• European bourses are mixed after a morning of choppy price action; IBEX outperforms on inflation numbers
• Stateside, futures are bid after an in-principal debt ceiling agreement with the NQ outperforming as NVDA leads in the pre-market
• DXY briefly surmounted 104.50 but has since receded as Kanda-induced JPY pressure abates and GBP surpasses 1.24
• EGBs/USTs extend after soft EZ data and Spanish inflation, fresh highs occurring after well-received periphery supply
• Crude remains pressured with updates slim ahead of the 4th June OPEC+ though Novak is meeting oil firms today
• Looking ahead, highlights include Speeches from Fed’s Barkin & ECB’s Centeno, Holzmann, Villeroy

US DEBT CEILING

• US President Biden reached a budget agreement in principle with House Speaker McCarthy to raise the debt limit by 19 months until 1st January 2025. President Biden stated that the agreement represents a compromise and he strongly urged for both chambers of Congress to pass the US debt agreement right away, while he is confident a debt ceiling deal will get to his desk and responded “none” when asked if there are sticking points in a deal, according to Reuters.
• US House Speaker McCarthy said the agreement has historic reductions in spending and there are no new taxes or programs in the deal, while he expects Congress to vote on the deal on Wednesday and said more than 95% of House Republicans are very excited about the debt ceiling deal, according to Reuters.
• US Democrats and Republicans are confident they can pass the deal to avert a US default, according to FT. It was also reported that the US House Rules Committee will meet on Tuesday to discuss the debt ceiling bill, according to Reuters.
• US GOP Rep. Good said he is hearing that the deal is for a USD 4tln increase in the debt limit and US GOP Rep. Roy separately commented that they are going to try to stop the debt ceiling deal in the House, while Democrat Rep. Himes said small scope of debt ceiling bill will win support from Democrats.
• US House Speaker McCarthy’s team believes they can avoid a disaster at the House Rules Committee at 3 p.m. (ET) today. "there’s chatter that Massie (R-Ky.) may still back the rule, which makes him the key figure in today’s drama.", according to Punchbowl. "Remember: Reps. Chip Roy (R-Texas), Ralph Norman (R-S.C.) and Thomas Massie (R-Ky.) — three conservatives who serve on the panel — are at risk to vote against the rule, which allows the legislation to come to the floor"
• Click here for the Newsquawk primer.

EUROPEAN TRADE

EQUITIES

• European bourses are mixed after a choppy morning, Euro Stoxx 50 +0.3%, with fresh fundamentals somewhat lacking but the region playing catchup and heading into month-end.
• Spain outperforms after the regions encouraging inflation metrics though political turmoil may return as PM Sanchez announces snap elections, IBEX 35 +0.6%.
• Stateside, futures are constructive but saw marked two-way action initially; this has since settled with NQ outperforming as NVDA +3.3% pre-market continues to gain following numerous AI-related updates and as it is on course for a USD 1tln cap.
• ES +0.5% and RTY +0.3% in-fitting with the above catchup play into month end and as the market takes stock of the debt ceiling deal; though, on this, there are still a number of deadlines in the near-term; newsquawk analysis above.
• Click here and here for a recap of the main European updates.
• Click here for more detail.

FX

• DXY tops 104.500 as US debt deal struck in principle and Yuan extends bear run, but recedes as risk appetite improves, yields retreat and Yen defends 141.00 again.
• USD/JPY reverses towards 140.00 after unintentional verbal intervention from Japan's top currency diplomat.
• Euro regains 1.0700+ status after decline on soft Spanish inflation data and EZ M3 metrics while the Pound reclaims 1.2400 handle after Spring Break in the UK.
• Aussie and Kiwi recover from overnight lows after weak building consents and approvals to trade around 0.6550 and 0.6050 vs 0.6504 and 0.6026 respectively.
• Swedish Crown and Swiss Franc mixed irrespective of upbeat GDP updates as EUR/SEK straddles 11.6000 and USD/CHF pivots 0.9050.
• PBoC set USD/CNY mid-point at 7.0818 vs exp. 7.0821 (prev. 7.0575)
• Turkish President Erdogan won the election runoff on Sunday with 52.1% of votes vs Kilicdaroglu at 47.9% of votes. Erdogan said they were given the responsibility to rule for the next 5 years, while Kilicdaroglu said he will continue with his struggle and that it was the most unfair election in years.
• Riksbank’s Jansson said the SEK could be a serious problem and should not continue to weaken on a trend basis, while he added they are a long way from a currency intervention which in his view would be a last resort. Jansson stated that he doesn’t like currency intervention as a plan in the current monetary policy regime and it would have to be an exceptional situation, as well as noted there is a question on how effective a currency intervention would be. Furthermore, he said their main tools are the interest rate and the asset portfolio, while he is ready to raise rates as much as needed to deal with inflation, according to Reuters.
• Click here for more detail.

