• European bourses & US futures are incrementally firmer in somewhat limited trade with corporate updates factoring and the focus on debt talks
• DAX 40 outperforms amid strength in Siemens & SAP; region follows mixed APAC trade, though Nikkei 225 surpassed 30k
• Overall, debt ceiling updates were slightly constructive, but the impasse does ultimately remain
• DXY briefly topped 103.00 as the Yuan continues to slip on soft data to the detriment of peers with JPY and GBP lagging
• Core benchmarks have experienced a bounce on firm EGB/UK supply, while USTs are slightly more restrained pre-20yr
• Crude is essentially unchanged with specific drivers limited while base metals are mixed as the USD firms and after recent Chinese data
• Looking ahead, highlights include US Building Permits/Housing Starts. ECB's de Guindos. Supply from the US. Earnings from Target, Cisco & TJX

EUROPEAN TRADE

EQUITIES

• European bourses are in close proximity to the unchanged mark, Euro Stoxx 50 +0.1%, with fresh drivers somewhat limited and following a mixed APAC session though one that feature marked Nikkei 225 outperformance, above 30k.
• Within Europe, the DAX 40 +0.3% outperforms after heavyweight Siemens' (+2.0%) Q2 update alongside strength in SAP (+1.6%) following a guidance update and buyback announcement; in contrast, Financial Services are pressured by LSE and Euronext while Commerzbank is the Banking sector laggard.
• Stateside, futures are modestly firmer in generally horizontal trade with the ES +0.1% around 4130 ahead of debt ceiling updates with the overnight developments slightly constructive but the impasse ultimately remains.
• Tencent (700 HK): Q1 2023 (CNY): Revenue 149.99bln (exp. 146.29nlm). Net 32.5bln (exp. 33.2bln), Operating 40.43bln (exp. 40.7bln); Weixin and Wechat MAUs 1.32bln (exp. 1.32bln).
• Click here and here for a recap of the main European updates.
• Click here for more detail.

FX

• DXY tops 103.000 amidst broad gains mainly forged at the expense of the Yuan.
• USD/CNY probes 7.0000 and USD/CNH approaches Fib at 7.0364 after a spate of disappointing Chinese data.
• Yen under 137.00 vs Dollar and relying on 200 DMA for a reprieve, Sterling sub-1.2450 and relatively unaffected by BoE's Bailey.
• Euro teeters above Fib in the low 1.0800 zone.
• PBoC set USD/CNY mid-point at 6.9748 vs exp. 6.9750 (prev. 6.9506).
• Click here for more detail.
• Click here for the notable FX expiries for today's NY cut.

FIXED INCOME

• Firm bounce in core EU bonds and strong demand for supply along the way.
• Bunds and Gilts are both towards the top of ranges extending to 135.82 and 100.83 from 135.28 and 100.41 respectively.
• USTs relatively restrained with T-note tethered to 115-00 ahead of US housing data and USD 15bln 20-year sale.
• Click here for more detail.

COMMODITIES

• Crude benchmarks are essentially unchanged after drifting in the first half of the session as the USD picked up and sentiment slipped; a narrative that has eased/lifted from respective session peaks since.
• Currently, WTI and Brent are incrementally firmer within circa. USD 1/bbl parameters with specific newsflow light and focus on geopols. amid reports that Iran's Economy Minister discussed oil and gas projects with Saudi Arabia, according to Bloomberg.
• Spot gold is drifting with the USD firmer and sentiment improving throughout the morning, yellow metal below USD 2k/oz and approaching the USD 1981/oz 50-DMA.
• Base metals are more mixed, with the region attempting to recoup some of the recent China-induced pressures but with action capped on USD strength.
• US Energy Inventory Data (bbls): Crude +3.7mln (exp. -0.9mln), Gasoline -2.5mln (exp. -1.1mln), Distillate -0.9mln (exp. +0.1mln), Cushing +2.9mln.
• UBS lowers Year-End Brent forecast by USD 10/bbl to USD 95/bbl amid greater-than-expected supply.
• Click here for more detail.

NOTABLE HEADLINES

• The Royal United Services Institute think tank warned that UK PM Sunak will have to find USD 42bln in tax hikes and spending cuts to pay for his pledge to boost defence spending to 2.5% of GDP, according to The Mirror.
• The Resolution Foundation has warned that the BoE's decision to hike interest rates could limit Chancellor Hunt's room to lower taxes in the Autumn, according to The Times.
• UK Labour opposition leader Keir Starmer calls for the UK's current Brexit deal to be renegotiated, but declares the UK must not re-join the EU or single market, according to Sky News.
• ECB's de Cos says the ECB is getting near the end of its tightening cycle; transmission remains strong.
• ECB's Rehn says need to see core CPI slow substantially.
• BoE Governor Bailey says "If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.". MPC pays particular attention to indicators of inflation persistence, including labour market tightness and wage growth, and services price inflation. There are signs that the labour market is loosening a little.

