East Ukraine may be independent in a result which the Kremlin said it "respects" and hopes for a "civilized implementation" of the referendum results, and which assures further military escalation in the proxy war of east versus west, but stocks are happy to ignore it all again.  The reason: a positive close over in Asia (ex-Japan) after China’s State Council pledged to reform markets buoyed demand for risk, although it really is just a follow through to the furious VIX slam in the last hour of US Friday trading, which said otherwise, means buying of US equities was the reason to buy US equities. More importantly and adding to the early spoo euphoria were comments by ECB's Nowotny who said that interest rate cut alone would likely be too little to combat low inflation - suggesting a European QE is coming - also acted as a catalyst for the latest uptick in stocks: when trapped like the ECB and when "guiding" to future activity, if unable to actually execute it, may as well go all the way. End result, Spoos up nearly 0.5% because, well, others are buying spoos.

Expect VIX to plunge to sub 12 today on another late day vicious VIX slam by the NY Fed-Citadel trading complex.

Chinese stocks are receiving a boost this morning on hopes that the government will carry through with market reforms which it’s hoped will increase domestic market liquidity. The Shanghai Composite is up 1.5% this morning. Our Chinese strategists write that the government is interested in pursuing both inward and outward investment programs and relaxing foreign ownership in companies. The government has also proposed opening up the country’s bond and stock markets. This will expedite moves to liberalize the country’s capital account, according to DB’s strategists.

Elsewhere in EM Asia, there’s a lot of focus on elections including in India where the final day of election polling takes place today with the earliest exit polls able to be published this evening local time. Opinion polls indicate the main opposition Bharatiya Janata Party (BJP) will secure the most seats, ending the Congress Party’s decade-long rule. The BJP has campaigned on a platform of economic reform. Official results will be announced by May 16 (Bloomberg Finance LP). India’s NIFTY is up 0.1% today, after rising 3% on Friday. Along a similar theme, in Indonesia reform-minded Joko Widodo has managed to secure a coalition  representing around 35% of parliamentary votes, passing the threshold of 25% needed to nominate a presidential candidate. Foreign investors will be watching the outcome of both elections with interest.

Elsewhere in Asia, the FT reports that Japanese lawmakers are pushing to overhaul the governance structure of the $1.3 trillion Government Pension Investment Fund which will pave the way for the fund to invest in a broader range of assets. According to the article, at present, decisions on asset allocation are taken by one man – President Mitani – after consultation with an external investment committee appointed by the ministry of health, labour and welfare. Under the lawmakers’ plan, a new board of experts would devise a more aggressive approach to investment (FT). The Nikkei is trading slightly lower (-0.15%) and remains near the YTD lows. The USDJPY is trading a little higher (+0.12%).

And yet, in spite of the positive tone this morning, RanSquawk reports that "energy and precious metal prices were supported by the flight to quality as market participants awaited reaction from Western leaders on the developments over in Ukraine." Wait - flight to risk and flight to quality at the same time? Sure, why not.

The US daybook is quiet with just the US treasury releasing its April budget statement at 2 pm. Most importantly there is a ~$2.5 billion POMO this morning and of course, tomorrow is Tuesday.

Bulletin headline summary from Bloomberg and RanSquawk

• Treasuries decline, led by 7Y and 30Y, as Chinese stocks lead global equity markets higher, commodities gain; markets waiting for retail sales report tomorrow, PPI/CPI later in week
• Russia indicated it “respects” the results of two disputed referendums in eastern Ukraine, which separatists said backed independence, while the EU pledged to  accelerate work on economic sanctions
• The districts where Democrats have the best shot to win Republican-held seats show some of the smallest gaps between rich and poor in the U.S., an indication of just how hard it will be for their income inequality message to take hold with voters
• Even with data this week predicted to show the expansion accelerated in the first quarter, the ECB looks set to push ahead with measures that could range from rate cuts to liquidity injections
• China’s government is drafting rules to help manage the fallout of any bank failure, two people with knowledge of the matter said, as lenders in the country face rising loan defaults and increased competition
• Chinese President Xi Jinping said the nation needs to adapt to a “new normal” in the pace of economic growth and remain “cool-minded” amid a slowdown that analysts forecast will lead to the weakest expansion since 1990
• Japan’s current-account surplus shrank last fiscal year to the smallest on record, highlighting challenges for Prime Minister Shinzo Abe in driving a recovery in the world’s third-largest economy
• Sovereign yields higher. Nikkei -0.3%, Shanghai +2.1%. European equity markets, U.S. stock futures rise. WTI crude, gold and copper higher