FIXED INCOME

• EGBs extended upside range after soft EZ data and solid Italian auctions, nds and BTPs near top end of 134.83-15 and 114.78-06 ranges.
• T-notes firm on return from Memorial Day, but Gilts fade following upturn post-Spring Bank holiday between 113-00+/112-03 + and 95.86-94.85 bounds.
• Italy sells EUR 9.5bln vs exp. EUR 8-9.5bln 3.80% 2028, 4.35% 2033, 4.40% 2033 BTP and EUR 1.5bln vs exp. EUR 1-1.5bln 2028 CCTeu. Click here for more.
• Click here for more detail.

COMMODITIES

• Crude benchmarks continue to come under pressure with specifics limited as focus turns to the OPEC+ meeting on June 4th; today, Novak is reportedly meeting with oil Cos.
• WTI and Brent July futures are near USD 71/bbl and USD 75/bbl respectively, vs USD 73.55/bbl and USD 77.57/bbl peak.
• Spot gold gave up the 100 DMA at USD 1936/oz briefly to a trough circa. 4/oz below this; currently, the metal has lifted back towards USD 1950/oz seemingly amid the latest USD action.
• Base metals are mixed with Copper initially subdued while Platinum and Palladium are edging higher.
• OPEC Secretary General Al Ghais said OPEC will welcome back Iran’s full return to the market when sanctions are lifted and commented that all OPEC decisions are made in order to have a good balance between global oil demand and supply, according to Shana.
• Iranian President Raisi told OPEC Secretary General that he hopes oil producers can calm down the market and called for unity among its members, according to Reuters.
• Ukraine is said to be seeking to extend the Black Sea grain deal by one year from July, according to reports.
• Click here for more detail.

NOTABLE HEADLINES

• UK Health Secretary Barclay said the government will not negotiate on the amount of pay with the nurses’ union RCN as the threat of more strikes looms, according to Reuters.
• Spanish PM Sanchez called a snap general election for July 23rd after his Socialist party suffered a resounding defeat in local and regional elections on Sunday, according to FT.
• ECB's Simkus expects 25bps rate hikes in June and July.
• Japan top currency diplomat Kanda says it is important for currencies to move stably reflecting economic fundamentals; closely watching forex moves and will respond appropriately if necessary; not focusing on forex levels. Meeting between BoJ, MOF, and FSA was held partly due to various risks including the US debt ceiling. "No such intention" when asked whether today's meeting was meant to serve as verbal intervention against Yen weakening; is closely communicating with BoJ.

DATA RECAP

• Spanish CPI YY Flash NSA (May) 3.2% exp. 3.5% (Prev. 4.1%); Core 6.1% (prev. 6.6%). MM Flash NSA (May) -0.10% (Prev. 0.60%)
• Spanish HICP Flash YY (May) 2.9% vs. Exp. 3.4% (Prev. 3.8%); MM (May) -0.2% vs. Exp. 0.2% (Prev. 0.5%)
• EU Consumer Confidence Final (May) -17.4 vs. Exp. -17.4 (Prev. -17.4); Economic Sentiment (May) 96.5 vs. Exp. 98.9 (Prev. 99.3)
• EU Consumer Inflation Expectations (May) 12.2 (Prev. 15.1); Selling Price Expectations (May) 6.6 (Prev. 12.0)
• UK BRC Retail Shop Price Index YY (May) 9.0% (Prev. 8.8%)

NOTABLE US HEADLINES

• Fed’s Goolsbee (voter) said even the anticipation of problems with the debt ceiling has consequences in financial markets and said that rates are already showing fear and uncertainty. Goolsbee added the Fed is improving on the inflation goal but has not succeeded and he thinks they can get inflation down without a recession, while Goolsbee also commented that he tries not to prejudge on rate decisions and they will get a lot of data between now and the June FOMC, according to CBS.
• China is to reportedly extend tariff waivers on some US goods until December 31st, according to MoF.
• Alberta, Canada provincial elections saw victory for the incumbent UCP; UCP Leader Smith's subsequent speech was critical of Canadian PM Trudeau's climate-related plans.
• Click here for the US Early Morning Note.

