Biden and McCarthy expected to continue talks this week

EU mid-market update: Major EU PMI mixed as manufacturing contracts and services expand; Biden and McCarthy expected to continue talks this week.

Notes/Observations

- European PMI divergence between manufacturing and services PMIs widens. Manufacturing miss and contractions for Germany, UK and Eurozone (France in line but still contracts). Germany and Eurozone manufacturing at lowest levels since 2020. Services expansion for all.

- Mostly risk off moves as European equities and US futures fade lower and USD firms up. FTSE100 the only major holding in the green, following UK Apr Public Finances data and IMF GDP forecast upwards revision. UK Apr CPI reading tomorrow.

- US debt limit discussions overnight ended with no agreement, but positive rhetoric spun from both sides agreeing that 'default was off the table'.

- Little macro news on China or Russia/Ukraine, as financial markets await further US debt developments.

- Asia closed lower with Shanghai Composite under-performing -1.5%. EU indices are -1.0% to +0.1%. US futures are -0.2% to 0.0%. Gold -0.6%, DXY +0.1%; Commodity: Brent -0.3%, WTI -0.3%, TTF -1.4%; Crypto: BTC +1.7%, ETH +2.1%.

Asia

- Australia May Preliminary PMI Manufacturing registered its (3rd straight contraction (48.0 v 48.0 prior.

- Japan May Preliminary PMI Manufacturing registered its (1st expansion in 7 months (50.8 v 49.5 prior.

Europe

- ECB's de Cos (Spain) reiterated Council stance that still had some way to go in tightening rate policy.

- UK Chancellor of the Exchequer (Fin Min) Hunt said to meet with food manufacturers to help rein in soaring prices.

Debt ceiling talks

- President Biden stated that he and House Speaker McCarthy agreed that a default was off the table, the only way forward was in good faith towards a bipartisan deal. Called the meeting productive.

- House Speaker McCarthy stated that did not have an agreement yet but talks were productive. Would have staff continue discussions.

- House Democrat Minority Leader Jeffries (D-NY) was said to be willing to discuss spending freeze at current levels.

Americas

- Fed's Kashkari (voter) stated that might not raise rates as aggressively or quickly; No way Fed could insulate economy from default downside.

- Fed's Daly (non-voter) noted that was focused on whole dashboard of incoming data, wanted to see if policy tightening was effecting economy.

- Fed's Barkin (non-voter) stated that would not prejudge June meeting outcome. Still looking to be convinced that inflation is on a steady decline.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.30% at 467.51, FTSE +0.03% at 7,773.40, DAX -0.11% at 7,408.34, CAC-40 -0.93% at 7,408.34, IBEX-35 -0.09% at 9,296.53, FTSE MIB -0.32% at 27,222.00, SMI -0.09% at 11,542.50, S&P 500 Futures -0.06%].

Market focal points/key themes: European indices open generally lower and stayed in the red through the early part of the session; better performing sectors include telecom and materials; sectors trending lower include consumer discretionary and financials; Altice raises stake in BT; earnings expected in the upcoming US session include Lowe’s, AutoZone, Vipshop and Williams-Sonoma.

Equities

- Consumer discretionary: Empresaria Group [EMR.UK] -14.0% (trading update; hints weakness of hiring market), Shop Apotheke [SAE.DE] +1.0% (analyst action - raised to equal weight at Morgan Stanley).

- Real Estate: Vonovia [VNA.DE] +6.0% (Elliott's Cornwall wants an investigation into Deutsche Wohnen loan to Vonovia).

- Financials: Julius Baer [BAER.CH] -7.5% (reports end-Apr AUM; cut to underperform at Keefe Bruyette).

- Healthcare: Marinomed Biotech [MARI.AT] +6.0% (Q1 results), Qiagen [QIA.DE] +3.5% (analyst action - raised to overweight at Morgan Stanley).

