Debt ceiling deal awaits 'at the end of the day'

Market movers today

Today we have a lot of data from the US. April PCE inflation is released along personal spending. The final University of Michigan survey is also released.

In the Nordics we have retail sales out of Sweden and Norway. We expect a 1.5% mom increase in the latter. See more below.

The 60 second overview

Japan: Tokyo CPI inflation declined more than anticipated in May to 3.2% y/y from 3.5% y/y in April. Consensus had expected inflation to fall only to 3.4% y/y. New Bank of Japan Governor Ueda yesterday gave his first little hawkish hint, when he indicated the central bank would have to respond if inflation did not fall later this year. JPY rallied temporarily on the headline.

US: Hopes of a deal to solve the debt ceiling rose yesterday, when Republican House Speaker McCarthy said a deal would get done at the end of day. It looks like negotiators are zeroing on a deal that would raise the debt limit and cap federal spending for a period of two years. The market reacted promptly with the gold price taking a nose dive.

Fed: Boston Fed's Collins yesterday said that the Fed may be at or near the point where it can pause on rate hikes and further stressed a pause would allow it to assess its actions so far. Collins favours a meeting-by-meeting approach. The market discounts another 25bp rate hike by the July meeting.

Equities: Equities were mixed on Thursday, with tech-intense indices like Nasdaq and S&P 500 up 1-2% while Dow and Russell 2000 were lower. This selective performance did not come down to yields but by earnings. Given the huge multiple expansion YTD in the tech sector it is healthy to see earnings deliverance leading the way higher. Chip maker Nvidia issued its sales guidance 50% ahead of expectations for the coming quarter, driven by the AI segment. Overall though, earnings were better and as the semi-cycle correlates well with the inventory cycle, this gives further support that the worst of the inventory destocking is behind us, with positive spill-over to many cyclical sectors. Naturally, tech beat the tape, but also cars/trucks, industrials, banks and real estate performed well while defensives reversed some of the outperformance this week. Futures are a tad lower this morning.

FI: US T-bill rates are slowly declining as the possibility of a deal on the debt ceiling seems to be getting closer. Some of the T-bills maturing in August have been trading around 7%, but are slowly decreasing. On the other hand, we are seeing 2Y yields rise as the market is looking for more hikes from the Federal Reserve combined with a solution to the debt ceiling issue. Hence, 2Y Treasury yields has risen some 20bp since Monday.

FX: SEK and NZD have been this week's underperformers within G10. Safe haven USD and CHF, but not low-yielding JPY, are winners in the current environment. EUR/SEK moves higher and higher and now breached 11.60. NOK is also not doing well, though NOK/SEK has erased some of the losses during the week.

Credit: Yesterday the credit markets regained its footing with iTraxx Main tightening 1.5bp to 83.1bp and Xover tightened 7bp to 437.5bp. We suspect that the spread tightening was driven by equal doses of lower primary printing and renewed hopes of an undramatic solution to the US debt ceiling worries.

Nordic macro

Norway: Norwegian retail sales have been trending down for almost two years now, driven by a shift towards consumption of services and the decline in households' purchasing power. Based on the monthly numbers from BankAxept, it looks like this trend will have continued in April, with retail sales falling 1.5% m/m.

Sweden: Swedish retail sales are down 11.6% (y/y), marking the steepest yearly decline in the history of the series. As Swedish households continue to be under pressure, we expect today's number to corroborate that picture and signal a continued challenging outlook for Swedish retailers. The past year we have seen a sharp decline in Swedish producer prices, which in due time is expected to lead consumer prices lower as well. Hence, PPI data from April, released today, might warrant some interest from markets.