GEOPOLITICS

• Russia launched a massive drone attack on Kyiv over the weekend which was the largest kamikaze drone attack since the start of the invasion, while Ukraine’s air defence systems shot down 58 drones, according to FT. There were also reports of explosions on Monday and Kyiv's military administration said more than 40 air targets moving towards Kyiv were destroyed including drones and missiles, while Russia launched another offensive against Kyiv on Tuesday.
• Two residential buildings were hit by drones in Moscow with one person injured, according to RIA. It was also reported that Moscow's Mayor stated that the drone attack caused minor damage to several buildings and no serious injuries, according to Reuters. Furthermore, several drones were shot down on approach to Moscow, according to Russian agencies citing the regional Governor.
• Russia’s Belgorod regional Governor said several settlements were shelled by Ukrainian forces and two industrial facilities were attacked in the town of Shebekino which wounded four employees, according to Reuters.
• More than 10 drones were shot down in Moscow region, according RBC citing sources; subsequently, Russia's defence ministry says Kyiv attacked Moscow with drones, according to RIA.
• Russia’s interior ministry put US Senator Graham on its wanted list after his comments last week in which he stated that “Russians are dying” and later said that US military aid to Ukraine is “the best money we ever spent”, according to The Hill.
• Ukrainian presidential aide said a post-war settlement must involve a demilitarised zone of 100km-120km in Russian regions bordering Ukraine and should probably initially have an international control contingent, according to Reuters.
• China’s Special Envoy for Eurasian Affairs Li Hui said China has always adhered to an objective and fair position, as well as actively persuaded peace and promoted talks regarding the Ukraine crisis. Li added that China will strengthen exchanges and dialogue with all parties including Russia and will make concrete efforts for a political solution, according to the Chinese Foreign Ministry cited by Reuters.
• Russian Foreign Minister Lavrov said less than 3% of grain exported within the Black Sea grain initiative reached the poorest countries and part of the deal applying to Russia was not being fulfilled at all, while he added if nothing will change, the deal will no longer be operational, according to Reuters.
• North Korea notified Japan of a plan to launch a satellite between May 31st and June 11th, according to a government official. Japan's Defence Minister ordered preparations for the destruction of any North Korean missile confirmed to land in Japanese territory, while PM Kishida said any missile launch by North Korea, even if called a satellite, is a serious violation of UN Security Council resolution.
• US said any North Korean launch using ballistic missile technology would violate UN resolutions and the US urged North Korea to refrain from further ‘unlawful activity’, according to Reuters.
• Iran said that 14 members of a “terrorist team” linked to Israel were arrested in north-western Iran, according to Tasnim.
• Iran and IAEA resolve two disputes over the nuclear program, according to MEHR citing sources.

CRYPTO

• Bitcoin is supported but remains capped by the USD 28k mark and has been in comparably narrow ranges vs broader market action.

APAC TRADE

• APAC stocks traded mixed with price action mostly rangebound following the holiday closures in the US and the UK where cash markets have yet to react to the tentative debt ceiling agreement.
• ASX 200 was lacklustre amid losses in real estate and financials, while weak Building Approvals added to the glum mood.
• Nikkei 225 was choppy but remained above the 31,000 level after BoJ Governor Ueda reiterated a dovish message.
• Hang Seng and Shanghai Comp. were pressured as the Hang Seng China Enterprises Index entered bear market territory which added to the jitters from the already cautious mood heading into tomorrow’s PMI data.

NOTABLE ASIA-PAC HEADLINES

• China rejected the US request for a meeting between US Defence Secretary Austin and his Chinese counterpart, while the Pentagon said in a statement that China’s decision is concerning.
• US Deputy Trade Representative Bianchi said the US review of Section 301 tariffs on Chinese goods is being conducted from an analytical perspective and the outcome will not be linked to any breakthrough in US-China trade relations, while she added that the USTR is consulting with other US agencies on which tariffs make strategic sense and it is important for US and Chinese officials to continue talking on trade after the recent meetings.
• China's Commerce Minister said during talks with Japan's Economy and Trade Minister that Japan should correct its wrongdoing of imposing chip export controls and China is willing to work with Japan to promote cooperation in key economic and trade areas.
• BoJ Governor Ueda said they haven't achieved sustainable 2% inflation and it is important to nurture green shoots in wage growth. Ueda reiterated that inflation is to slow greatly around the middle of FY23 and is likely to bounce back thereafter on wage growth and other factors but there is uncertainty on that outlook, while he added they will patiently maintain easy policy as there is still some distance to sustainably hit the 2% target and the BoJ will continue with its bond-buying operation.

DATA RECAP

• Japanese Unemployment Rate (Apr) 2.6% vs. Exp. 2.7% (Prev. 2.8%)
• Australian Building Approvals (Apr) -8.1% vs. Exp. 2.0% (Prev. -0.1%)