• APAC stocks were mostly lower following the mixed handover from Wall St where sentiment was clouded as hardliners voiced opposition to the debt ceiling bill.
• US House Committee voted 7-6 to advance the debt ceiling bill which sends it to the full House for approval.
• European equity futures are indicative of a softer open with the Euro Stoxx 50 -0.4% after the cash market closed down 0.7% yesterday.
• Chinese Manufacturing and Non-Manufacturing PMI data disappointed in which the former printed at its weakest reading YTD.
• DXY is firmer and back on a 104 handle, EUR/USD and Cable linger below 1.07 and 1.24 respectively, antipodeans lag.
• Looking ahead, highlights include US JOLTS & Chicago PMI, French, Italian & German Preliminary CPI, German Unemployment, Chinese NBS PMIs, ECB Financial Stability Review, remarks from ECB's Lagarde, Fed's Bowman, Jefferson, Harker & Collins, Supply from Germany.

US TRADE

EQUITIES

• US stocks were mixed on return from the Memorial Day holiday amid some cautiousness after mixed data releases and as some hardliners voiced opposition to the debt ceiling agreement. Nonetheless, the major indices were relatively little changed at the close with mild outperformance in the NDX owing to the strength in tech names after Nvidia's slew of AI updates over the weekend which helped it momentarily breach the USD 1tln market cap milestone for the first time.
• SPX +0.00% at 4,205, NDX +0.40% at 14,354, DJIA -0.15% at 33,042, RUT -0.32% at 1,767.
• Click here for a detailed summary.

US DEBT CEILING

• US House Committee voted 7-6 to advance the debt ceiling bill which sends it to the full House for approval, according to Reuters.
• US House Speaker McCarthy said the debt ceiling bill is easy for Republicans to vote for and he is not worried about a possible House Freedom Caucus motion to oust him. This follows earlier reports that US GOP Rep. Bishop said a motion to oust House Speaker McCarthy over the debt deal has to happen, while others framed it as the House Freedom Caucus has left open the possibility of filing a motion to vacate the chair if Speaker McCarthy pushes through the debt deal.
• US House Democratic Leader Jeffries said House Democrats will do their part to win passage of the debt limit bill and he does not see a problem winning the House Rules Committee advancement of the bill, while he expects Republicans to keep a promise of at least 150 GOP votes for a debt limit bill.
• US Republican debt negotiator McHenry said over half of House Republicans will support the debt ceiling bill and the bill will pass, according to Punchbowl.
• US House Freedom Caucus Chair Scott Perry said the debt limit-government spending fails to deliver and HFC members are completely opposed to the debt limit/government spending agreement and will do everything in their power to stop it, according to State Newsroom.
• US GOP Rep. Chip Roy said there is going to be a "reckoning" over the debt limit deal, while GOP Rep. Norman said he will vote against the debt ceiling bill in committee if it is not amended.
• US Senate Majority Leader Schumer said he supports the debt limit deal and will vote on it as soon as possible.
• US Deputy Treasury Secretary Adeyemo said the debt ceiling deal is a good faith compromise that takes debt default off the table and that Congress must act by June 5th to raise the Federal Debt ceiling, according to Reuters and MSNBC.
• US CBO estimated that if the debt ceiling bill is enacted, the agency's projections of the budget deficit would be reduced by about USD 1.5tln over 2023-2033 relative to May projections, according to Reuters.

NOTABLE HEADLINES

• Fed Discount Rate Minutes stated Richmond, Atlanta, Chicago, Kansas City, Dallas, Boston, New York, Philadelphia, Cleveland, and San Francisco voted to leave the Discount Rate unchanged at 5%, while St. Louis and Minneapolis voted for a 25bps hike to 5.25%. Furthermore, Federal Reserve Bank Directors reported stable to solid economic activity across sectors and districts but expressed some caution about the outlook going forward.
• Fed's Barkin (non-voter) said policy is in restrictive territory but there is uncertainty around where rates need to go and it is hard to count on rate hikes to do all the work on inflation. Barkin also stated there is more willingness among businesses to try to raise prices which will continue until demand falls and said inflation is going to be more stubborn than many people would hope.
• Fed's Mester (non-voter) said she sees no compelling reason to wait for a fresh rate increase and that the debt-ceiling deal removes a large piece of uncertainty over the US economy, according to FT.

APAC TRADE

EQUITIES

• APAC stocks were mostly lower following the mixed handover from Wall St where sentiment was clouded as hardliners voiced opposition to the debt ceiling bill, while risk appetite was subdued overnight as participants digested a slew of data releases heading into month-end including disappointing Chinese official PMIs.
• ASX 200 was led lower by underperformance in the commodity-related sectors with energy the worst hit after oil prices slumped by more than 4% yesterday and with the mood not helped by firmer-than-expected monthly CPI.
• Nikkei 225 was pressured by data releases in which Industrial Production printed a surprise contraction and Retail Sales missed forecasts, with early jitters also from North Korea’s failed satellite launch.
• Hang Seng and Shanghai Comp. declined with Hong Kong dragged lower by notable weakness in the local blue-chip tech stocks and following disappointing Manufacturing and Non-Manufacturing PMI data in which the former printed at a second consecutive month in contraction territory and its weakest reading YTD.
• US equity futures were lacklustre after the weak Chinese data with the Emini S&P moving closer to a retest of support at 4,200.
• European equity futures are indicative of a softer open with the Euro Stoxx 50 -0.4% after the cash market closed down 0.7% yesterday.