US Event Calendar

• 2:00pm: Monthly Budget Statement, April, est. $114b (prior $105b)
• 12:00pm: Fed’s Plosser speaks in Philadelphia Supply
• 11:00am: U.S. to announce plans for auction of 4W bills
• POMO at 11:00am: Fed to purchase $2.25b-$3b notes in 2018-2019 sector

Asian Headlines

Nikkei 225 (-0.35%) failed to benefit from reports that Japan is pushing to overhaul the governance structure of its pension fund (GPIF) and settled lower, amid lacklustre earnings and a poorer-than-expected current account surplus. At the same time, Chinese indices outperformed (Shanghai Comp +2.08%), as cautious comments regarding economic growth by President Xi were offset by reports of market reforms by China’s State Council.

EU & UK Headlines

Reports that voters in Donetsk voted 89.7% in favour of independence failed to sentiment, as Bunds were dragged lower by Gilts amid further steepening of the Short-Sterling curve ahead of the Quarterly Inflation Report by the BoE this week. The release is expected to confirm expectations that the first rate rise will come in Q1 2015 (before the election) and also lift growth forecasts. As a result, UK/GE 10y spread now seen at its widest level since Q3 1998.

There was a distinct lack of tier 1 macroeconomic releases this morning, but ECB’s Constancio said that the ECB cannot ignore EUR strength, while ECB's Nowotny said that if ECB acts just cutting benchmark may not be enough. Looking elsewhere, an uptick in Euro-area excess liquidity increased marginally to EUR 80.3bln vs. EUR 77.28bln and lower EONIA 2nd fwd (lowest level since early March) did not translate into flatter Euribor curve traded steady amid only a minor downtick in 3m Euribor fix (0.335% vs. Prev. 0.336%).

Equities

Despite the choppy price action this morning, stocks in Europe are seen broadly higher, with basic materials outperforming on the sector breakdown, benefiting from positive broker recommendation by JP Morgan and on China’s State Council call to improve commodities markets. In terms of notable movers, Sky Deutschland shares surged over 5% after BskyB said it's talking to 21st Century Fox about a possible purchase of its interests in Sky Deutschland and Sky Italia.

FX

Expectations of a hawkish report by the BoE this week saw EUR/GBP fall to its lowest level since early January 2013 this morning, with GBP/USD also being supported as a result.

Spot RUB traded lower this morning, with market participants seemingly unnerved by the fact that voters in Donetsk voted 89.7% in favour of independence (official results are set to be published at 1300BST/0700CDT). The United States and the European Union (EU) have already declared that they do not recognize the results.

Commodities

Unlike other asset classes, energy and precious metals benefited from the uncertain environment over in Ukraine, after voters in Donetsk voted 89.7% in favour of independence whilst there was no immediate word on results from Luhansk (official results are set to be published at 1300BST/0700CDT). At the same time, comments by Saudi oil minister who pledged to make up any lost supply from sanctions had limited impact on overall price action. In terms of precious metals and particularly gold, the focus may soon turn on India, with elections ending this week and counting expected to kick off Friday.

* * *

We conclude with the traditional overnight recap by DB's Jim Reid

The weekend news flow was largely centred on economic policy in China and geopolitical events in Ukraine. Starting with China, state media have quoted President Xi as saying that China needs to adapt to a “new normal” in the pace of economic growth. This was also consistent with the message from the PBoC Chief who said over the weekend that China will not use any large-scale stimulus to boost its economy. This appeared to dampen expectations of an imminent reserve ratio cut. All this comes after Friday’s Chinese inflation report which showed that CPI had slowed to 1.8% yoy which was weaker than consensus expectations of 2.1%.

