to what is a good headline US earnings season continued to be mixed with Twitter (-2.4%) lower although Boeing rose +4.2% after it raised this year’s earnings forecasts. However, in after hours trading Facebook jumped around 7% after its results, while Visa and Qualcomm was up c3% and c2% respectively following their above market quarterly results.

Before these late results the S&P 500 also recovered from earlier losses to close slightly higher (+0.18%), but is comfortably in the red YTD (-1.28%) again after this past week. The Nasdaq (-0.05% yesterday) is still holding its head above water for 2018. European bourses weakened further yesterday (Stoxx -0.77%; DAX -1.02%; FTSE -0.62%) and EM equities also appeared to be showing signs of stress with the MSCI EM index closing last night -1.21% down. The US dollar index firmed 0.45% to a fresh 3 month high while the Euro and Sterling fell -0.59% and -0.33% respectively. Elsewhere, Gold (-0.54%) and the Yen (-0.56%) seemed to be absent from any safe haven flows. Credit indices widened modestly in Europe but tightened in the US (Main +1bp; CDX IG -0.7bp) reflecting the late day rebound in equities.

This morning in Asia, markets are trading mixed with the Kospi up +1.25% as Samsung’s result beat expectations, while the Nikkei is up +0.59% and Hang Seng (-0.70%) and Shanghai Comp. (-0.92%) are both down as we type. The futures on the S&P are up c0.3%.

The next test for the bond market will likely come with this afternoon’s ECB meeting, followed closely by President Draghi’s press conference. Our European economists (link) expect the “dovish exit” strategy to remain intact. They expect the ECB to retain confidence in the above-trend growth despite the recent loss of momentum (although the PMIs and Bank Lending survey this week should install confidence) and they expect the optimism – which increasingly extends to inflation – to remain conditional on the ECB being patient, persistent and prudent with stimulus. They also expect the ECB to signal ample monetary stimulus after QE ends.

In light of a core unchanged message then, the risk is that Draghi errs on the side of caution today. As our colleagues point out, the ECB is already highlighting the relative importance of policy rates and guidance post-QE. Draghi recently said that policy adjustments would proceed at a “measured pace” and conditional on the scale of the inflation gap and the uncertainties around the output gap and wages. The team expects Draghi to repeat this in the Q&A, but a more dovish outcome would be inserting “measured pace” into the press statement to strengthen forward guidance. Another dovish move would be recognition of risks by “monitoring” economic developments. Our economists still expect the ECB to pre-announce in June that QE will end in December after a taper in Q4, but the risk is that the ECB waits until July to announce something. A one-month delay shouldn’t impact the prospect of a likely Q4 taper though. Beyond this and as a reminder, DB’s base case is for the first policy rate hike to come in June 2019 – a 20bp deposit rate hike and 25bp refi rate hike. A second hike is forecast for December 2019. Today’s ECB meeting outcome is at 12.45pm BST and Draghi is due to speak at 1.30pm BST.

Ahead of today’s ECB meeting, two policy makers were quoted yesterday as sounding fairly upbeat despite some signs of softer data in recent weeks. The comments, published by Eurofi, came from Board Member Mersch and Governing Council member Vasiliauskas. Mersch was quoted as saying that “confidence has recently risen and convergence is being confirmed – partly because the temporary decline in the inflation rate has been weaker than our internal calculations had predicted”. Vasiliauskas was also noted as saying that “we have witnessed the strengthening of broad-based growth and steadily declining unemployment, providing conditions for inflation convergence to our objective” and that “this has increased my confidence that it is time to transition from the APP”.

Closer to home, Brexit headlines are likely to be back in vogue today with the UK government facing a motion vote in the House of Commons called by senior MPs on the UK’s future participation in the EU customs union. The motion calls for the government to change its position to seek an effective customs union with the EU27 after Brexit. DB’s Oliver Harvey highlighted in his report yesterday that the vote is non-binding and a government defeat does not represent a no confidence vote and will not result in a resignation from PM May. He highlights however that if the government were to lose, it may cast doubt on its ability to proceed with the legislation necessary to implement Brexit, in particular amendments to the UK withdrawal bill made by the House of Lords this week, and the government’s Trade and Customs Bill which is set to be voted on next month. So worth keeping an eye on. See Oli’s report for a lot more detail on the latest Brexit news.

Turning to trade, the FT reported President Trump will dispatch Treasury Secretary Mnuchin and Trade representative Lighthizer to China next week to discuss trade relations. Trump noted there was a “very good chance of making a deal” but warned that he would continue with plans for new tariffs if no progress was made.

Finally, our European team now believe the Euro area GDP has grown 0.4% qoq in Q1, rather than the 0.6% qoq growth they had pencilled in previously. While growth was expected to lose momentum in 2018 and 2019, they argue that temporary factors such as adverse weather conditions might have added some volatility in Q1. In order to map the signals coming from high-frequency monthly data into a real time estimate of GDP growth, they have built several “Now-Casting” models. These point to growth in the range of 0.4-0.5% qoq in Q1. Please see their note for more details. There were limited data releases from yesterday. In France, the April consumer confidence edged up 1pt mom to 101 (vs. 100 expected).

Looking at the day ahead, the highlight will be the ECB meeting just after midday followed by President Draghi's media briefing shortly after. The BOE’s Brazier and ECB’s Nouy will also speak. Data due out includes Germany consumer confidence for May and US initial jobless claims, March advance goods trade balance and flash durable and capital goods orders data for March. Amazon, Microsoft, Total, Intel, Royal Dutch Shell and Volkswagen are notable earnings releases due out.