• APAC stocks traded with a slight positive bias as many of the regional participants returned to the market from the long weekend.
• The RBA surprised markets with a 25bps rate increase, while the central bank's language remained hawkish with the Board expecting some further tightening of monetary policy will be needed.
• European equity futures are indicative of a mildly higher open with the Euro Stoxx 50 +0.2% after the index was unchanged Friday.
• DXY is marginally softer but holding above 102, AUD is the clear outperformer post-RBA, EUR/USD sits on a 1.09 handle.
• Looking ahead, highlights include German Retail Sales, EZ & UK Final Manufacturing PMI, EZ HICP (Flash), M3, US Factory Orders, JOLTS, New Zealand Unemployment, ECB Bank Lending Survey, Supply from Germany, Earnings from UniCredit, BP, HSBC, AMD & Pfizer.

US TRADE

EQUITIES

• US stocks closed little changed after a choppy performance amid lighter trading conditions with London and Europe absent and many looking to the risk events during the week ahead. There were early advances in the SPX which climbed to a new multi-month high but then eventually faded all of the initial gains and regional bank shares were pressured after regulators seized First Republic Bank and agreed on a sale to JPMorgan, while the US ISM Manufacturing survey was firmer than expected with a jump in the prices paid component for April which spurred a hawkish reaction.
• SPX -0.04% at 4,167, NDX -0.11% at 13,231, DJIA -0.14% at 34,051, RUT +0.01% at 1,769.
• Click here for a detailed summary.

NOTABLE HEADLINES

• US President Biden is likely to nominate Fed Governor Jefferson to be Fed Vice Chair and World Bank official Kugler to be a Fed Governor, according to New York Times.
• WSJ's Timiraos wrote the Fed is set to raise interest rates to a 16yr high and debate a pause, while he noted that the “calculations could flip” after this week and officials could need to see signs of stronger-than-expected demand and inflation to keep hiking".
• US Treasury Secretary Yellen said the debt ceiling could become binding as soon as June 1st and the actual date for the exhaustion of extraordinary measures could be a number of weeks later than the latest estimates, while she added the Treasury is suspending the issuance of state and local government series securities to avoid breaching the debt limit.
• US President Biden invited all four Congressional leaders to a meeting at the White House on May 9th.
• US Senate Majority Leader Schumer and House Democrat leader Jeffries said they do not have the luxury of waiting to June 1st to come together and called for Congress to pass a clean bill to avoid a default, according to Reuters. It was later reported that Schumer set in motion the process for a vote on a clean two-year debt limit suspension and the move leaves an opening for deficit-reduction talks once the debt ceiling is enacted.
• US House Speaker McCarthy said House Republicans did their job and passed a responsible bill that raises the debt ceiling, avoids a default and tackles reckless spending, while he added the Senate and the President need to get to work, and soon. There were also comments from Republican Senator Thune that the new June 1st 'x-date' warning makes talks between US President Biden and Republicans more urgent.
• US Democrat Senator Manchin said he is willing to repeal parts of the IRA that increase US debt and said the US will not default on the national debt.
• US Treasury is estimated to issue USD 773bln in net marketable debt in July to Sept 2023 period, assuming an end-September cash balance of USD 600bln, while it expects to borrow USD 726bln in net marketable debt for the April-June period which is up USD 449bln from Jan 2023 estimate.
• FDIC released a report on options for deposit insurance reform and the best option (out of three considered) is to increase insurance for accounts used for payroll and other business payments.
• JPMorgan (JPM) agreed on a deal with regulators to acquire the "substantial majority" of First Republic Bank’s (FRC) assets including USD 173bln of loans.

DATA RECAP

• US S&P Global Manufacturing PMI Final (Apr) 50.2 (Prev. 50.4)
• US ISM Manufacturing PMI (Apr) 47.1 vs. Exp. 46.8 (Prev. 46.3)
• US ISM Manufacturing Prices Paid (Apr) 53.2 vs. Exp. 49.0 (Prev. 49.2)
• US ISM Manufacturing New Orders Index (Apr) 45.7 (Prev. 44.3)
• US ISM Manufacturing Employment Index (Apr) 50.2 (Prev. 46.9)
• US Construction Spending MM (Mar) 0.3% vs. Exp. 0.1% (Prev. -0.1%, Rev. -0.3%)

