End of US debt limit drama and expectations of Fed pause drive risk appetite

Notes/observations

- Concerns over the US debt limit deal were in the rear-view mirror as the chapter concludes with the deal passing the Senate vote, only the signature from Pres Biden remains.

- Primary focus returns to level of terminal rates, length of time expected at that level before cuts, and health of the economy. Recent Fed speak about a 'skip/pause' at next decision continues to give tailwinds to risk on flows, as well as recent drops in headline and core CPI. CME futures price 77% change of pause on June 14th meeting.

- Upcoming US Nonfarm Payrolls/Unemployment and Hourly Earnings at 08:30 ET to provide color on US economy, following hot Apr JOLTS job openings on Wed and ADP employment change on Thurs.

- OPEC+ meeting to begin on Sun, June 4th.

- Asia closed higher with Hang Seng out-performing at +4.0%. EU indices are +0.7-1.0%. US futures are +0.4%. Gold +0.1%, DXY -0.1%; Commodity: Brent +1.8%, WTI +1.8%, TTF +1.6%; Crypto: BTC +0.9%, ETH +1.7%.

Asia

- South Korea Q1 Final GDP Q/Q: 0.3% v 0.3% prelim; Y/Y: 0.9% v 0.8% prelim.

- South Korea May CPI registered its slowest annualized rise since Oct 2021 (Y/Y: 3.3% v 3.4%e).

- BOJ Gov Ueda reiterates it would take some time to reach the 2% inflation target. Wanted to help keep trust in JPY currency (yen) by attaining price target.

- Australia Fair Work Commission announced the FY24 National Awards Minimum Pay rate increase +5.75% from July 1st (**Note: Takes minimum wage A$22.61/hour).

- China Commerce Ministry (MOFCOM) said to have surveyed companies on the impact from the weaker yuan.

Debt ceiling talks

- Senate Majority Leader Schumer announced a deal on the Senate floor Thursday evening to vote on amendments to legislation to raise the debt limit until the start of 2025. Pledged to have the bill get passed before markets open Friday morning.

- Senate last night passed a bipartisan debt Bill averting a potential US default; the Bill now goes to Pres Biden for signing.

Americas

- Fed’s Bullard (Non-Voter) noted that monetary policy was in better shape following rate hikes.

Speakers/fixed income/FX/commodities/erratum 

Equities

Indices [Stoxx600 +0.8% at 459, FTSE +0.8% at 7552, DAX +0.9% at 15996, CAC-40 +1.0% at 7211, IBEX-35 +0.7% at 9234, FTSE MIB +0.7% at 2620, SMI +0.7% at 11379, S&P 500 Futures +0.4%].

Market focal points/key themes: European indices open higher across the board and stayed positive as the session progressed; sectors leading higher include materials and real estate; lagging sectors include utilities and health care; apparel subsector supported following earnings from Lululemmon; Dechra Pharmaceuticals receives takeover offer from EQT, FCC divests interest in its environmental unit to CPP; focus on release of NFP later in the day; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: Ceconomy [CEC.DE] +3.0% (provides FY25/26 targets), Bodycote [BOY.UK] -3.9% (analyst action).

- Energy: Aker BP (AKEBP.NO) +4.0% (subsea frame agreement).

- Financials: Paypoint {PAY.UK] +6.1% (trading update).

- Healthcare: Dechra Pharmaceuticals [DPH.UK] +8.4% (takeover offer).

- Industrials: FCC [FCC.ES] +4.0% (divestment).

- Materials: Anpario [ANP.UK] +5.7% (share buyback).

- Real Estate: Samhallsbyggnadsbolaget [SBBB.SE] +19.4% (continuation after saying met consolidated coverage ratio for Eurobonds).

Speakers

- ECB’s Panetta (Italy): Not far from reaching terminal rate (**Note: Deposit Rate currently stands at 3.25%). Reiterated inflation was too high and Council is commitment to return to 2% inflation target. Must not be too quick to raise rates.

- ECB's Vasle (Slovenia) stressed that core inflation remained high and persistent. More rate hikes were needed to achieve the 2% inflation target.

- US said to offer to abide by new start nuclear arms curbs until 2026 expiration if Russia did the same.

- China govt said to consider property-market support package to boost economy.

