• European bourses are mixed/flat with US futures diverging slightly with the ES & NQ pressured by Meta and Micron.
• Broader focus remains firmly on the debt ceiling after constructive weekend updates ahead of an expected Biden-McCarthy talk today (time TBC).
• DXY holds above 103.00 with the CHF outperforming and peers otherwise generally contained
• EGBs remain bid with the periphery outperforming after Greek elections and rating updates for Portugal and Ireland
• Commodities are generally softer given the tone and USD strength alongside numerous geopolitical updates
• Kashkari (voter) said he is open to foregoing a June hike, would object to a declaration that they are done increasing rates
• Looking ahead, highlights include EZ Consumer Confidence (Flash), Speeches from Fed’s Bullard, Bostic & Barkin, ECB’s Lane, Holzmann, Villeroy, de Cos

EUROPEAN TRADE

EQUITIES

• European bourses are mixed/flat, Euro Stoxx 50 -0.1% with the focus on upcoming debt ceiling discussions amid numerous broader incremental updates/developments ahead of Central Bank speak.
• Sectors are similarly mixed and lacking in breadth while Ryanair and Volvo are bolstered post earnings and a sizeable truck order respectively.
• Stateside, futures are contained but diverging slightly with the ES & NQ under modest pressure given the below Meta update and attention on Micron (-6.2% pre-market) after China's cyberspace review (see APAC section); conversely, the RTY is holding just above the neutral mark.
• Meta (META) has been fined USD 1.3bln over data transfers to the US. Initially reported via the WSJ and subsequently confirmed by the IDPC. Meta -0.8% in pre-market. Subsequently, Meta says it will appeal the fine and there is no immediate disruption to Facebook within Europe.
• JPMorgan (JPM) raises FY23 Net Interest Income view to USD 84.0bln ex-CIB markets (prev. it was guiding for USD 81bln, market-dependent).
• Click here and here for a recap of the main European updates.
• Click here for more detail.

FX

• Franc outperforms as bond yields retreat and US debt ceiling impasse rolls on, USD/CHF eyeing 0.9850 from a peak just shy of 0.9000.
• DXY hovering around 103.000 ahead of more Fed speakers that may err towards June rate pause like Chair Powell and Kashkari.
• Euro pivots Fib and 100 DMA close to 1.0800 vs Greenback, but capped by expiries.
• Yen contains losses beneath 138.00 against Buck irrespective of bleak Japanese machinery orders.
• Kiwi elevated awaiting 25 bp hike from RBNZ, as NZD/USD hovers near 0.6300 and AUD/NZD cross sits sub-1.0600.
• PBoC set USD/CNY mid-point at 7.0157 vs exp. 7.0141 (prev. 7.0356)
• Click here for more detail.
• Click here for the notable FX expiries for today's NY cut.

FIXED INCOME

• Bonds push recovery envelope further before waning around 2.40% in Bunds, just shy of 99.00 in Gilts and 114-00 for the 10 year T-note.
• GGBs and PGBs underpinned by political and positive ratings outlook respectively while the EU receives a relatively warm welcome for 2028 and 2034 debt offerings.
• Click here for more detail.

COMMODITIES

• Crude benchmarks are softer intraday but have lifted off APAC lows with catalysts light and the move is perhaps a factor of broader macro concern over the US debt limit.
• Currently, WTI and Brent are lower by around USD 0.20/bbl but remain towards the top-end of circa. USD 1.50/bbl parameters.
• Spot gold is little changed while base metals are slightly softer given the firmer USD, the yellow metal is being cushioned from USD-pressure somewhat by the broader risk tone.
• EU plans more joint purchasing after the success of the common gas scheme, according to FT
• Click here for more detail.

NOTABLE HEADLINES

• UK PM Sunak reportedly opened the door into a sleaze probe on Home Secretary Suella Braverman and will discuss the speeding points row with the Prime Minister’s Independent Adviser on Ministers' Interests Laurie Magnus, according to The Sun’s Political Editor Cole.
• Greece’s ruling New Democracy Party held a significant lead against rivals in the early vote count and is set to win 145 of the 300 seats in parliament vs 71 seats for the leftist Syriza party, although a second round of voting is the most likely outcome with no clear majority, according to Politico and Reuters. There were also comments from PM Mitsotakis who said the election victory shows that New Democracy has the people’s approval to rule as a one-party government and that the mandate is a strong government, while he added that only strong governments can dare the changes needed. Click here for newsquawk analysis.
• Since, Mitsotakis has called for a new vote potentially on June 25th.
• Moody’s affirmed Portugal at Baa2; Outlook Revised to Positive from Stable.
• German DIHK survey shows that the despite the economy showing resilience in a challenging environment thus far in 2023, growth will remain muted; maintains the forecast for economic stagnation this year.