DATA RECAP

• EU HICP Final YY (Apr) 7.0% vs. Exp. 7.0% (Prev. 7.0%); X F&E Final YY (Apr) 7.3% vs. Exp. 7.3% (Prev. 7.3%); X F, E, A & T Final YY (Apr) 5.6% vs. Exp. 5.6% (Prev. 5.6%)

DEBT CEILING

• US President Biden said they had a good, productive meeting on the debt ceiling and there is still more work to do, while he made it clear to House Speaker McCarthy that they will talk regularly over the next several days. Biden is confident they will continue to make progress on avoiding default and said that defaulting on debt is not an option, while he also noted it is disappointing Republicans refuse to consider raising revenue, according to Reuters.
• White House said President Biden directed staff to meet daily on outstanding issues and said he would like to check in with leaders later this week by phone and meet with them upon return from overseas. Biden also emphasised that while more work remains on a range of difficult issues, he is optimistic that there is a path to a budget agreement, according to Reuters.
• President Biden will no longer visit Australia or Papua New Guinea and will return to the US on Sunday to focus on the debt ceiling talks, according to NBC.
• US House Speaker McCarthy said they have set the stage to carry on conversations in debt talks and that President Biden agreed to appoint a couple of people from the administration to negotiate directly with his team. McCarthy also said there is a lot of work to do in a short amount of time and that they are still very far apart but added it is possible to get a deal by the end of the week and it is not that difficult to reach an agreement. However, McCarthy later said he is not more optimistic about getting a deal by the end of the week.
• US Senate Majority Leader Schumer said the debt meeting was good and productive, while he added that they all agreed a default is a horrible option, according to Reuters.
• US Senate Republican Leader McConnell earlier told Senate Republicans there had not been much progress on debt ceilings talks with POTUS and other leaders.
• House Democrats are to reportedly begin collecting signatures for effort to raise debt ceiling, according to WSJ.
• Punchbowl on the US debt limit, says "Initial discussions began Tuesday night, with full-scale negotiations set to kick off this morning, we’re told", "Sources close to the talks expect any debt-limit boost to run well into 2025."

NOTABLE US HEADLINES

• Fed's Bostic (non-voter) reiterated there is still a way to go to defeat inflation and said the pressure on the Fed will be enormous if unemployment starts to rise and inflation remains sticky. Bostic added that the Fed will have to stay 'super strong' in its inflation commitment and he doesn't share the market view on how fast inflation will fall.
• Western Alliance (WAL) said Q2 deposit growth is USD 2bln+ as of May 12th, while Republic First Bancorp (FRBK) said has adequate capital and does not need to enter into transaction proposed by Norcross-Braca Group, according to Reuters. It was also reported that New York Community Bancorp (NYCB) announced the FDIC agreed to sell 39mln shares of the Co. in an underwritten public offering.
• Shein raises USD 2bln in the latest fundraising round at a USD 66bln valuation, which is around 33% lower YY, via WSJ citing sources.
• Click here for the US Early Morning Note.

GEOPOLITICS

• Russia's Kremlin says it will not enter a hypothetical discussion on what Russia will do if the grain deal lapses.

CRYPTO

• UK MPs have warned that trading in Bitcoin and other speculative crypto assets should be regulated to prevent consumers from being lulled into a false sense of security about the risks posed, according to The Times.

APAC TRADE

• APAC stocks were mixed with the region cautious after the weak handover from the US where risk appetite was clouded amid debt ceiling concerns, while the meeting between US President Biden and congressional leaders achieved no major breakthroughs although was said to be productive and has set the stage to carry on further conversations.
• ASX 200 was subdued amid losses across nearly all sectors and following mixed wage price index data.
• Nikkei 225 outperformed and climbed above the 30,000 level for the first time since September 2021 with sentiment also underpinned by stronger-than-expected Japanese GDP data.
• Hang Seng and Shanghai Comp. were lower with price action contained amid a lack of fresh macro catalysts to detract from the recent streak of disappointing data releases from China.

NOTABLE ASIA-PAC HEADLINES

• Chinese embassy spokesman said the visit to Taiwan by former UK PM Truss this week is a dangerous political show which will do nothing but harm to the UK, according to The Guardian.

DATA RECAP

• Chinese China House Prices YY (Apr) -0.2% (Prev. -0.8%)
• Japanese GDP QQ (Q1) 0.4% vs. Exp. 0.1% (Prev. 0.0%); Annualised (Q1) 1.6% vs. Exp. 0.7% (Prev. 0.1%, Rev. -0.1%)
• Australian Wage Price Index QQ (Q1) 0.8% vs. Exp. 0.9% (Prev. 0.8%); YY (Q1) 3.7% vs. Exp. 3.6% (Prev. 3.3%)