Despite this news, Chinese stocks are receiving a boost this morning on hopes that the government will carry through with market reforms which it’s hoped will increase domestic market liquidity. The Shanghai Composite is up 1.5% this morning. Our Chinese strategists write that the government is interested in pursuing both inward and outward investment programs and relaxing foreign ownership in companies. The government has also proposed opening up the country’s bond and stock markets. This will expedite moves to liberalise the country’s capital account, according to DB’s strategists.

Elsewhere in EM Asia, there’s a lot of focus on elections including in India where the final day of election polling takes place today with the earliest exit polls able to be published this evening local time. Opinion polls indicate the main opposition Bharatiya Janata Party (BJP) will secure the most seats, ending the Congress Party’s decade-long rule. The BJP has campaigned on a platform of economic reform. Official results will be announced by May 16 (Bloomberg Finance LP). India’s NIFTY is up 0.1% today, after rising 3% on Friday. Along a similar theme, in Indonesia reform-minded Joko Widodo has managed to secure a coalition  representing around 35% of parliamentary votes, passing the threshold of 25% needed to nominate a presidential candidate. Foreign investors will be watching the outcome of both elections with interest.

Elsewhere in Asia, the FT reports that Japanese lawmakers are pushing to overhaul the governance structure of the $1.3 trillion Government Pension Investment Fund which will pave the way for the fund to invest in a broader range of assets. According to the article, at present, decisions on asset allocation are taken by one man – President Mitani – after consultation with an external investment committee appointed by the ministry of health, labour and welfare. Under the lawmakers’ plan, a new board of experts would devise a more aggressive approach to investment (FT). The Nikkei is trading slightly lower (-0.15%) and remains near the YTD lows. The USDJPY is trading a little higher (+0.12%).

In Ukraine, voters in the Donetsk region in the east of the country have reportedly voted overwhelmingly in favour of secession by a vote of 90% to 10% against (Bloomberg Finance Lp). The voter turnout was reportedly above 70%. A similar result is expected in Luhansk which also held a referendum over the weekend. It is unclear at this stage what the implications of the vote are, given that Putin had called for a delay to the referendum votes late last week. Adding to the uncertainty, voters were asked whether they endorsed Donetsk and Luhansk’s declaration of self-rule, which was not clearly defined. Some viewed that the vote could be used to demand greater autonomy from Ukraine’s federal structure or result in a call for a full breakaway from Kiev rule (Reuters).

Taking a closer look at the week ahead, proceedings kickoff with a meeting of EU foreign ministers in Brussels later today, to discuss whether to tighten sanctions against Russia. Russian bank stocks had a strong run into the end of last week, so we will be curious to see whether that changes amid talk of further economic sanctions. The US treasury releases its April budget statement. A number of Italian banks report earnings today including Unicredit SpA and Banca Monte dei Paschi.

Tomorrow, Chinese retail sales and industrial production will set the tone early in the day. The latest German ZEW survey will be published and in the US we receive the April retail sales number. US Treasury Secretary Jacob Lew travels to China to discuss a number of issues with the Chinese government including the yuan and the pace of economic reforms. The Australian government releases its much anticipated Federal budget.

Wednesday sees release of the BoE quarterly inflation report. The Sunday Times thinks that the BoE is likely to signal a rise in rates sometime in Q1 2015 while also lifting its growth forecasts. The ECB’s Mersch speaks at a conference in Berlin on the same day. Data includes German inflation, French CPI and US PPI.

On Thursday, the highlight will be Yellen’s speech to the US Chamber of Commerce and US Small Business Administration where she will be airing her views on the state of the economy and small businesses. Other central bank speakers on Thursday are the BoJ’s Kuroda and the ECB Vice President Constancio. It will be a busy data docket on Thursday with US CPI, Empire manufacturing, the Philly Fed survey and industrial production. In Europe, Q1 Euroarea GDP is the main highlight. Japan releases its Q1 GDP as well. Wal- Mart Store helps concludes the US reporting season when it reports Q1 earnings.

Rounding out the week, US housing starts, building permits and the UofMichigan consumer confidence survey will be the highlight on Friday.