• APAC stocks were mostly lower following the negative lead from Wall St and amid US-China frictions.
• The US House China Select Committee Chair called for retaliation against China’s ban on Micron.
• US GOP Rep. McHenry said the top-line disagreement remains on spending and he cannot say when negotiations will resume.
• European equity futures are indicative of a lower open with the Euro Stoxx 50 -0.4% after the cash market closed down by 1.0% yesterday.
• DXY is a touch softer below the 103.50 mark, EUR/USD remains on a 1.07 handle, NZD lags post-RBNZ.
• RBNZ raised the OCR by 25bps as expected, but signalled the end of the hiking cycle with the peak rate forecast maintained at the current level.
• Looking ahead, highlights include UK CPI, German Ifo, FOMC Minutes (May), Speeches from ECB's Lagarde & Fed's Waller, Supply from Germany, UK & US

US TRADE

EQUITIES

• US stocks were pressured and extended to the downside throughout the session as debt limit negotiations continued to lack any breakthroughs with nine days remaining to the X-date and with sentiment also dampened after US lawmakers threatened retaliation to China's Micron (MU) ban, while the data releases in the US were mixed with the S&P Flash PMIs for April showing continued growth momentum in services although manufacturers struggled.
• SPX -1.12% at 4,146, NDX -1.28% at 13,673, DJIA -0.69% at 33,056, RUT -0.43% at 1,788.
• Click here for a detailed summary.

NOTABLE HEADLINES

• White House said invoking the 14th Amendment to work around the debt ceiling won't "fix the current problem" but wouldn't shut the door entirely on pursuing the strategy if they can't reach a deal, according to USA Today.
• US House Speaker McCarthy said he has not spoken to US President Biden and was not scheduled to go to the White House on Tuesday but reiterated that they will work until they get it all done. It was separately reported that McCarthy said President Biden and the White House are trying to bring Medicare and Social Security “back into the fold” as a way “to try to disrupt the whole negotiations”, according to AP.
• US GOP Rep. Graves said they don't have additional meetings set up and noted there are some areas where they are very close although there are still substantial gaps including over the debt limit duration.
• US GOP Rep. McHenry said the top-line disagreement remains on spending and he cannot say when negotiations will resume.
• US President Biden's administration is pushing to save COVID vaccine programmes in debt talks, according to NYT.

APAC TRADE

EQUITIES

• APAC stocks were mostly lower following the negative lead from Wall St where sentiment was weighed on by the ongoing debt limit impasse with just 9 days left to the X-date and amid US-China frictions after the US House China Select Committee Chair called for retaliation against China’s ban on Micron.
• ASX 200 declined with the resilience in the commodity-related sectors offset by weakness across the broader market and after the Westpac Leading Index remained depressed.
• NZX 50 was underpinned after a dovish RBNZ rate hike which signalled the end of its rate increases.
• Nikkei 225 was pressured after its recent pullback to beneath the 31,000 level despite reports that the government is to consider childcare handouts for those up to 18 years old, while the first positive reading this year in the monthly Reuters Tankan manufacturing survey did little to spur risk appetite.
• Hang Seng and Shanghai Comp. were lower amid US-China frictions after the White House spoke out against the Micron ban, while a lawmaker called for the Commerce Department to add Changxin Memory Technologies to the entity list and ensure no US export licenses are granted to firms operating in China which are used to backfill Micron.
• US equity futures were contained after slipping yesterday due to the ongoing debt limit concerns.
• European equity futures are indicative of a lower open with the Euro Stoxx 50 -0.4% after the cash market closed down by 1.0% yesterday.

