Euro area inflation showing signs of easing, US debt bill moves to Senate

Notes/observations

- Positive sentiment seen across equity markets in contrast to yesterday's trading, as concerns of Chinese PMI weakness and doubt of US debt limit vote were both mitigated with China Caixin Manufacturing PMI notching an 11-month high and US debt limit deal passing the house.

- Euro Zone CPI cooler in both headline and core, echoing trends from other European countries in recent weeks.

- European PMI’s weak and firmly in contraction territory with Germany and France hitting lows not seen since May 2020. EUR/USD initially moved lower as case builds for ECB pausing at next rate decision, despite ECB’s de Guindos calling 25bps rate hikes ‘the new normal’ during the session.

- Macro attention turns to US ADP employment at 08:15 ET, Q1 Nonfarm Productivity at 08:30 ET and Final Manufacturing PMI at 09:45 ET.

- Asia closed mixed with Nikkei225 outperforming at +0.8%. EU indices are +0.6-2.0%. US futures are +0.1-0.2%. Gold -0.3%, DXY 0.0%; Commodity: Brent +0.2%, WTI +0.1%, TTF -8.2%; Crypto: BTC -0.8%, ETH -0.4%.

Asia

- China May Caixin PMI Manufacturing moved back into expansion (50.9 v 49.5e).

- Japan May Final PMI Manufacturing 1st expansion in 7 months (50.6 v 50.8 prelim).

- Australia May Final PMI Manufacturing confirmed its 3rd month of contraction: 48.4 v 48.0 prelim.

- Australia Q1 Private Capital Expenditure Q/Q: 2.4% v 1.0%e.

- Japan Q1 Capital Spending (Capex) registered its fastest annual growth since Q3 2015 (Y/Y: 11.0% v 7.7% prior.

Europe

- SNB Chairman Jordan stated that rising interest rates would not damage financial stability in Switzerland. Credit Suisse situation was not caused by rising rates, but rather by lack of trust by market participants in the bank.

- Italy PM Meloni stated that govt to create a €1B sovereign fund for strategic companies. Fund will be used to channel funding to companies it deems strategic and to bolster domestic production and secure key supply chains.

Debt ceiling talks

- House of Representatives passes the debt limit bill (as expected) with the vote being 314 to 117 (**Note: House Leader McCarthy lost 71 Republicans). The bill to raise the nation’s borrowing limit through 2024 and now moves to the Senate.

Americas

- Federal Reserve Beige Book noted that price increase slowed in many districts. Employment increase in most districts but at a slower pace. Overall economic activity was little changed in April and early May.

- WSJ's Timiraos: Fed prepares to skip June rate increase but hike later in the summer. Strategy would give officials more time to study economic effects of prior rate hikes as well as recent banking stress.

Energy

- Weekly API Crude Oil Inventories: +5.2M v -6.8M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.9% at 455.7, FTSE +0.6% at 7,486, DAX +1.2% at 15,859, CAC-40 +0.9% at 7,162, IBEX-35 +1.3% at 9,165, FTSE MIB +1.9% at 2,600, SMI +0.9% at 11,320, S&P 500 Futures +0.2%].

Market focal points/key themes: European indices open higher across the board and advanced into the green through the early part of the session; sectors leading the way higher include communication services and energy; while real estate and utilities among the laggard sectors; Air Liquide in exclusive talks to sell its oxygen and nitrogen aerospace tech; focus on release of ECB minutes later in the day; earnings expected in the upcoming US session include Hormel, Macy’s and VMWare.

Equities

- Consumer discretionary: ME Group [MEGP.UK] +9.0% (trading update), SAS [SAS.SE] -9.5% (earnings).

- Energy: Borders & Southern [BOR.UK] +8.0% (earnings).

- Financials: MedioBanca [MB.IT] +2.9% (analyst action).

- Industrials: Wolters Kluwer [WKL.NL] +3.7% (executive appointment).

- Materials: Petra Diamonds [PDL.UK] +3.8% (analyst action).

- Utilities: Pennon [PNN.UK] -0.5% (results).

Speakers

- ECB's Rehn (Finland) reiterates stance that journey on tightening cycle was not over; core inflation must slow for ECB to consider easing.

- ECB's de Guindos (Spain): Remain far from inflation target despite recent improvement in data. Large part of journey had been covered. Rate moves of 25bps is the new norm.

