US debt agreement reached in principle, but will it pass on Wed?

Asia market update: US debt agreement reached in principle, but will it pass on Wed? Asia positive start on US debt developments; Monday is US holiday.

General trend

- Agreement reached in principle between Republicans and Democrats – although debt ceiling concerns still very much in mind ahead of anticipated Wed vote in Congress, where at least two Republican members of Congress have expressed lack of support.

- The path likely to also be rocky in the Senate, where quick action requires bipartisan support and some conservatives have signaled they are unwilling to go along.

- Last Fri night S&P 500, Nasdaq register highest closing levels since Aug 2022 (pre-Jackson Hole).

- Asian equities started in similar positive mood, with Nikkei advancing to fresh 33-year highs, back to July 1990. Tech stocks lifted in general, with the Hang Seng Tech Index opening 1.2% higher

- Japanese chip stocks rose on the AI frenzy, extending the rally sparked by Nvidia’s bullish outlook for AI applications (Tokyo Electron +5%, Advantest +2%, Renesas +3%)

- However, prices pulled back in HK and China as the day continued, with China’s Meituan falling over 7% to its lowest level since Oct 2022

- US equity FUTs are +0.3% to +0.4% higher in Asia.

- President Erdogan eased to victory in the Turkey General Election runoff. USD/TRY up to 20.06 but reportedly 21.425 on the black market.

- In currencies, USD/JPY is holding above ¥140, at levels not seen since mid-Nov last year.

Looking forward this week

- US debt ceiling goes to a vote in the Republican-led Congress on Wed, followed by the Senate.

- Wed China Official manufacturing PMI (Caixin PMI on Thu)

- Wed night US JOLTS job openings

- Thu EU inflation

- Thu night US ISM Manufacturing

- Fri night US non-farm payrolls and unemployment

Headlines/economic data

Australia/New Zealand

- (AU) ASX 200 opens +1.0% at 7229

- (AU) PwC directs 9 partners to go on leave, effective immediately - financial press

- (NZ) New Zealand Trade & Export Growth Minister: Announces "The Supply Chains" agreement between 14 Indo-Pacific partners including the US - financial press [weekend update]

China/Hong Kong

- (HK) Hang Seng opens +0.4% at 18,827

- (CN) Shanghai Composite opens +0.2% at 3,219

- (CN) China Commerce Minister: Met with Japan Economy & Trade Minister on May 26; China is willing to work with Japan to promote practical cooperation in key economic and trade areas

- (CN) Moody's: Chinese companies' uneven trend in Q1 earnings signals further differentiation among sector's recovery - financial press

- (CN) China PBOC Open Market Operation (OMO): Sells CNY25B in 7-day reverse repo; Net injects CNY23B v injects CNY3.0B prior

- USD/CNY (CN) China PBOC sets Yuan reference rate: 7.0575 v 7.0760 prior

- (CN) China to launch Shenzhou-16 crewed spaceship on Tuesday, May 30th - China press

- (CN) China Apr YTD Industrial Profits Y/Y: -20.6% v -21.4% prior [weekend update]

- (CN) USTR's Deputy Representative Bianchi: US Review on Section 301 tariffs being conducted "from analytical perspective" - financial press [weekend update]

Japan

- (JP) Nikkei 225 opens +1.5% at 31,388 on broad-based gains; Highest since July 1990

- (JP) Japan Defense Minister orders preparation for destruction of any North Korean missile - Japan press

- (JP) Bank of Japan (BOJ) offers to buy 5-10 year JGBs at fixed rate of 50bps; Opens window to buy unlimited amount of 10-year JGBs at 0.50% [as expected]

- (JP) North Korea notified Japan of a plan to launch satellite between May 31st and June 11th - NHK citing Govt official

South Korea

- (KR) Kospi closed for holiday

Other Asia

- (VN) Vietnam May CPI Y/Y: 2.4% v 2.6%e

- (VN) Vietnam May Trade Balance: +$2.2B v -$0.16Be

- (VN) Vietnam May Retail Sales Y/Y: 11.5% v 11.5% prior

- (VN) Vietnam May Industrial Production Y/Y: 0.1% v 0.5% prior

- (TH) Thailand Finance Min Arkhom: Economy on recovery path; Revenue collection to improve as economy recovers

- (PH) Philippine's Central Bank (BSP) Gov Medalla: Sees CPI below 4% by Sept or Oct period - financial press

- (ID) Indonesia Apr M2 Money Supply Y/Y: 5.5% v 6.2% prior

North America

- (US) Pres Biden and house speaker McCarthy have reached an agreement “in principle” to raise debt limit by 19 months until Jan 1ST, 2025; McCarthy expect Congress vote on the deal on Wed, May 31st. House Speaker McCarthy: Expects to finish writing bill and posting text on Sun, May 28th [weekend update].

- (US) Rep. Bob Good (R-VA): I am hearing the “deal” is for a $4 trillion increase in the debt limit. IF that is true, I don’t need to hear anything else. No one claiming to be a conservative could justify a YES vote. [weekend update].

- (US) President Biden comments on Budget agreement: The bipartisan deal is good news for the American people.

- (US) White House on debt ceiling deal: Deal amounts to compromise on the Budget; Debt limit suspended to Jan 1 2025.

- (US) Senate GOP Leader Mitch McConnell (R-KY) endorses debt limit deal - financial press.

Europe

- (TR) Turkey President Erdogan delivers victory speech after easing to victory in General Election run-off.

- (UK) Govt reportedly in early stages of basic food price caps in supermarkets - press (update).

- (UR) Ukraine Commander-in-Chief Zaluzhnyi: Time has come to get back what's ours [weekend update].

Levels as of 01:20 ET

- Nikkei 225, +1.2%, ASX 200 +1.0% , Hang Seng -0.7%; Shanghai Composite +0.2% ; Kospi closed.

- Equity S&P500 Futures: +0.3%; Nasdaq100 +0.4%, Dax +0.1%; FTSE100 +0.8%.

- EUR 1.0717-1.0740 ; JPY 140.37-140.92 ; AUD 0.6520-0.6546 ;NZD 0.6044-0.6068.

- Gold flat at $1,963/oz; Crude Oil +0.8% at $73.27/brl; Copper +0.1% at $3.6765/lb.