- Energy: Orron Energy [ORRON.SE] +6.5% (analyst action - initiated with buy at SEB Enskilda).

- Technology: Next Biometrics [NEXT.NO] +25.0% (big order).

- Telecom: Vivendi [VIV.FR] -7.0% (top shareholder selling some shares), BT Group [BT.A.UK] -0.5% (Altice UK acquires further 650M shares in BT).

Speakers

- ECB's Guindos (Spain) stated that non-bank financial sector had remains largely stable in recent months. More concerned about conflict between monetary and fiscal policies then about financial instability.

- German Chancellor Scholz stated that EU needed 'realistic and binding accord' on debt control; Rejected 'unlimited increase' in debt.

- IMF raised UK 2023 GDP outlook from -0.3% to +0.4% and now expected the country to avoid a recession and maintain positive growth in 2023. It maintained 2024 GDP growth at 1.0%.

- Hungary PM Orban stated that Ukraine could not win war against Russia and would continue to block EU Ukraine air for now.

- Saudi Oil Min Abdulaziz stated that OPEC+ must be vigilant, proactive and hedge what may come in the future.

- Iraq Oil Min stated that was committed to OPEC+ production cuts to ensure stability and secure supplies.

Currencies/fixed income

- USD was firmer against the major pairs as US debt-limit talks continued but no agreement reach just yet. US Treasury 1-month yield rose by 25bps d/d to 5.888%for a fresh record high.

- EUR/USD hovering around the 1.08 area. Dealers noted that recent Fed speak continued to heightened expectations that US rates would remain higher for longer.

- USD/JPY higher to test above 138.30 level. Pair influenced by the higher US yields.

Economic data

- (NO) Norway Q2 Consumer Confidence: -34.4 v -36.5 prior.

- (UK) Apr Public Finances (PSNCR): £13.7B v £19.7B prior; PSNB (ex-banking groups): £25.6B v £18.7Be; Net Borrowing: 24.7B v £15.6Be; Central Govt NCR: 18.8B v £25.1B prior.

- (ZA) South Africa Mar Leading Indicator: 117.8 v 120.2 prior.

- (FR) France May Preliminary Manufacturing PMI: 46.1 v 46.0e (4th month of contraction); Services PMI: 52.8 v 54.0e; Composite PMI: 51.4 v 52.0e.

- (DE) Germany May Preliminary Manufacturing PMI: 42.9 v 45.0e (11th straight contraction and lowest since May 2020); Services PMI: 57.8 v 55.0e; Composite PMI: 54.3 v 53.2e.

- (EU) Euro Zone May Manufacturing PMI: 44.6 v 46.0e (11th straight contraction); Services PMI:55.9# v 55.5e; Composite PMI: 53.3 v 53.5e.

- (EU) Euro Zone Mar Current Account Balance: €31.2B v €24.5B prior.

- (PL) Poland Apr Construction Output Y/Y: 1.2% v 1.9%e.

- (PL) Poland Apr Real Retail Sales M/M: 0.1% v 0.2%e; Y/Y: -7.3% v -8.2%e; Retail Sales (current prices) Y/Y: 3.4% v 2.4%e.

- (TW) Taiwan Apr Industrial Production Y/Y: -22.9% v -13.0%e.

- (UK) May Preliminary Manufacturing PMI: 46.9 v 48.0e (10th straight contraction; Services PMI: 55.1 v 55.5e; Composite PMI: 53.9 v 54.7e.

- (IT) Italy Mar Current Account Balance: +3.7€B v -€0.9B prior.

- (GR) Greece Mar Current Account Balance: -€2.4B v -€1.3B prior.

Fixed income issuance

- (IT) Italy Debt Agency (Tesoro) opened its book to sell new 15-year inflation-linked bonds (BTPei) via syndicate; guidance seen +29bps to BTP.

- (ID) Indonesia sold total IDR7.0T vs. IDR9.0T target in Islamic bills and bonds (sukuk).

