Deal on the US debt ceiling

Market movers today

Today's main data release from euro area will be the May flash HICP. While consensus was originally looking for only a slight moderation in core inflation, preliminary figures from individual countries have so far come out clearly below expectations.

From the US, ADP private sector employment report and ISM manufacturing index are due for release. Consensus is looking for moderating employment growth, although leading indicators have so far pointed towards fairly upbeat development in May. ISM is expected to decline modestly following a downtick in the flash PMIs earlier.

From central banks, ECB's Lagarde and the Fed's Harker are scheduled to give speeches today.

The 60 second overview

The House of Representatives passed the deal between President Biden and the Republicans on the debt ceiling yesterday and thus averting a default on US Treasuries. The bill now goes to the Senate where it is also expected to be passed. This signals the end to debt ceiling uncertainty for now.

The deal has lifted Asian equity markets this morning, there has been a modest rise in US Treasury yields in the Asian trading, while the dollar has been stable. The oil price continues to decline.

There has been several comments from Federal Reserve signalling a pause to the hikes, but also that the Federal Reserve has not yet reached its peak. The positive surprise in US jobs data yesterday gave support to this view, but inflation is coming down as we saw in the string of European inflation data released yesterday.

The Chinese manufacturing PMI - Caixin, released this morning, rose unexpectedly to 50.9.

Equities: Global equities lower yesterday across regions and with a defensive tilt. Please note that cyclicals massively outperformed defensives in May despite equities in general being flat for the month. This fits our strategy fine, but we admit that most of our coinciding macro models ertr not as strong as the cyclical outperformance suggest and hence opening a negative reality gap. Banks came under pressure yesterday due to increased focus on potential liquidity drain in the aftermath of a US debt ceiling. As covered in the Morning Espresso earlier this week, we will see hefty bond issuance and QT the next six months in the US, leaving a potential liquidity risk. In US yesterday, Dow -0.4%, S&P 500 -0.6%, Nasdaq -0.6% and Russell 2000 -1.0%. Asian markets are positive this morning, Caixin PMI way better than NBS yesterday sending most indices higher in Asia. European futures higher as well while US futures are flat this morning.

FI: Yesterday, the global bond yields and interest rates continued to decline on the back of softer inflation data from euro area as both French and German inflation declined. The positive surprise in the US jobs market data - the JOLTs report, however sent rates a bit higher, but they ended the day lower as 10Y Bunds declined some 6bp. The spread between the periphery and core-EU remained stable.

FX: EUR/USD multi-week down trend intact with the cross slightly below 1.07. USD/JPY below 140 mark as we entered a short position based on relative monetary policy. Massive drop in EUR/NOK yesterday, close to 20 figures, on the back of Norges Bank's FX sales announcement. The cross has paused just above 11.80. Also SEK had a good day with EUR/SEK down around 10 figures. 

Credit: CDS indices were slightly wider yesterday with iTraxx Main closing at 82bp (+2bp) while Xover widened by 7bp to 434bp. In financials there was more senior supply with Ibercaja Banco in the market, while in covereds both Rabobank and Arkéa brought new 10y deals.

Nordic macro

The Norwegian manufacturing PMI has rallied over the past couple of months and was back above 50 in April, pointing to increasing activity. This contrasts with global PMIs, which have generally fallen further into recessionary territory in recent months. This could be down to higher activity in oil services in Norway, but could also just be noise. Our best guess is that the PMI will hold steady around 51.0.