- ECB’s Knot (Netherlands, SSM member) believed that it would be likely that 2024 rate cut bets would have to be adjusted.

- Bank of England (BoE) May Decision Maker Panel Survey raised its 1-year ahead CPI from 5.6% to 5.9% and raised the 3-year ahead CPI from 3.4% to 3.5%.

- Sweden Central bank (Riksbank) Financial Stability Report noted that the risks in the system had increased.

- Nigeria Central Bank refuted speculation that it had devalued the NGN currency (Naira).

Currencies/fixed income

- USD was steady in the session despite some speculation the Fed could opt to keep interest rates steady in June and raise them in July instead. Greenback had little reaction after the House approved the debt-ceiling deal (bill moves to Senate next).

- EUR/USD held below the 1.07 level as the Euro region continued to see some softening in the inflation trend. Even the Core EU CPI reading beginning to ease. Data gives credibility that ECB was in the final phase of its tightening cycle.

Economic data

- (NL) Netherlands May Preliminary CPI Y/Y: 6.1% v 5.2% prior.

- (NL) Netherlands May Preliminary CPI EU Harmonized M/M: +0.2% v -0.1%e;; Y/Y: 6.8% v 6.1%e.

- (NL) Netherlands May Manufacturing PMI: 44.2 v 44.5e (9th month of contraction and lowest since May 2020).

- (IN) India May PMI Manufacturing: (23rd month of expansion and highest since Oct 2020).

- (DE) Germany Apr Retail Sales M/M: 0.8% v 1.0%e; Y/Y: -8.6% v -5.8%e.

- (UK) May Nationwide House Price Index M/M: -0.1% v -0.5%e; Y/Y: -3.4% v -3.7%e.

- (CH) Swiss Apr Trade Balance (CHF): 2.6B v 4.5B prior; Real Exports M/M: -5.2% v +2.5% prior; Real Imports M/M: -3.3% v +0.4% prior; Watch Exports Y/Y: 6.8% v 13.8% prior.

- (RU) Russia May Manufacturing PMI: 53.5 v 52.6 prior (13th month of expansion).

- (HU) Hungary Q1 Final GDP Q/Q: -0.3% v -0.2% prelim; Y/Y: -0.9% v -0.9% prelim.

- (HU) Hungary Mar Final Trade Balance: €0.9B v €0.9B prelim.

- (SE) Sweden May PMI Manufacturing: 40.6 v 45.0e (8th straight contraction).

- (FR) France Apr YTD Budget Balance: -€83.7B v -€54.7B prior.

- (TR) Turkey May Manufacturing PMI: 51.5 v 51.5 prior (5th straight expansion).

- (HU) Hungary May Manufacturing PMI: 57.1 v 57.0e (8th straight expansion).

- (PL) Poland May Manufacturing PMI: 47.0 v 46.0e (13th straight contraction).

- (AT) Austria May Preliminary CPI M/M: 0.1% v 0.8% prior; Y/Y: 8.8% v 9.7% prior.

- (ES) Spain May Manufacturing PMI: 48.4 v 48.0e (2nd straight contraction).

- (CH) Swiss May PMI Manufacturing: 43.2 v 44.5e (5th month of contraction).

- (CZ) Czech Republic May Manufacturing PMI: 42.8 v 41.5e (12th straight contraction).

- (TH) Thailand May Business Sentiment Index: 49.7 v 50.1 prior.

- (IT) Italy May Manufacturing PMI: 45.9 v 45.8e (2nd month of contraction).

- (FR) France May Final Manufacturing PMI: 45.7 v 46.1 prelim (confirmed 4th month of contraction).

- 03:55 (DE) Germany May Final Manufacturing PMI: 43.2 v 42.9 prelim (confirmed 11th straight contraction).

- (EU) Euro Zone May Final Manufacturing PMI: 44.8 v 44.6 prelim (confirmed 11th straight contraction).

- (GR) Greece May Manufacturing PMI: 51.5 v 52.4 prior (4th straight expansion).

- (NO) Norway May PMI Manufacturing: 47.4 v 51.2 prior (moved back into contraction).

- (IT) Italy Apr Unemployment Rate: 7.8% v 7.8%e.

- (UK) May Final Manufacturing PMI: 47.1v 46.9 prelim (confirmed 10th straight contraction).