Currencies/fixed income

- USD was on softer footing as safe-haven flows unwound as the US avoided a debt default scenario. Greenback also weighed down by speculation the Fed would forgo an interest rate hike at its Jun meeting. Dealers noted that with the US debt ceiling in the rear-view mirror the focus was back on central banks rate path outlook and economic data.

- EUR/USD at 1.0775 area as ECB speak continued to stress the need for more rate hikes.

- AUD/USD was higher ahead of next week’s RBA decision. A minimum wage increase stoked bets for the central bank to raise rates again.

Economic data

- (SE) Sweden Q1 Current Account Balance (SEK): 88.6B v 95.3B prior.

- (FR) France Apr Industrial Production M/M: 0.8% v 0.3%e; Y/Y: 1.3% v 1.2%e.

- (FR) France Apr Manufacturing Production M/M: 0.7% v 0.1%e; Y/Y: 2.1%e v 0.8% prior.

- (ES) Spain May Net Unemployment Change: -49.3K v -73.9K prior (3rd straight decline).

- (CN) Weekly Shanghai copper inventories (SHFE): 86.7K v 86.2K tons prior.

- (NO) Norway May Unemployment Rate: 1.7% v 1.7%e.

- (RU) Russia Narrow Money Supply w/e May 26th (RUB): 17.54 v 17.52T prior.

- (BR) Brazil May FIPE CPI (Sao Paulo) M/M: 0.2% v 0.4% prior.

- (UN) FAO May World Food Price Index: 124.3 v 127.7 prior.

- (CY) Cyprus May CPI M/M: 0.3% v 0.3% prior; Y/Y: 3.0% v 3.7% prior.

Fixed income issuance

- (IN) India sold total INR330B vs. INR330B indicated in 2028, 2033 and 2052 bonds.

Looking ahead

- (RO) Romania May International Reserves: No est v $59.4B prior.

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

- 05:30 (ZA) South Africa to sell combined ZAR1.0B in I/L 2032, 2037 and 2048 Bonds.

- 06:00 (IE) Ireland Q1 Final GDP Q/Q: No est v -2.7% prelim; Y/Y: No est v 6.4% prelim.

- 06:00 (IE) Ireland Q1 Current Account Balance: No est v €15.8B prior.

- 06:00 (IE) Ireland May Live Register Monthly Change: No est v -0.3K prior; Live Register Level: No est v 180.5K prior.

- 06:00 (UK) DMO to sell £4.5B in 1-month, 3-month and 6-month bills (£0.5B, £1.5B and £2.5B respectively).

- 06:45 (US) Daily Libor Fixing.

- 07:30 (IS) Iceland to sell 2026 and 2037 RIKB Bonds.

- 07:30 (IN) India announces upcoming bill issuance (held on Wed).

- 07:30 (IN) India Weekly Forex Reserve w/e May 26th: No est v $593.5B prior.

- 08:00 (MX) Mexico Apr Unemployment Rate (unadj): 2.7%e v 2.4% prior; Unemployment Rate (seasonally adj): No est v 2.8% prior.

- 08:00 (MX) Mexico Apr Leading Indicators M/M: No est v 0.12 prior.

- 08:00 (MX) Mexico May Domestic Vehicle Sales: No est v 97.6K prior.

- 08:00 (BR) Brazil Apr Industrial Production M/M: -0.3%e v +1.1% prior; Y/Y: -1.8%e v +0.9% prior.

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

- 08:30 (US) May Change in Nonfarm Payrolls: +195Ke v +253K prior; Change in Private Payrolls: +165Ke v +230K prior; Change in Manufacturing Payrolls: +5Ke v +11K prior.

- 08:30 (US) May Unemployment Rate: 3.5%e v 3.4% prior; Underemployment Rate: No est v 6.6% prior; Labor Force Participation Rate: 62.6%e v 62.6% prior.

- 08:30 (US) May Average Hourly Earnings M/M: 0.3%e v 0.5% prior; Y/Y: 4.4%e v 4.4% prior; Average Weekly Hours: 34.4e v 34.4 prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:00 (SG) Singapore May Purchasing Managers Index (PMI): No est v 49.7 prior; Electronics Sector Index: No est v 49.2 prior.

- 11:00 (DK) Denmark May Foreign Reserves (DKK): No est v 603.0B prior.

- 11:00 (EU) Potential sovereign ratings after European close.

- 13:00 (US) Weekly Baker Hughes Rig Count.