Draghi Sings the Praises of QE, Greece Negotiations Grind On

Economic Data

- (US) MBA Mortgage Applications w/e May 29th: -7.6% v -1.6% prior
- (EU) ECB left key rates unchanged, as expected
- (BR) Brazil Apr National Unemployment Rate: 8.0% v 7.9% prior
- (US) May ADP Employment Change: +201K v +200Ke
- (CA) Canada Apr Int'l Merchandise Trade: -C$2.97B v -C$2.2Be
- (US) Apr Trade Balance: -$40.9B v -$44.3Be
- (BR) Brazil May Services PMI: 42.5 v 44.6 prior; Composite PMI: 42.9 v 44.2 prior
- (MX) Mexico Mar Gross Fixed Investment: 6.6% v 1.3% prior
- (US) May Final Markit Services PMI: 56.2 v 56.4e
- (US) May ISM Non-Manufacturing Composite: 55.7 v 57.0e
- (US) Weekly DOE Crude Oil Inventories -1.95M V -1.5Me; gasoline: -0.33M V 0Me; distillate: +3.77M V +1.0Me

It has been a turbulent morning for global markets as participants wrangle with headlines regarding Greece deal negotiations, the ECB post rate-decision press conference and the OPEC meeting in Vienna. Bonds are selling off hard while US equities are well bid, with the DJIA up 0.72%, the S&P500 up 0.49% and the Nasdaq adding 0.62%.

US data was mixed, with the ADP report foreshadowing a totally inline payrolls gain of 200K but the ISM services index for May downbeat. The non-manufacturing PMI index sank to 55.7 in May from 57.8 in April. Markit said its service-sector composite slowed to 56.2 in May from 57.4 in April.

ECB President Draghi had little new to share at his post rate-decision press conference this morning. Regarding QE, Draghi reaffirmed the council's commitment to following through with the full program through 2016 and crowed that all is going exactly according to plan. The staff raised their forecast for 2015 inflation to +0.3% from flat prior, after lowering it to that level from +0.7% back in March due to the oil price collapse. Responding to recent gains in inflation, Draghi said inflation is nowhere near close to the ECB's targets and that the total amount of purchases under QE would be adequate, and suggested if anything the ECB could even expand purchases if necessary. Draghi also told markets to get used to higher volatility.

Bonds sold off hard again for the second consecutive session, with the move up in yields coinciding with Draghi's press conference. From lows around 0.70% earlier, the 10-year bund surged 17 basis points, equaling yesterday's big surge (which was the largest intraday gain in three years). Bund yields are slightly off their highs, trading around 0.850% as of writing. The US 10-year touched 2.346%, its highest level since last November, before backing off a few basis points. EUR/USD came into the European session around 1.1153 and gained more than a big figure as Draghi spoke, hitting 1.1270.

Crude prices have been buffeted by plenty of headlines out of Vienna as Russian and OPEC officials talk about the market. Russian Energy Minister Novak is in Vienna meeting with various OPEC officials, and agreed with the prevailing sentiment that any coordinated oil production cut would be detrimental in the longer run. The Kuwait oil minister said there were only two options for OPEC: maintaining the current production ceiling or increasing it. WTI dropped to $59.70 and then rapidly spiked to $61.40, before settling back toward $60 mid-morning. Somewhat lost in the shuffle was the second straight build in the weekly API inventories disclosed in data last night (EIA numbers showed another drawdown today).

There was a dose of optimism about Greece during the European session, on reports that there were concessions in the new deal offered to Athens by its creditors, including a smaller target for the required primary budget surplus. Greece's counteroffer apparently fell flat, as the Germans swooped in ahead of the US open to knock their offer. German Finance Minister Schaeuble stated that his first look at Greek proposals confirms his view that talks will continue for some time and that optimism is not justified.

Looking Ahead

- 14:00 (US) Federal Reserve Beige Book
- 14:15 (US) Fed's Evans (dove, 2015 FOMC voter) speaks at Banking Symposium in Chicago
- 19:00 (KR) South Korea Q1 Final GDP Q/Q: No est v 0.8% prelim; Y/Y: No est v 2.4% prelim
- 21:30 (AU) Australia Apr Trade Balance: No est v -A$1.3B prior
- 21:30 (AU) Australia Apr Retail Sales M/M: No est v 0.3% prior