- (UK) Apr Net Consumer Credit: £1.6B v £1.5Be; Net Lending: -£1.4B v £0.6Be.

- (UK) Apr Mortgage Approvals: 48.7K v 53.5Ke.

- (UK) Apr M4 Money Supply M/M: 0.0% v -0.6% prior; Y/Y: 0.3% v 0.4% prior; M4 (ex-IOFCs) 3-month Annualized: -1.9% v +2.5% prior.

- (HK) Hong Kong Apr Retail Sales Value Y/Y: 15.0% v 13.8%e; Retail Sales Volume Y/Y: 13.3% v 9.5%e.

- (EU) Euro Zone May CPI Estimate Y/Y: 6.1% v 6.3%e; CPI Core Y/Y: 5.3% v 5.5%e.

- (EU) Euro Zone Apr Unemployment Rate: 6.5% v 6.5%e.

- 05:00 (BE) Belgium Apr Unemployment Rate: 5.6% v 5.6% prior.

- (BE) Belgium Q1 Final GDP Q/Q: 0.5% v 0.4% prelim; Y/Y: 1.4% v 1.3% prelim.

- (GR) Greece Apr Unemployment Rate: 11.2% v 11.1% prior.

- (ZA) South Africa May Manufacturing PMI: 49.2 v 49.8 prior (4th straight contraction).

- (DK) Denmark May PMI Survey: 45.7 v 47.6 prior (4th straight contraction).

- (IS) Iceland Q1 Current Account Balance (ISK): -10.1B v -20.2B prior.

- (CY) Cyprus Q1 Final GDP Q/Q: 0.8% v 0.8% prelim; Y/Y: 3.4% v 3.4% prelim.

Fixed income issuance

- (ES) Spain Debt Agency (Tesoro) sold total €6.03B vs. €5.5-6.5B indicated range in 2026, 2029 and 2052 bonds.

- Sold €2.21B in 2.80% May 2026 SPGB bond; Avg Yield: 3.049% v 2.941% prior; bid-to-cover: 2.03x v 1.64x prior (May 4th 2023).

- Sold €2.08B in 0.80% July 2029 SPGB bond; Avg Yield: 3.076% v 3.257% prior; bid-to-cover: 1.81x v 1.51x prior (Apr 20th 2023).

- Sold €1.74B in 1.90% Oct 2052 SPGB bond, Avg Yield: 3.978% v 3.810% prior, bid-to-cover: 1.73x v 1.58x prior.

- ((ES) Spain Debt Agency (Tesoro) sold €514M vs. €250-750M indicated range in 0.7% Nov 2033 inflation-linked bonds (SPGBei); Real Yield: 1.131% v 1.055% prior; Bid-to-cover: 1.80x v 1.95x prior.

- (FR) France Debt Agency (AFT) sold total €10.998B vs. €9.5-11.0B indicated range in 2033, 2043 and 2054 bonds.

- Sold €6.388B in 3.0% May 2033 Oat; Avg Yield: 2.85% v 2.83% prior; Bid-to-cover: 1.87x v 1.92x prior (May 4th 2023).

- Sold €1.989B in 2.50% May 2043 Oat; Avg Yield: 3.29% v 3.06% prior; Bid-to-cover: 1.94x v 2.22x prior (Apr 6th 2023).

- Sold €2.621B in 3.00% May 2054 Oat; Avg Yield: 3.37% v 3.33% prior; Bid-to-cover: 1.88x v 1.95x prior.

- (SE) Sweden sold SEK500M vs. SEK500M indicated in 0.125% Jun 2039 Inflation-linked bonds; Avg Yield: 0.7338% v 0.9420% prior; bid-to-cover: 2.65x v 3.20x prior.

Looking ahead

- (ZA) South Africa May Naamsa Vehicle Sales Y/Y: No est v -0.2% prior.

- (IT) Italy May Budget Balance: No est v -€11.7B prior.

- (US) Total Vehicle Sales data in session.

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

- 05:30 (EU) ECB chief Lagarde.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-year, 5-year and 10-year bonds.

- 06:00 (PT) Portugal Apr Industrial Production M/M: No est v -1.1% prior; Y/Y: No est v -4.4% prior.

- 06:55 (US) Daily Libor Fixing.

