• Risk tone has slipped as we await substantive debt ceiling updates into the long weekend
• DXY is softer, but remains above 104.00, with CHF and JPY outperforming
• EGBs/Gilts slipped on UK Retail data, but have since pared with USTs bid on the above tone
• Commodities edging higher given the USD and XAU benefitting from sentiment
• McCarthy said there was no agreement Thursday; will stay to continue work. Biden said they were near a deal to lift the ceiling
• Looking ahead, highlights include US PCE Price Index & Durable Goods.

EUROPEAN TRADE

EQUITIES

• European bourses began the session on the front foot but have since pulled back from best levels and now see a mixed picture, Euro Stoxx 50 -0.1%.
• Sectors in Europe are mixed (vs a mostly positive open). Basic Resources outperform as base metals claw back some recent losses, with Tech the next best performer as NVIDIA’s surge continues to reverberate globally. The downside meanwhile consists of Utilities, Telecoms, and Banks.
• US equity futures traded horizontally overnight but saw a slight uptick shortly after the cash open, in tandem with Europe, but have since pulled back; ES -0.1%.
• Click here and here for a recap of the main European updates.
• Click here for more detail.

FX

• The broader Dollar and index have pulled back from overnight highs. mostly amid the strength in G10 counterparts.
• The non-US Dollars are firmer against the Dollar to varying degrees, AUD/USD outperforms as base metals rebound.
• Sterling resides as one of today’s outperformers on the back of the stronger-than-expected Retail Sales data (+0.5% M/M vs exp. 0.3%), coupled with hawkish commentary from BoE’s Haskel yesterday.
• The SEK stands as the current G10 outperformer with strength seen amid hawkish commentary from Riksbank Deputy Governor Bremen.
• PBoC set USD/CNY mid-point at 7.0760 vs exp. 7.0752 (prev. 7.0529)
• Click here for more detail.

FIXED INCOME

• Core benchmarks are mixed with USTs bid as the risk tone slips while EGBs/Gilts are softer, but directionally in-fitting.
• EGBs and Gilts were initially weighed on by strong UK Retail data which adds to the factors in-favour of further BoE tightening.
• Though, market pricing for the BoE hasn't altered significantly from the post-CPI pricing of 100bp of tightening by end-2023.
• Stateside, yields are lower across the curve and towards troughs given the above benchmark pricing.
• Click here for more detail.

COMMODITIES

• WTI and Brent futures are relatively flat on either side of the unchanged mark following the downside yesterday, which was due to a concoction of weak German GDP data and comments from Russia Deputy PM Novak.
• Spot gold has firmed in the European morning as the DXY pulled back, while the yellow metal also found support near its 100 DMA (USD 1,934.86/oz) in APAC hours.
• Base metals are firmer across the board following the losses seen throughout the majority of this week.
• India weather office says El Nino seen emerging during monsoon season.
• Click here for more detail.

NOTABLE HEADLINES

• UK ministers look to reshape the pensions lifeboat fund to provide a boost to business, according to FT.
• ECB's Lane on "How quickly will inflation return to target?" - reiterates guidance from the 4th May ECB Meeting. There is no sense of certainty in the terminal rate; uncertainty in models is high; some upside risks to wage growth.
• ECB's Vujcic says inflation momentum is still persistent and it is questionable that we will be able to get to 2% in the next two years.
• Riksbank's Breman says increasing asset sales is something we could think about if we see the crown continuing to weaken. Adds, increasing asset sales is something we should think about, doesn't need to be next meeting.