- (NL) Netherlands Debt Agency (DSTA) sold €2.2B vs. €1.5-2.5B indicated in 0.75% July 2028 DSL Bonds; Avg Yield: 2.670% v 0.420% prior.

- (UK) DMO sold £750M in 0.125% Mar 2051 Inflation-linked Gilts (UKTi); Real Yield: 1.105% v 0.835% prior; bid-to-cover: 2.82x v 2.40x prior.

Looking ahead

- (NG) Nigeria Central Bank (CBN) Interest Rate Decision: Expected raise Key Rate by 50bps to 18.50%.

- (PE) Peru Q1 GDP Y/Y: -0.4%e v +1.7% prior.

- 05:15 (CH) Switzerland to sell 3-month Bills.

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

- 05:30 (DE) Germany to sell €6.0B in 2.8% Jun 2025 Schatz.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 05:30 (ZA) South Africa to sell combined ZAR3.9B in 2035, 2037 and 2040 bonds.

- 06:00 (IL) Israel Mar Manufacturing Production M/M: No est v 4.2% prior.

- 06:30 (SE) Sweden Central Bank (Riksbank) Gov Thedeen on monetary policy and financial stability.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- (NG) Nigeria Central Bank (CBN) Interest Rate Decision.

- 08:00 (HU) Hungary Central Bank (MNB) Interest Rate Decision: Expected to leave Base Rate unchanged at 13:00%.

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

- 08:30 (US) May Philadelphia Fed Non-Manufacturing Regional Index: No est v -22.8 prior.

- 08:30 (CA) Canada Apr Industrial Product Price M/M: 0.1%e v 0.1% prior; Raw Materials Price Index M/M: +0.7%e v -1.7% prior.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:00 (HU) Hungary Central Bank (MMB) post rate decision statement.

- 09:00 (US) Fed’s Logan gives welcoming remarks at Conference.

- 09:45 (US) May Preliminary S&P/Markit Manufacturing PMI: 50.0e v 50.2 prior; Services PMI: 52.5e v 53.6 prior; Composite PMI: 53.0e v 53.4 prior.

- 10:00 (US) Apr New Home Sales: 663Ke v 683K prior; M/M: -2.9%e v 9.6% prior.

- 10:00 (US) May Richmond Fed Manufacturing Index: -8e v -10 prior.

- 10:40 (CA) Canada to sell 3-month, 6-month and 12-month bills.

- 10:45 (UK) BOE’s Haskel.

- 11:00 (FR) ECB’s Villeroy (France).

- 13:00 (US) Treasury to sell 2-Year Notes.

- 13:50 (DE) ECB’s Nagel (Germany).

- 15:00 (AR) Argentina Mar Economic Activity Index (Monthly GDP) M/M: 0.5%e v 0.0% prior; Y/Y: 0.6%e v 0.2% prior.

- 16:30 (US) Weekly API Oil Inventories.

- 17:00 (KR) South Korea Jun Business Manufacturing Survey: No est v 72 prior; Non-Manufacturing Survey: No est v 76 prior.

- 18:45 (NZ) New Zealand Q1 Retail Sales (ex-inflation) Q/Q: +0.2%e v -0.6% prior.

- 20:30 (AU) Australia Apr Leading Index M/M: No est v 0.0% prior.

- 22:00 (NZ) Reserve Bank of New Zealand (RBNZ) Interest Rate Decision: Expected to raise Cash Rate by 25bps to 5.50%.

- 21:10 (JP) BOJ Outright Bond Purchase Operation for 1~3 Years, 3~5 Years, 5~10 Years and 10~25Years maturities.

- 22:35 (CN) China to sell 1-year and 10-year bonds.

- 23:00 (KR) South Korea Q1 Short Term External Debt: $166.7Be v $166.5B prior.

- 23:00 (TH) Thailand to sell THB20B in Jun 2037 bonds.