• European bourses are relatively contained, but off best after downbeat/mixed ZEW
• US futures spent the morning rangebound though have similarly dipped post-HD earnings, -4% pre-market
• President Biden is to meet McCarthy at 15:00ET/20:00BST, Yellen to speak beforehand
• DXY continues to retreat despite initial fleeting upside with G10s firmer, GBP picks up after weak labour data
• AUD, Yuan and base metals are dented by soft Chinese activity data
• Core benchmarks are underpinned ahead of a raft of Fed speak; chunky demand for UK 40yr syndication
• Looking ahead, highlights include US Retail Sales, Industrial Production, Biden meeting McCarthy, Speeches from ECB's Lagarde, Fed's Williams, Mester, Bostic, Barr, Goolsbee & Logan.

EUROPEAN TRADE

EQUITIES

• European bourses are little changed but with a slight positive bias, Euro Stoxx 50 +0.1%, as macro drivers are limited and a downbeat/mixed ZEW only saw a modest trimming of initial performance.
• Sectors, are mixed with Tech and Utilities leading while Consumer Products/Services and Autos/Parts are the relative laggards.
• Stateside, futures were essentially unchanged ahead of numerous Fed speakers with broader attention on upcoming debt ceiling talks between President Biden & McCarthy with the ES just below 4150.
• However, the Q1 report from Home Depot (-4.0% pre-market) has resulted in some modest pressure, with US futures dipping into negative territory after the bellwether reports and misses on comp sales.
• Home Depot Inc (HD) Q1 2023 (USD): EPS 3.82 (exp. 3.80), revenue 37.25bln (exp. 38.28bln); Comp sales -4.5% (exp. 1.7%), US comp sales -4.6% (exp. 1.9%)
• Baidu Inc (BIDU) Q1 2023 (USD): EPS 2.34 (exp. 1.80), Revenue 4.54 (exp. 4.33bln); Tencent Music Entertainment Group (TME) Q1 2023 (USD): Diluted EPS 0.11 (exp. 0.12), Revenue 1.02bln (exp. 0.99bln).
• Click here and here for a recap of the main European updates, including:
• Click here for more detail.

FX

• Dollar extends retreat ahead of the next debt ceiling meeting, as DXY fades from 102.570 to 102.190 and through the 50 DMA.
• G10 rivals mostly firmer in response, with Franc and Yen also boosted by softer Treasury yields to trade above 0.8950 and 136.00 respectively.
• Aussie lags as Westpac consumer sentiment declines and Yuan weakens in wake of below forecast Chinese activity data, AUD/USD capped by decent option expiries between 0.6700-10, USD/CNY and USD/CNH back over 200 DMAs.
• Euro probes 1.0900 and the Pound eyes 1.2550 after overcoming weak UK labour metrics.
• PBoC set USD/CNY mid-point at 6.9506 vs exp. 6.9500 (prev. 6.9654)
• Click here for more detail.
• Click here for the notable FX expiries for today's NY cut.

FIXED INCOME

• Debt fades, but remains firmly underpinned ahead of busy pm agenda including primary US data and the latest raft of Fed speakers.
• Bunds, Gilts and T-note all towards peaks of 136.38-135.81, 101.15-100.85 and 115-18+/06+ ranges.
• 40-year UK syndication entices investors and will raise almost 10% of the GBP 54bln book size.
• Click here for more detail.

COMMODITIES

• Crude benchmarks began the session firmer but have since eased into negative territory though only modestly so as broader risk sentiment deteriorates incrementally from initial best levels and as Chinese activity data remains a headwind.
• WTI and Brent are circa. USD 0.40/bbl lower on the session and currently pivoting the USD 70.50/bbl and USD 74.50/bbl marks respectively.
• IEA Monthly Oil Market Report: oil demand is set to increase by 2.2mln BPD in 2023 to a record of 102mln BPD (vs. April view of 101.9mln BPD). Click here for more detail.
• China to cut diesel price by CNY 365/ton, according to NDRC.
• Spot gold is within familiar parameters though was subject to a negative move in the early-European morning as the USD saw some fleeting upside while base metals are experiencing broader weakness after the downbeat Chinese activity figures.
• Russia's Kremlin says many questions still remain open regarding the Russian part of the grain deal; Russia has to take a decision on whether to renew the deal or not.
• Click here for more detail.

NOTABLE HEADLINES

• German VCI Chemical Association: confirms 2023 guidance at 5% production decline (8% ex-pharma.).