DATA RECAP

• UK Retail Sales MM (Apr) 0.5% vs. Exp. 0.3% (Prev. -0.9%, Rev. -1.2%); Ex-Fuel MM (Apr) 0.8% vs. Exp. 0.3% (Prev. -1.0%, Rev. -1.4%)
• UK Retail Sales YY (Apr) -3.0% vs. Exp. -2.8% (Prev. -3.1%, Rev. -3.9%); Ex-Fuel YY (Apr) -2.6% vs. Exp. -2.8% (Prev. -3.2%, Rev. -4.0%)

NOTABLE US HEADLINES/DEBT CEILING

• US President Biden and House Speaker McCarthy are said to be near a deal that would raise the debt ceiling for two years and cap spending on most items other than military and veterans, while President Biden and Democrats are considering scaling back the boost in IRS funding as part of a budget deal, according to a US official cited by Reuters.
• US House Speaker McCarthy said there was no agreement on Thursday and he will stay at the Capitol to continue to work this weekend, while he added it is not easy and they will continue working until they get it done, according to Reuters.
• US GOP Rep. Graves said work requirements are a sticking point in talks with the White House, according to Reuters.
• US GOP Rep. McHenry said there is alignment on what they need to work on with the debt ceiling, while he responded that he doesn’t think so and they are not quite in that zone yet when asked if a deal could have been made yesterday, but noted the work they are doing centres on a shorter and shorter array of issues.
• Fox's Pergram says debt ceiling talks continue today, just a pro forma session in the House today and mostly only negotiators in town for Memorial Day weekend.
• US regulator vowed to take a tough line on problem banks with the Office of the Comptroller of the Currency to consider taking corrective action against persistently weak banks including forcing them to exit certain businesses, according to WSJ.
• Search for a new Fed Kansas City President is entering the second year amid difficulties in recruiting candidates, via WSJ citing sources.
• Click here for the US Early Morning Note.

GEOPOLITICS

• Japan is to place additional sanctions against Russia in which it will freeze the assets of 78 groups and 17 individuals in Russia as part of new sanctions, according to a government bulletin. Furthermore, Chief Cabinet Secretary Matsuno said Japan is to ban providing construction and engineering services in Russia, while they condemned Russia's plan to deploy tactical nuclear weapons to Belarus as it intensifies the situation around Ukraine, according to Reuters.
• Regarding Sweden's NATO accession, Sweden said Turkish President Erdogan's demands are impossible to meet as Sweden has not received a list of relevant individuals from Turkey, according to a senior Swedish official cited by WSJ.

CRYPTO

• Bitcoin is tentative but incrementally softer in-fitting with the broader tone and as the USD remains resilient above the 104.00 mark, though softer ultimately, ahead of debt ceiling updates into the long weekend.

APAC TRADE

• APAC stocks traded mixed following the mild positive bias stateside where the tech sector surged on Nvidia’s blockbuster report and with sentiment underpinned by firm US data and progress in debt ceiling talks.
• ASX 200 was indecisive with price action rangebound and risk sentiment contained by disappointing Retail Sales data.
• Nikkei 225 outperformed and reclaimed the 31,000 level with the index lifted by recent currency weakness and mostly softer-than-expected Tokyo CPI, while tech stocks benefitted from the ripple effect which stemmed from the rally in US counterparts.
• Shanghai Comp. was subdued amid the closure of Hong Kong markets and Stock Connect trade but with the downside cushioned after the meeting between the US and China’s commerce chiefs where concerns were raised about recent actions taken against US companies in China, as well as US chip policy and export curbs.

NOTABLE ASIA-PAC HEADLINES

• US Commerce Secretary Raimondo met with Chinese Commerce Minister Wang in Washington and raised concerns about the recent spate of Chinese actions taken against US companies in China. Furthermore, China's MOFCOM said Wang and Raimondo agreed to keep communication on trade concerns and that China expressed concerns on US chip policy and export curbs, while the meeting was candid and constructive, according to Reuters.
• China's top server makers asked suppliers to suspend shipments of modules containing chips made by Micron (MU) following Beijing's partial ban on Micron products, according to SCMP.

DATA RECAP

• Tokyo CPI YY (May) 3.2% vs. Exp. 3.9% (Prev. 3.5%); Ex. Fresh Food YY (May) 3.2% vs. Exp. 3.3% (Prev. 3.5%)
• Tokyo CPI Ex. Fresh Food & Energy YY (May) 3.9% vs. Exp. 3.9% (Prev. 3.8%)
• Australian Retail Sales MM Final (Apr) 0.0% vs. Exp. 0.2% (Prev. 0.4%)