DATA RECAP

• UK Rightmove House Prices MM (May) 1.8% (Prev. 0.2%); YY (May) 1.5% (Prev. 1.7%)

NOTABLE US HEADLINES

• Fed’s Kashkari (voter) said he is open to foregoing a June rate hike but would object to any kind of declaration that they are done lifting rates, according to WSJ.
• US President Biden said on Saturday that he still believes they will be able to avoid a default and responded not at all when asked if he was worried about the debt talks, while a White House official said on Sunday that President Biden had a call with House Speaker McCarthy and that their staff will reconvene in the evening to discuss remaining issues. Furthermore, President Biden said his discussion with House Speaker McCarthy went well and that they will talk again on Monday, according to Reuters.
• US House Speaker McCarthy said he had a productive call with US President Biden which included a discussion on possible solutions and said they will meet on Monday afternoon. McCarthy said he told President Biden that spending must be lowered and said that the Senate may not need the full week he expected to pass a debt ceiling agreement, while he also stated that the situation now is better than prior to the call and there is mutual respect in debt talks, according to Reuters.
• US Rep. Graves who is among the Republican negotiators said spending less is a red line that precludes agreements on other issues and that there has been a lot of progress in understanding each side’s red lines and positions, according to Reuters.
• US Treasury Secretary Yellen said the June deadline still holds and is a hard deadline for the debt limit, while she added there will be hard choices to make if the debt ceiling is not raised in which some bills will have to go unpaid and that the odds of reaching June 15th when more tax receipts are due are quite low before the government runs out of money. Yellen also noted that some Republican proposals to reduce IRS funds are greatly concerning, as well as stated that legal uncertainty and a tight time frame complicate the use of the 14th Amendment, according to NBC.
• The latest Republican debt limit proposal was said to include steep non-defence cuts, work requirements, cuts to food and assistance, and other proposals which Democrats rejected. Proposals also included longer spending caps than recent bipartisan budget deals and Republicans rejected the administration’s proposals on prescription drug payment reform and cutting a dozen more tax loopholes, according to a source cited by Reuters on Sunday morning prior to the reports of the call between US President Biden and House Speaker McCarthy.
• US companies are reportedly pulling forward their bond issuances amid debt ceiling concerns in which highly rated companies have issued USD 112bln of bonds so far this month compared to USD 46bln in May 2022, according to FT.
• Click here for the US Early Morning Note.

G7

• G7 Final Communique stated they will support Ukraine for as long as it takes and called on China to press Russia to stop its military aggression immediately, while it noted that a growing China that plays by international rules would be of global interest and that the G7 is not seeking a policy designed to harm China or hinder its economic progress and are not decoupling nor turning inwards. G7 also stated that there is no legal basis for China’s expansive maritime claims in the South China Sea and they oppose China’s militarisation activities in the region, while the G7 nations established a new initiative to counter economic coercion dubbed the Coordination Platform on Economic Coercion.
• US President Biden said the G7 is united in its approach to China and that they are not looking to de-couple from China but are looking to de-risk and diversify which means resisting economic coercion. Biden also stated they should have an open hotline with China and that everything changed after the spy balloon incident but thinks there will be another shift and expects relations with China to thaw soon which will allow more conversations. Furthermore, President Biden said they will not tell China what it can do but will put Taiwan in a position to defend itself and noted there is agreement among US allies that if China were to do something on Taiwan unilaterally, there would be a response, according to Reuters.
• China’s Foreign Ministry said China expresses strong dissatisfaction regarding the G7 Final Communique and lodged solemn representations with summit host Japan, while China's Vice Foreign Minister summoned the Japanese ambassador over actions at the G7, according to Reuters.
• China’s Embassy in Britain urged for the G7 to disregard Cold War mentality and to stop interfering in other countries' affairs and called on the British side to stop slandering and smearing China to avoid further damage to China-UK relations, according to Reuters.
• German Chancellor Scholz said they want de-risking and to diversify but added that nobody has an interest to curb growth in China and that they will make sure big investments in China from the US, Japan, Britain, France, Italy and Germany will continue so that they have supply chains in China and export goods to China, according to ZDF.

