• APAC stocks were mostly lower with the region cautious after the losses on Wall St owing to debt ceiling fears, whilst Fitch placed the US on Credit Watch Negative.
• Nasdaq futures surged as NVIDIA (NVDA) shares rallied almost 25% after the close as earnings and forecasts beat expectations
• The FOMC May minutes were in fitting with recent Fed commentary and showed that officials were somewhat split on support for more rate hikes
• European equity futures are indicative of an open with a slight upward bias; Euro Stoxx 50 +0.1%
• Highlights include US IJC, GDP (2nd), PCE Prices Prelim., German GfK, CBRT & SARB Policy Announcements, Speeches from BoE's Haskel, ECB's Lane, de Guindos, Wunsch, Makhlouf & Vujcic, Fed's Barkin & Collins, Supply from Italy & US, Earnings from Generali, United Utilities & Ralph Lauren.

US TRADE

EQUITIES

• US stocks were lower amid debt limit concerns as the US moves closer to a potential default with no deal on the table although the rhetoric has been more optimistic in nature, while treasuries bear-flattened after firmer-than-expected UK CPI data and participants also digested the latest FOMC Minutes which showed officials were split on support for more hikes.
• SPX -0.73% at 4,115, NDX -0.50% at 13,604, DJIA -0.77% at 32,800, RUT -1.16% at 1,767
• Click here for a detailed summary.

FOMC MINUTES

• FOMC Minutes showed officials were split on support for more hikes and participants generally agreed the extent to which further interest rate hikes may be appropriate had become less certain, with many focused on the need to retain optionality after the May meeting. Participants generally expressed uncertainty about how much more policy tightening may be appropriate and several participants said if the economy evolved along the lines of their outlooks, further policy firming might not be needed. However, some participants commented that based on their expectations that progress in returning inflation to 2% could continue to be unacceptably slow, additional policy firming would likely be warranted at future meetings, while some participants stressed it was 'crucial' for the policy statement not to signal a likelihood of rate cuts this year or rule out further hikes.

NOTABLE HEADLINES

• Fed's Waller (voter) said whether the Fed should hike or skip at the June meeting will depend on the data over the next three weeks and he is watching labour market data, particularly wages information and additional inflation numbers. Waller said they need to maintain flexibility on the best policy decision for the June meeting and he is not expecting data in the next couple of months to make it clear the terminal interest rate has been reached, while he does not like that they have mortgage-backed securities on the Fed balance sheet and hopes they can run those off at some point, according to Reuters.
• Fed's Bostic (non-voter) said Fed officials will let the data guide them on rate moves and the Fed doesn't want to be locked into a particular rate move. Bostic expects to see labour market stress as inflation eases to the goal and said failure to get inflation to 2% is more problematic for the economy, while he added the best-case scenario is that the Fed will not consider a rate cut until well into 2024.
• White House said any budget deal will need the support of Democrats and that they will continue to negotiate in good faith to reach a reasonable budget agreement, while the White House Press Secretary said debt ceiling negotiations remain productive and that President Biden and House Speaker McCarthy will speak when the time is right.
• US House Speaker McCarthy said he believes they can get back to a 2022 spending level and has always thought that they could get a deal in a day, while he also stated there should not be any fear in markets and negotiations have made some progress. McCarthy also noted that a number of issues remain unresolved but added that things are better than they were the prior day, while he will stay in Washington DC this weekend and said they could get a debt agreement in principle this weekend, according to Reuters.
• US House Majority Leader Scalise said the weekend recess will begin on Thursday as planned, while debt ceiling talks will continue and lawmakers should be ready to return in case of a deal. Scalise also stated that members will get 24 hours' notice that they need to return if an agreement is reached and members will get 72 hours to read any debt ceiling bill, according to Reuters.
• US House Republican leadership reportedly feels very good about the state of the debt limit negotiations after several days of little progress, according to Punchbowl's Jake Sherman.
• US House Democratic leader Jeffries demanded that the length of spending caps match the length of the debt limit increase, according to a Bloomberg reporter.
• Fitch placed the US AAA sovereign rating on Rating Watch Negative which reflects the increased political partisanship that is hindering a resolution to raise or suspend the debt limit, while it still expects a resolution to the debt limit before the X-date but believes risks have risen that the debt limit will not be raised or suspended prior to the X-date. Fitch added that it would expect the US country ceiling to remain at AAA even in the scenario of a debt default and believes a failure to make full and timely payments on debt securities is less likely than reaching the X-date and is a very low probability event, according to Reuters.
• White House said the Fitch report reinforces the need for Congress to quickly pass a bipartisan agreement to avoid a debt default, while the US Treasury said brinkmanship over the debt limit does serious harm to businesses and American families, raises short-term borrowing costs for taxpayers and threatens the credit rating of the US.
• Nvidia (NVDA) Q1 23 (USD): Adj. EPS 1.09 (exp. 0.92), revenue 7.19bln (exp. 6.52bln). Q2 23 revenue view 11bln (+/- 2%) (exp. 7.18bln). CFO said that the data centre revenue rise in the quarter is led by growing demand for generative AI and large language models using GPUs. Shares rose 24.6% after-market.