FX

• DXY is firmer amid the risk-off conditions and after bouncing back from a brief dip below the 104.00 level, while the focus stateside remains on the debt ceiling bill after hardliners voiced their opposition although the House Committee voted to advance it to the full House for approval. There were also hawkish comments from Fed's Mester who sees no compelling reason to wait for a fresh rate hike.
• EUR/USD faded the prior day’s advances and retested the 1.0700 level to the downside.
• GBP/USD marginally softened to beneath the 1.2400 handle owing to the firmer greenback.
• USD/JPY was flat after the Japanese currency recently benefitted from narrower yield differentials.
• Antipodeans were lower amid the downbeat sentiment and after the disappointing Chinese PMI data offset the initial knee-jerk reaction in AUD/USD from the firmer monthly Australian CPI data.
• PBoC set USD/CNY mid-point at 7.0821 vs exp. 7.0764 (prev. 7.0818)

FIXED INCOME

• 10yr UST futures held on to the gains from yesterday’s rally after the debt default risk unwound, with month-end buying and risk aversion also keeping treasuries afloat.
• Bund futures extended on this week’s advances with the momentum helped by the recent soft Spanish CPI and weak EU sentiment.
• 10yr JGB futures traded marginally higher after the gains in global counterparts and weak Japanese data.

COMMODITIES

• Crude futures remained subdued amid weak Chinese PMIs and after yesterday's 4% drop.
• Iraqi cabinet approved USD 417mln for the construction of a third offshore export pipeline.
• Spot gold was rangebound as a firmer dollar capped off the prior day's advances.
• Copper futures declined following the faster pace of contraction in Chinese factory activity.

CRYPTO

• Bitcoin traded rangebound with price action contained amid the overnight risk aversion.

NOTABLE ASIA-PAC HEADLINES

• US imposed sanctions on Chinese and Mexican entities to combat the opioid crisis, according to FT.
• China's NBS said the economic activity level in China declined slightly in May which indicates the need to strengthen the foundation for recovery and development, according to Reuters.
• Japan's METI said the decline in semiconductors and flat panel manufacturing equipment were the main contributors pushing down Japan's industrial output in April and noted that official business sentiment remains bearish as overseas economies continue to weaken.
• RBA Governor Lowe said they are in data-dependent mode and there is not a single variable that drives their decisions, while he added that monetary policy is in a restrictive environment and that they are on a narrow path with success not guaranteed.

DATA RECAP

• Chinese NBS Manufacturing PMI (May) 48.8 vs. Exp. 49.4 (Prev. 49.2)
• Chinese NBS Non-Manufacturing PMI (May) 54.5 vs. Exp. 55.3 (Prev. 56.4)
• Chinese Composite PMI (May) 52.9 (Prev. 54.4)
• Japanese Industrial Production MM (Apr P) -0.4% vs. Exp. 1.5% (Prev. 1.1%)
• Japanese Retail Sales YY (Apr) 5.0% vs. Exp. 7.0% (Prev. 7.2%, Rev. 6.9%)
• Australian Weighted CPI YY (Apr) 6.8% vs. Exp. 6.4% (Prev. 6.3%)
• Australian Construction Work Done (Q1) 1.8% vs. Exp. 0.5% (Prev. -0.4%)

GEOPOLITICS

• A fire broke out at an oil refinery in Russia which was likely due to a falling drone, according to RIA citing the local Governor.
• Russia's UN Envoy held a meeting with the IAEA Chief, according to TASS citing a source.
• South Korean military said North Korea fired a space satellite, while Japan's Defence Ministry said North Korea fired what could be a ballistic missile and Japan's government issued a shelter-in-place order for residents in Okinawa, according to Reuters. Japan's government later stated that the missile did not fly into Japanese territory and it lifted the evacuation warning, while South Korea said a previous warning by Seoul city was an error. Furthermore, North Korea said an accident occurred during its satellite launch and that it will verify grave defects, as well as conduct a second launch soon, while South Korea's military said the North Korean projectile was more likely to be a space vehicle rather than a missile.
• US, Japan and South Korea strongly condemned North Korea's launch, while South Korea said the launch was a serious provocation and a grave violation of UN resolutions, according to Reuters.
• US military said a Chinese fighter pilot performed an unnecessary aggressive manoeuvre during an intercept of a US jet over the South China Sea on May 26th, in which it flew directly in front of the nose of a US air force jet, according to a statement.
• US President Biden's senior Middle East adviser discussed with Oman a possible outreach to Iran on the nuclear program earlier this month, according to sources cited by Axios.

EU/UK

• Netherlands Senate approved a wide-ranging reform of the Dutch pension system, according to Reuters.

DATA RECAP

• UK Lloyds Business Barometer (May) 28 (Prev. 33)