GEOPOLITICS

• Russia said its troops have taken control of the Ukrainian city of Bakhmut and Russian President Putin congratulated the Wagner group and the Russian army for the ‘liberation’ of the city, while Wagner group chief Prigozhin said they captured the entire territory of Bakhmut as promised and will be leaving the conflict zone on May 25th, according to TASS, Interfax and Reuters.
• Ukrainian President Zelensky said he is confident Ukraine will get F-16 fighter jets from the West and said Kyiv’s peace formula has the potential to stop future aggressors. Zelensky also stated he is grateful for American support and the training mission which will give them a stronger battlefield position, while he appeared to have confirmed the loss of Bakhmut in which he noted that the city is destroyed and responded that he thought ‘no’ when asked if Bakhmut was still in Ukraine’s hands, according to Reuters.
• Ukrainian Deputy Defence Minister said Kyiv’s troops have partly encircled Bakhmut along the flanks and still control part of the city, while a top Ukrainian general said Ukraine controls an insignificant part of the city but added it is enough to enter the city when the situation changes and that Ukraine’s advances on flanks around Bakhmut are effectively nearing a tactical encirclement of Russian forces, according to Reuters.
• US President Biden said Russians have suffered over 100k casualties in Bakhmut and that he has flat assurance from Ukrainian President Zelensky that Ukraine will not use F-16s to go into Russian geographic territory. President Biden also made it clear he is not prepared to trade certain items with China because of concern it would build weapons of mass destruction and he is not going to ease China sanctions but added that they are currently under negotiation on whether to lift sanctions on China’s Defence Minister, according to Reuters.
• Russia’s Deputy Foreign Minister commented regarding Western plans to supply F-16s to Ukraine that the West is pursuing an escalatory path fraught with colossal risks for them.
• Russia's ambassador to the US said the transfer of F-16 fighters to Ukraine would raise questions about NATO's involvement in the conflict and said any Ukrainian strikes on Crimea are attacks on Russia and that Washington should be aware of Russia's response, according to Reuters.
• Explosions were reported in Odesa and Zaporizhzhia Oblast amid drone activity, while it was also reported that Russia launched an overnight air attack on Ukraine's Dnipro, according to the Governor.
• Taiwan President Tsai said they have shown the world the determination to defend themselves and that the world’s support for a democratic Taiwan is unprecedented, while she said they will maintain the status quo of peace and stability in the Taiwan Strait and said no one can change the status quo with the use of force. Furthermore, Tsai said the US arms aid for Taiwan addresses weapon delivery delays related to the pandemic and commented that they welcome visitors to Taiwan from Hong Kong, Macau and China.
• US, Japan and South Korea’s leaders discussed how to take trilateral cooperation to new heights including in the face of North Korea’s illicit nuclear and missile threats, while US President Biden invited the Japanese and South Korean leaders for a trilateral meeting in Washington, according to Reuters citing the White House.
• South Korean President Yoon announced that South Korea and Germany will sign a military information-sharing pact and will closely cooperate on North Korean denuclearisation, while Yoon said that South Korea will carefully review the list of non-lethal weapons requested by Ukrainian President Zelensky, according to Reuters.
• Sudan’s army and paramilitary RSF agreed to a 7-day humanitarian truce and ceasefire on Saturday which takes effect after 48 hours, according to Reuters sources.
• Russia's Wagner group founder says their forces will be leaving Ukraine's Bakhmut region from May 25th until June 1st.
• "The Irish minister for foreign affairs Micheal Martin has said Ireland is open to changes that could see a shift away from the veto on some EU foreign policy and defence issues.", according to RTE's Connelly.

CRYPTO

• Bitcoin is essentially unchanged within narrow parameters of circa. USD 400 as specifics remain somewhat light and the broader markets focus on a number of moving parts but primarily the US debt ceiling, with Biden and McCarthy to speak today at some point.

APAC TRADE

• APAC stocks were mostly positive but with price action rangebound amid cautiousness as the debt limit deadline draws closer and following last week’s more balanced comments from Fed Chair Powell.
• ASX 200 was subdued amid weakness in financials although losses were cushioned amid the improving trade environment between Australia and its largest trading partner as evidenced by an 89% rise in coal exports to China.
• Nikkei 225 was indecisive as the momentum from its recent rally to 33-year highs initially waned and with the mood also clouded by the surprise contraction in Machinery Orders, although the index later caught a second wind and broke above the 31,000 level.
• Hang Seng and Shanghai Comp. traded higher albeit with the mainland choppy after mixed commentary from the G7 and frictions related to China’s ban on Micron from key infrastructure, while the PBoC provided no surprises and kept its benchmark lending rates unchanged with the 1-year and 5-year LPRs kept at 3.65% and 4.30%, respectively.

NOTABLE ASIA-PAC HEADLINES

• PBoC 1-Year Loan Prime Rate (May) 3.65% vs. Exp. 3.65% (Prev. 3.65%); 5-Year Loan Prime Rate (May) 4.30% vs. Exp. 4.30% (Prev. 4.30%)
• China’s cyberspace regulator said its review found that Micron Technology’s (MU) products have serious network security problems causing risks to China’s information infrastructure and announced that operators of critical information infrastructure in China should stop purchasing Micron Technology’s products, according to Reuters.
• US Commerce Department said they firmly oppose China's restrictions on Micron (MU) which have no basis in fact and that China's action along with recent raids targeting other US firms is inconsistent with China's assertions that it is opening its markets. It also stated that the US will engage directly with Chinese authorities to detail the US position and clarify China's actions, while the US will also engage with key allies and partners to ensure close coordination to address distortions of the memory chip market caused by China's actions.
• Japan Business Lobby Keidanren Chief says this years inflation is facilitated by a weak JPY and energy cost increase, does not expect inflation from 2024 onward to be "that extreme".

DATA RECAP

• Japanese Machinery Orders MM (Mar) -3.9% vs. Exp. 0.7% (Prev. -4.5%); YY (Mar) -3.5% vs. Exp. 1.4% (Prev. 9.8%)