- 07:00 (ZA) South Africa Apr Electricity Consumption Y/Y: No est v -4.5% prior; Electricity Production Y/Y: No est v -5.6% prior.

- 07:30 (US) May Challenger Job Cuts: No est v 67.0K prior; Y/Y: No est v 175.9% prior.

- 08:00 (CZ) Czech May Budget Balance (CZK): No est v -200.0B prior.

- 08:00 (BR) Brazil Q1 GDP Q/Q: +1.2%e v -0.2% prior; Y/Y: 3.1%e v 1.9% prior; GDP 4 Quarters Accumulated: 3.0%e v 2.9% prior.

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

- 08:15 (US) May ADP Employment Change: +170Ke v +296K prior.

- 08:30 (US) Q1 Final Nonfarm Productivity: -2.4%e v -2.7% prelim; Unit Labor Costs: 6.0%e v 6.3% prelim.

- 08:30 (US) Initial Jobless Claims: 235Ke v 229K prior; Continuing Claims: 1.80Me v 1.794M prior.

- 08:30 (CL) Chile Apr Economic Activity Index (Monthly GDP) M/M: +0.1%e v -0.1% prior; Y/Y: -0.5%e v -2.1% prior.

- 09:00 (RU) Russia Gold and Forex Reserve w/e May 26th: No est v $589.3B prior.

- 09:00 (BR) Brazil May Manufacturing PMI: No est v 44.3 prior.

- 09:30 (CA) Canada May Manufacturing PMI: No est v 50.2 prior.

- 09:45 (US) May Final S&P/Markit Manufacturing PMI: 48.5e v 48.5 prelim.

- 09:45 (UK) BOE Gilt sale operation.

- 10:00 (US) May ISM Manufacturing: 47.0e v 47.1 prior.

- 10:00 (US) Apr Construction Spending M/M: 0.2%e v 0.3% prior.

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 11:00 (US) Weekly DOE Oil Inventories.

- 11:00 (MX) Mexico May Manufacturing PMI: No est v 51.1 prior.

- 11:00 (MX) Mexico Apr Total Remittances: $5.2Be v $5.2B prior.

- 11:00 (MX) Mexico Central Bank (Banxico) May Minutes.

- 11:00 (MX) Mexico Central Bank Economist Survey.

- 11:00 (CO) Colombia May PMI Manufacturing: No est v 52.6 prior.

- 11:00 (PE) Peru May CPI M/M: 0.3%e v 0.6% prior; Y/Y: 7.9%e v 8.0% prior.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:00 (CA) Canada to sell 5 Year Bonds.

- 12:00 (IT) Italy May New Car Registrations Y/Y: No est v 29.2% prior.

- 13:00 (US) Fed’s Harker.

- 14:00 (BR) Brazil May Trade Balance: $9.7Be v $8.2B prior; Exports: $32.0Be v $27.4B prior; Imports: 22.7Be v $19.1B prior.

- 14:00 (MX) Mexico May IMEF Manufacturing Index: No est v 50.6 prior; Non-Manufacturing Index: No est v 52.2 prior.

- 18:45 (NZ) New Zealand Q1 Volume of All Buildings Q/Q: -2.0%e v -1.6% prior; Terms of Trade Index Q/Q: -1.6%e v +1.8% prior.

- 19:00 (KR) South Korea Q1 Final GDP Q/Q: 0.3%e v 0.3% prelim; Y/Y: 0.8%e v 0.8% prelim.

- 19:00 (KR) South Korea May CPI M/M: 0.3%e v 0.2% prior; Y/Y: 3.4%e v 3.7% prior; CPI Core Y/Y: No est v 4.6% prior.

- 19:50 (JP) Japan end-May Monetary Base: No est v ¥680.4T prior; Y/Y: No est v -1.7% prior.

- 21:30 (AU) Australia Apr Home Loans Value M/M: No est v 4.9% prior; Investor Loan Value M/M: No est v 3.7% prior; Owner-Occupier Loan Value M/M: No est v 5.5% prior.

- 22:35 (CN) China to sell 50-year Upsized Bond.

- 22:35 (CN) China to sell Bills.

- 23:00 (TH) Thailand to sell THB40B in 6-month Bills; Avg Yield: % v 1.9171% prior; bid-to-cover: x v 2.10x prior.

- 23:30 (JP) Japan to sell 3-Month Bills.