FX

• DXY held on to most of yesterday’s mild gains owing to the risk-off tone in equities albeit with the upside capped by the debt ceiling impasse and after mixed data releases, while the focus turns to the upcoming FOMC Minutes.
• EUR/USD languished beneath 1.0800 after it gave way to the firmer dollar and with the single currency not helped by the mixed PMI figures from the bloc including a deeper contraction in manufacturing activity.
• GBP/USD was rangebound ahead of UK CPI data and after the prior day’s fluctuations in which it briefly dipped below the 1.2400 handle but then clawed back losses in the aftermath of the latest BoE commentary.
• USD/JPY was indecisive as price action remained centred around a 138.50 focal point.
• Antipodeans declined with NZD/USD pressured by the RBNZ’s dovish rate hike in which it raised the OCR by 25bps to 5.50%, as expected, but signalled the end of the hiking cycle with the peak rate forecast maintained at the current level.
• PBoC set USD/CNY mid-point at 7.0560 vs exp. 7.0556 (prev. 7.0326)

FIXED INCOME

• 10yr UST futures marginally extended gains amid the risk aversion and following a stellar 2yr auction.
• Bund futures edged higher after reclaiming the 134.00 level despite further hawkish ECB rhetoric.
• 10yr JGB futures lacked direction and failed to benefit from the BoJ’s presence in the market for JPY 1.7tln of JGBs on top of its fixed rate operations as reports also noted that Japan could issue bonds to fund childcare policies.

COMMODITIES

• Crude futures were underpinned after bullish private sector inventories including the surprise draw in headline crude stockpiles and following recent warnings by Saudi's Energy Minister for oil speculators to 'watch out'.
• US Energy Inventory Data (bbls): Crude -6.8mln (exp. +0.8mln), Cushing +1.7mln, Gasoline -6.4mln (exp. -1.1mln), Distillate -1.7mln (exp. +0.4mln).
• Spot gold traded sideways amid a rangebound dollar and as the attention shifts to the FOMC Minutes.
• Copper futures declined alongside the debt ceiling concerns and tested USD 8,000/ton to the downside.

CRYPTO

• Bitcoin was pressured amid the risk aversion and slipped below the USD 27,000 level.

NOTABLE ASIA-PAC HEADLINES

• China’s new ambassador to the US Xie said US-China relations face serious difficulties and hopes the US will get back on the right track, while he added that they will seek to enhance China-US exchanges and cooperation.
• White House said China's recent announcement on Micron (MU) is not based on fact and they are troubled by recent action and raids targeting American firms, while the US is communicating the administration's views to China via the Commerce Department, according to Reuters.
• US House China Select Committee Chair said the Commerce Department should add Changxin Memory Technologies (CXMT) to the entity list and that China’s actions against Micron (MU) are the latest example of economic coercion to intimidate the US government from implementing export controls, while the Commerce Department should ensure no US export licenses are granted to firms operating in China which are used to backfill Micron.
• RBNZ hiked the OCR by 25bps to 5.50% as expected, while it maintained the peak rate forecast at 5.50% and noted that the OCR is set to remain restrictive for the foreseeable future. RBNZ said the level of interest rates is constraining spending and inflation and it forecasts negative GDP growth in Q2 and Q3. Furthermore, the rate decision was made by a majority of five votes to two and the Committee discussed the suitability of a pause or a 25bps hike.
• RBNZ Governor Orr said during the press conference that the newest data is satisfactory after a long battle and noted it was the first time the Monetary Policy Committee voted on the decision, while he added that they have seen inflation, core inflation and inflation expectations come down, but as a cautious central bank, they are foreshadowing keeping restrictive monetary policy for some time.

DATA RECAP

• Australian Westpac Leading Index MM (Dec) 0.0% (Prev. 0.0%)
• New Zealand Retail Sales QQ (Q1) -1.4% (Prev. -0.6%)
• New Zealand Retail Sales YY (Q1) -4.1% (Prev. -4.0%)

GEOPOLITICS

• Russian Defence Ministry said two US air force strategic bombers were detected on Tuesday approaching the Russian border over the Baltic Sea. The fighter jet was sent to prevent a border incursion although the border was not violated and the Russian plane returned to base.

UK/EU

• ECB President Lagarde said rates are to reach "sufficiently restrictive levels" and will stay restrictive for as long as necessary.
• ECB's Nagel said several more ECB rate hikes are needed to tame inflation and they will need to maintain peak rate for a sufficiently long time until inflation has fallen sustainably, according to Reuters.