APAC TRADE

EQUITIES

• APAC stocks traded with a slight positive bias as many of the regional participants returned to the market from the long weekend albeit with gains capped ahead of this week's upcoming risk events.
• ASX 200 was pressured after the RBA surprised markets with a 25bps rate increase, while the central bank's language remained hawkish with the Board expecting some further tightening of monetary policy will be needed.
• Nikkei 225 was indecisive and pulled back after briefly touching its highest level since January last year.
• Hang Seng initially surged on reopening from the holiday weekend and was led higher by strength in tech and casino stocks with the latter buoyed after a jump in Macau gaming revenue, although the index later faded most of its gains while the mainland remained shut for golden week.
• US equity futures lacked firm direction after yesterday's flat performance and amid approaching key events.
• European equity futures are indicative of a mildly higher open with the Euro Stoxx 50 +0.2% after the index was unchanged Friday.

FX

• DXY marginally softened and tested 102.00 to the downside as it eased back following the prior day’s gains, while debt ceiling concerns turned up a notch after Yellen warned the US risks a default as early as June 1st.
• EUR/USD attempted to nurse some of the losses following yesterday’s mass holiday closures; sits on a 1.09 handle.
• GBP/USD was choppy around 1.2500 as the world's largest FX trading hub begins to reopen from the bank holiday closure, while BRC shop price inflation slightly softened from the previous but remained firmly elevated.
• USD/JPY plateaued around the 137.50 level after recent gains, while EUR/JPY reached a 15-year peak.
• Antipodeans were lifted and AUD/USD surged after the RBA unexpectedly resumed its rate hike cycle.

FIXED INCOME

• 10yr UST futures rebounded from the prior day’s lows after having suffered due to the recent hawkish data impulse and large corporate supply led by Meta’s five-part USD 8.5bln senior notes offering.
• Bund futures gapped lower at this week’s holiday-delayed reopen and extended beneath the 135.00 level.
• 10yr JGB futures were softer amid recent losses in global counterparts and after firmer demand at the enhanced liquidity auction did little to spur prices.

COMMODITIES

• Crude futures were steady as pressures from recent weak China data and dollar strength faded.
• Spot gold took a breather following its recent brief round trip above the USD 2,000/oz level.
• Copper futures traded sideways amid the tentative mood in Asia and holiday closure in China.

CRYPTO

• Bitcoin remained subdued after the prior day's retreat and fell below USD 28,000.

NOTABLE ASIA-PAC HEADLINES

• Japanese, South Korean and Chinese finance ministers and central bank governors said they recognise the importance of strengthening economic and trade relations, while they fully support the implementation of the Regional Comprehensive Economic Partnership agreement. However, they also noted that despite close economic relations, they have observed a recent slowdown in economic relations, according to Reuters.
• US President Biden and Philippines President Marcos affirmed the importance of maintaining peace and stability across the Taiwan Strait, while President Biden confirmed the US will send a presidential trade and investment mission to the Philippines, according to Reuters.
• RBA unexpectedly hiked the Cash Rate Target by 25bps to 3.85% (exp. pause), while it stated that the Board expects some further tightening of monetary policy will be needed and remains resolute in its determination to return inflation to target and will do what is necessary to achieve that. RBA stated that inflation in Australia has passed its peak, but at 7% is still too high and it will be some time yet before it is back in the target range. Furthermore, it stated some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but will depend upon how the economy and inflation evolve.

DATA RECAP

• South Korean CPI MM (Apr) 0.2% vs. Exp. 0.3% (Prev. 0.2%)
• South Korean CPI YY (Apr) 3.7% vs. Exp. 3.8% (Prev. 4.2%)

GEOPOLITICS

• White House's Kirby said further military aid for Ukraine is coming very soon.
• US military is reportedly tracking a balloon of unknown origin, according to NBC News.

EU/UK

• UK employers are pushing to suspend scheduled pension contributions totalling tens of millions of pounds after many retirement schemes reached unexpected surpluses, according to a report in FT.
• Fitch downgraded France from AA to AA-; Outlook Stable and Moody’s affirmed Belgium at AA3; Outlook Stable.

DATA RECAP

• UK BRC Shop Price Index YY (Apr) 8.8% (Prev. 8.9%)