DATA RECAP

• UK ILO Unemployment Rate (Mar) 3.9% vs. Exp. 3.8% (Prev. 3.8%); Employment Change (Mar) 182k vs. Exp. 160k (Prev. 169k)
• UK Average Week Earnings 3M YY (Mar) 5.8% vs. Exp. 5.8% (Prev. 5.9%, Rev. 5.8%); Ex-Bonus (Mar) 6.7% vs. Exp. 6.8% (Prev. 6.6%)
• UK HMRC Payrolls Change (Apr) -135k (Prev. 31k, Rev. 42k); ONS says there were 556,000 working days lost because of labour disputes in March 2023, up from 332,000 in February 2023
• German ZEW Economic Sentiment (May) -10.7 vs. Exp. -5.3 (Prev. 4.1); Current Conditions (May) -34.8 vs. Exp. -37.0 (Prev. -32.5)

NOTABLE US HEADLINES

• Fed Vice-Chair of Supervision Barr (voter) said the bank stress shows the need for vigilance but noted that the US banking system remains sound and resilient, and depositors should be confident all deposits in the banking system are safe, according to Reuters.
• US President Biden has scheduled a debt limit meeting with US House Speaker McCarthy for Tuesday and will be meeting with congressional leaders on Tuesday, while a senior official said President Biden and House Speaker McCarthy's debt ceiling meeting is planned for 15:00EDT/20:00BST.
• White House and Congressional staff have been meeting for several days on the debt ceiling, sources suggest they have been making incremental progress, via WSJ.
• Big Short investor Michael Burry was betting on regional banks during the first quarter and acquired shares of several distressed banks including First Republic before it was bought by JPMorgan (JPM).
• BofA May Global Fund Manager Survey says investors are bearish, Fed done, risk assets are resilient so long as the landing is soft. Click here for more detail.
• Click here for the US Early Morning Note.

GEOPOLITICS

• Ukrainian presidential office head said air defence systems were repelling attacks early on Tuesday and Twitter sources noted explosions in Ukraine's capital of Kyiv. Furthermore, Kyiv officials later said that the Russian attack was complex and exceptional in its density, but noted the vast majority of targets were shot down.
• Five Russian border guards were injured in a Ukrainian drone attack on an observation post in the Kursk border region, according to Al Arabiya.
• US senior administration official said US President Biden's Asia trip will show the US can both support Ukraine and maintain an unprecedented level of Indo-Pacific engagement, while Biden's talks with Japan and South Korea on the G7 sidelines are expected to cover economic security, expansion of military exercises and North Korea, according to Reuters.

CRYPTO

• EU Council Finance ministers unanimously approved the Markets in Crypto Assets regulation (MiCA) and anti-money laundering rules "that could make it one of the first major jurisdictions to regulate the sector", according to CoinDesk; as expected.

APAC TRADE

• APAC stocks traded mixed and only partially sustained the momentum from Wall St where stocks were led higher amid a short squeeze in US regional banks albeit with the upside capped by a disappointing NY Fed Manufacturing survey and debt ceiling concerns, while markets digested weaker-than-expected Chinese activity data.
• ASX 200 was lower as weakness in the tech and consumer sectors overshadowed the resilience in the commodity-related industries and with risk appetite also dampened by a deterioration in consumer confidence.
• Nikkei 225 strengthened as earnings results continued to take centre stage in Tokyo including Japan’s megabanks and after the TOPIX climbed to a fresh 33-year high.
• Hang Seng and Shanghai Comp. were varied with Hong Kong underpinned by strength in tech after it was reported that ‘Big Short’ investor Michael Burry boosted his bullish bets on e-commerce giants JD.com and Alibaba, while the mainland was choppy after disappointing activity data from China in which Industrial Production, Retail Sales and Fixed Assets Urban Investment all missed analysts’ forecasts.

NOTABLE ASIA-PAC HEADLINES

• China NBS said the national economy sustained recovery momentum in April and that low price levels are temporary and will likely continue for some time, while it noted that low core CPI is due to service demand still being in recovery but added that consumer prices could gradually rebound in H2 as the economy recovers.
• US senior administration official said the US expects a general agreement by the G7 on principles that define relationships with China and US expects leaders will make it clear they are unified behind a common approach grounded with common values on China. Furthermore, the official said there is a consensus among G7 countries on the need to ensure the security of technology and each G7 member will manage their own relationship with China but all are aligned around principles that guide relationships, according to Reuters.
• Russia's PM is to lead a delegation to a business forum in China, according to the FT.
• RBA May meeting minutes stated that the board considered pausing or hiking 25bps at the meeting and further increases in interest rates may still be required but would depend on how the economy and inflation evolve. RBA also stated that the central forecast is that inflation is not expected to reach the top of the target band until mid-2025 and it noted that risks include persistent services inflation and higher rent growth than anticipated.

DATA RECAP

• Chinese Industrial Production YY (Apr) 5.6% vs. Exp. 10.9% (Prev. 3.9%); Retail Sales YY (Apr) 18.4% vs. Exp. 21.0% (Prev. 10.6%)
• Chinese Urban Investment YTD YY (Apr) 4.7% vs. Exp. 5.5% (Prev. 5.1%)
• Australian Westpac Consumer Confidence Index (May) 79.0 (Prev. 85.8); Consumer Sentiment MM (May) -7.9% (Prev. 9.4%)