APAC TRADE

EQUITIES

• APAC stocks were mostly lower with the region cautious after the losses on Wall St owing to debt ceiling fears and after the FOMC Minutes showed officials were split on support for more hikes, while Fitch placed the US AAA sovereign rating on Rating Watch Negative despite several optimistic comments from House Speaker McCarthy.
• ASX 200 weakened as the commodity-related sectors led the broad declines across nearly all industries and with sentiment also dampened as households are set to pay hundreds of dollars more each year after the energy regulator approved an increase of up to 25% in electricity bills.
• Nikkei 225 was kept afloat but with the upside capped in the absence of any major positive drivers.
• KOSPI was subdued after the BoK rate decision in which the central bank kept rates unchanged as expected, although 6 out of the 7 board members saw the need to keep the door open for one more rate hike.
• Hang Seng and Shanghai Comp. were pressured with underperformance in Hong Kong after the benchmark index slipped beneath the 19,000 level, while the mainland was lacklustre amid recent US-China frictions.
• US equity futures were boosted after hours as NVIDIA shares surged around 25% post-earnings which puts it closer to the trillion-dollar market cap club.
• European equity futures are indicative of a marginally higher open with the Euro Stoxx 50 +0.1% after the cash market closed down by 1.8% yesterday.

FX

• DXY extended on gains owing to the cautious mood and after Fed’s Waller ruled out a pause in June but instead suggested that data will determine if they hike or skip. Furthermore, the FOMC minutes had little sway as it showed officials were split on support for more hikes which is in fitting with recent commentary, while there was optimism regarding the debt ceiling talks as House Speaker McCarthy noted some progress in negotiations with things better than they were the prior day and said that they could get a debt agreement in principle this weekend. Nonetheless, lawmakers will be leaving today for the recess as negotiators scramble to avert a default and Fitch has already fired a warning shot in which it placed the US AAA sovereign rating on Rating Watch Negative.
• EUR/USD remained lacklustre after a choppy performance and failure to reclaim the 1.0800 status.
• GBP/USD languished near a monthly low despite the recent UK CPI data.
• USD/JPY climbed to a fresh YTD high as price action remained largely driven by rising US yields.
• Antipodeans were subdued owing to their high-beta statuses and in the absence of any data releases to detract from the recent central bank activity.
• PBoC set USD/CNY mid-point at 7.0529 vs exp. 7.0515 (prev. 7.0560)
• Turkey asked banks to buy dollar debt to support default swaps, according to Bloomberg.

FIXED INCOME

• 10yr UST futures remained pressured after yesterday’s bear flattening and as yields continued to edge higher amid the somewhat hawkish Fed undertones, while prices found some brief support after Fitch placed the US rating on Credit Watch Negative although the knee-jerk reaction from the rating agency's action was reversed shortly after.
• Bund futures were on the back foot and continued their retreat from nearby resistance at the 134.00 level.
• 10yr JGB futures tracked the losses in global peers amid the lack of additional BoJ purchases and despite the higher accepted prices at an otherwise mixed 40yr auction.

COMMODITIES

• Crude futures took a breather overnight but held on to most of their recent gains as the mammoth 12.5mln bbl draw in weekly crude stockpiles and Russian supply risks overshadowed the firmer dollar and downbeat risk tone.
• Spot gold traded rangebound with prices constrained by a firmer dollar and inconclusive FOMC Minutes.
• Copper futures reflected the cautious mood but were off lows amid some debt ceiling optimism.
• Antofagasta's Centinela Mine supervisor union in Chile accepted contract negotiations to avoid a strike.

CRYPTO

• Bitcoin remained subdued after the recent downturn and briefly tested the USD 26,000 level.
• SEC Chair Gensler is reportedly readying staff for more crypto crackdowns and is said to be flogging staff to bring various crypto cases, according to FBN's Gasparino.

NOTABLE ASIA-PAC HEADLINES

• White House's Kirby said China's move to ban Micron (MU) is clearly an attempt to undermine the strong stance taken by G7 on economic coercion and that China’s action is inconsistent with its assertion that it is opening its markets. Kirby added the administration is trying to see if it can get a more productive engagement with China in future months and is working on possible visits to China by Treasury Secretary Yellen and other cabinet secretaries, while they are still in discussions on a possible meeting between USTR's Tai and her Chinese counterpart. Furthermore, Kirby said discussions remain open with China but they will not sit idly if Beijing acts inappropriately.
• Microsoft (MSFT) warned that Chinese state-sponsored hackers had compromised “critical” US cyberinfrastructure across numerous industries with a focus on gathering intelligence, according to CNBC.
• Chinese companies reportedly switch auditors to avoid US delisting risk, according to FT.
• USTR Tai is reportedly to meet with Taiwan's minister in charge of the Office of Trade Negotiations.
• BoK maintained its base rate at 3.5%, as expected, through a unanimous decision although six board members saw the need to keep the door open for one more rate hike. BoK statement noted economic growth is to remain weak for some time and inflation will likely fall considerably before rebounding slightly for the rest of the year, while it stated uncertainty is high over the Chinese economy and IT sector, as well as lowered its 2023 GDP growth forecast to 1.4% from 1.6%. Furthermore, BoK Governor Rhee said core inflation is not easing as much as board members had expected and that board members share the opinion that it is premature to talk about a rate cut this year with uncertainty higher over regarding whether inflation will approach the 2% target before year-end.
• RBNZ Governor Orr said rates are restrictive and well above neutral, while he added that economic growth and inflation are weaker than expected although they can change the assessment if needed as new data emerges, according to Reuters.

DATA RECAP

• Singapore GDP QQ (Q1 F) -1.6% vs Exp. -2.5% (prev. -2.7%)
• Singapore GDP YY (Q1 F) 0.4% vs Exp. 0.2% (prev. 0.1%)

GEOPOLITICS

• EU is reportedly discussing sending profits from EUR 196.6bln of frozen Russian assets to Ukraine, according to FT.
• Twitter sources noted air raid sirens in Kyiv and that Shahed drones were launched towards northern and southern Ukraine.
• Hundreds of thousands of South Korean artillery rounds are on their way to Ukraine via the US, according to WSJ sources.

UK/EU

• ECB's Vasle said the ECB must still raise rates further and inflation is becoming increasingly stubborn.