Confidence express that US debt limit deal will pass both Houses of Congress

Notes/observations

- Market optimism with removal of uncertainty after US strike an 'agreement in principle' on a debt limit deal and Turkey's Erdogan retains leadership by winning general election run-off vote.

- Debt limit deal needs to pass both House (Republican majority) and Senate (Democrat majority), vote expected on Wed at earliest. Deal said to include a cap on defense spending, IRS funding cuts and reallocation of unspent pandemic aid.

- Several EU markets are closed for Spring bank holiday, including UK, Switzerland, Norway, Iceland, Hungary and Denmark. US closed for Memorial Day.

- European focus this week on upcoming GDP readings and manufacturing PMI after German notched a technical recession last week. For US, jobs report on Fri.

- Asia closed mixed, with Hang Seng -1.0%. EU indices are +0.1%. US futures are +0.3% to +0.5%. Gold -0.1%, DXY 0.0%; Commodity: Brent +0.2%, WTI +0.3%, TTF +3.4%; Crypto: BTC +2.6%, ETH +2.9%.

Asia

- China Apr YTD Industrial Profits Y/Y: -20.6% v -21.4% prior.

- Japan PM Kishida stressed that any North Korea missile launch, even if called a satellite, was a serious violation of UN Security Council Resolution (**Note: Japan Defense Minister previously ordered the preparation for destruction of any North Korean missile. North Korea had notified Japan of a plan to launch satellite between May 31st and June 11th.

Europe

- Turkey President Erdogan prevailed in the 2nd round of elections.

Debt ceiling talks

- President Biden and McCarthy reached a tentative agreement raising the debt-ceiling for two years and placing new limits on spending over that period.

- President Biden comments on Budget agreement and strongly urged both Chambers to pass the agreement. Still exploring 14th Amendment on debt limit, but at a later date.

- Senate GOP Leader Mitch McConnell (R-KY) endorses debt limit deal (**Note: Agreement goes to a vote in the Republican-led Congress on Wed, followed by the Senate.

Americas

- Treasury Sec Yellen noted resilience of US economy in meeting with IMF chief Georgieva.

- IMF noted the US could avoid a recession this year, and that the Fed should raise interest rates again and hold them there through late next year.

Energy

- Saudi Arabia said to have expressed its anger to Russia for not following through fully on its pledge to pullback production in response to Western sanctions.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.1% at 461, FTSE (closed), DAX +0.1% at 16,037, CAC-40 +0.1% at 7,326, IBEX-35 +0.2% at 9,211, FTSE MIB -0.4% at 2,608, SMI (closed), S&P 500 Futures +0.3%].

Market focal points/key themes: European indices open generally higher and stayed in the green through early trading; Denmark, Norway, Swiss and UK markets closed for holiday; real estate and utilities sectors among the better performers; lagging sectors include consumer discretionary and financials; oil & gas subsector supported following boost to crude prices; Talanx to acquire Liberty Mutural Insurance’s Latin American operations; US markets closed for holiday.

Equities

- Consumer discretionary: Orpea [ORP.FR] -4.6% (accelerated safeguard plan granted waiver by the AMF - post close Fri).

- Healthcare: Mithra Pharmaceuticals [MITRA.BE] -0.9% (appoints Christian Homsy as Chairman, effective immediately).

- Real Estate: Samhaellsbyggnadsbolaget [SBBB.SE] +7.6% (considers strategic options including sale).

Speakers

- Spain PM Sanchez said to dissolve parliament and calls for early general election on July 23rd.

- Poland Central Bank's (NBP) Member Maslowska reiterated view that was too early to talk about rate cuts.

- Poland Central Bank (NBP) Member Kotecki stated that the May CPI reading was expected at ~13.0% (currently 14.7% YoY) with inflation falling towards 8.0-10.0% area) by early 2024. Saw no space for rate cuts at least for a few months.

- Japan LDP Ruling Party Sec Gen Motegi stated that PM Kishida sought to unveil long term economic policy draft on Jun 7th.

- India Fin Min Sitharaman stated that inflation was moderating but keeping close watch on data.

Currencies/fixed income

- USD was steady despite a US debt ceiling agreement. Any unwinding of safe-haven flows did not dent the greenback during a quest holiday-filled session. USD appeared to be supported by expectations of further rate hikes by the Fed. Currently markets were pricing over 60% chance that the Fed would raise rates by 25 bps in June (last week saw only qa 25% chance). Focus will be on the upcoming US jobs reports on Friday.

- Turkey's TRY currency (Lira) hit fresh record lows against the dollar near 20.07 after President Erdogan secured victory in Sunday's presidential election, extending his increasingly authoritarian rule into a third decade.

Economic data

- (FI) Finland May Consumer Confidence: -8.8 v -7.9 prior; Business Confidence: -12 v -13 prior.

- (FI) Finland Mar Final Trade Balance: €0.1B v €0.1B prelim.

- (SE) Sweden Apr Household Lending Y/Y: 1.9% v 2.3% prior.

- (TR) Turkey May Economic Confidence: 103.7 v 102.2 prior.

- (HK) Hong Kong Apr Trade Balance (HKD): -36.6B v -40.6B prior; Exports Y/Y: -13.0% v -1.5% prior; Imports Y/Y: -11.9% v -0.6% prior.

Fixed income issuance

- (ID) Indonesia sold total IDR15.0T vs. IDR17.0T target in bills and bonds.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 06:00 (IE) Ireland Apr Retail Sales Volume M/M: No est v 2.0% prior; Y/Y: No est v 8.6% prior.

- 06:00 (RO) Romania to sell RON700M in 8% Apr 2030 Bonds.

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:00 (IN) India announces details of upcoming bond sale (held on Fridays).

- 08:00 (ES) Spain Debt Agency (Tesoro) size announcement on upcoming issuance.

- 08:30 (CL) Chile Central Bank (BCCh) May Minutes.

-10:30 (SE) (SE) Sweden Central Bank (Riksbank) Jansson.

- 13:30 (BR) Brazil Apr Federal Debt Total (BRL): No est v 5.893T prior.

- (BR) Brazil Apr Total Formal Job Creation: +194.1Ke v +195.2K prior.

- 18:45 (NZ) New Zealand Apr Building Permits M/M: No est v 7.0% prior.

- 19:30 (JP) Japan Apr Jobless Rate: 2.7%e v 2.8% prior; Job-To-Applicant Ratio: 1.32xe v 1.32x prior.

- 19:30 (AU) Australia Weekly ANZ/ Roy Morgan Consumer Confidence: No est v +1.4% prior.

- 21:30 (AU) Australia Apr Building Approvals M/M: +2.0%e v -0.1% prior; Private Sector Houses M/M: No est v -2.8% prior.

- 21:30 (KR) Bank of Korea (BOK) sells 3-month Monetary Stabilization Bonds (MSBs).

- 23:00 (TH) Thailand Central Bank to sell THB60B in 3-month bills.

- 23:35 (JP) Japan to sell 2-Year JGB Bonds.