• European bourses are under marked pressure as headwinds mount while US futures are lower but more contained awaiting debt ceiling developments
• Overall, updates via journalists this morning are skewed to the downside on a near-term agreement
• Hawkish impulses were seen on hot UK CPI, with core fixed income pressured & BoE pricing lifting
• Though, Bunds & USTs have reverted back to modest positive territory as focus returns to potential US developments
• Crude continues to climb, XAU flat and base metals dented as attention remains on the weaker-than-expected Chinese rebound
• DXY is firmer and at highs as GBP gives up knee-jerk upside while NZD lags as RBNZ flags the end of its tightening cycle
• Looking ahead, highlights include FOMC Minutes (May). Speeches from ECB's Lagarde, BoE's Bailey & Fed's Waller. Supply from the US, Earnings from NVIDIA.

EUROPEAN TRADE

EQUITIES

• European bourses are pressured as headwinds mount, Euro Stoxx 50 -1.6%; attention on debt talks, UK CPI, poor Ifo, US-China tensions and continued luxury sector downside.
• Sectors are pressured across the board with Real Estate lagging on hawkish BoE pricing while Luxury names continue to slip with analysts citing an MS luxury conference pointing to relatively more subdued performance in the US.
• US futures are softer but much more contained as we await more concrete developments on the debt ceiling, ES -0.2%, with updates this morning via multiple journalists skewed to the downside overall on a near-term agreement.
• Click here and here for a recap of the main European updates.
• Click here for more detail.

FX

• DXY is firmer and towards highs after spending much of the morning trading on either side of the psychological 103.50 level ahead of the FOMC minutes.
• NZD experienced a significant drop after the RBNZ signalled an end to its tightening cycle in what was a dovish hike.
• AUD slipped and remains soft in tandem with the broader risk tone and losses across base metals.
• GBP was briefly lifted following the hotter-than-expected UK inflation data which solidified the case for a June BoE hike.
• PBoC set USD/CNY mid-point at 7.0560 vs exp. 7.0556 (prev. 7.0326)
• Click here for more detail.
• Click here for the notable FX expiries for today's NY cut.

FIXED INCOME

• Gilts gapped lower to sub-95.00 following hotter-than-expected UK CPI, with market pricing now implying 75bp of further tightening.
• Given this, EGBs/USTs spent the morning underwater but have since made their way back into positive territory as attention returns to the US debt ceiling, with USTs and Bunds now incrementally firmer.
• For reference, the morning's dual-tranche German supply was well received overall, particularly when taking into account that the morning's marked concession had largely evaporated by the time the auction commenced.
• Click here for more detail.

COMMODITIES

• WTI and Brent July futures are firmer intraday with the complex seemingly underpinned following commentary from the Saudi Energy Minister yesterday.
• Spot gold resides around USD 1,975/oz in a near-USD 10/oz range in the run-up to the FOMC.
• Base metals are softer across the board amid the demand implications from a weaker-than-expected Chinese rebound coupled with the state-side jitters on the debt ceiling front.
• US Energy Inventory Data (bbls): Crude -6.8mln (exp. +0.8mln), Cushing +1.7mln, Gasoline -6.4mln (exp. -1.1mln), Distillate -1.7mln (exp. +0.4mln).
• Russian watchdog says it is prepared to support restrictions on petrol exports, via Ifx. Subsequently, Russian Energy Minister says we are considering restriction on gasoline exports and not a ban.
• Click here for more detail.

NOTABLE HEADLINES

• ECB President Lagarde reiterates the ECB will bring rates to sufficiently restrictive levels and keep them at those levels for as long as necessary.
• BoE Governor Bailey says banks are exposed to climate related hazards.
• EU banks are reportedly to sail through early rounds of stress tests, according to Bloomberg.
• German economy is expected to grow modestly on Q2 as a rebound in industry offset stagnating household consumptions, according to the Bundesbank monthly report.

DATA RECAP

• UK CPI YY (Apr) 8.7% vs. Exp. 8.2% (Prev. 10.1%); MM (Apr) 1.2% vs. Exp. 0.8% (Prev. 0.8%); All Services CPI YY 6.9% (prev. 6.6%)
• UK Core CPI YY (Apr) 6.8% vs. Exp. 6.2% (Prev. 6.2%); MM (Apr) 1.3% vs. Exp. 0.7% (Prev. 0.9%)
• German Ifo Business Climate New (May) 91.7 vs. Exp. 93.0 (Prev. 93.6, Rev. 93.4); Expectations New (May) 88.6 vs. Exp. 91.9 (Prev. 92.2)
• German Ifo Current Conditions New (May) 94.8 vs. Exp. 94.8 (Prev. 95.0; Rev. 93.1)
• Ifo: Number of companies who aim to increase prices in May has fallen further; German economy is treading water, Q2 is going towards stagnation.
• UK CBI Trends - Orders (May) -17 (Prev. -20.0).

NOTABLE US HEADLINES/DEBT CEILING

• White House said invoking the 14th Amendment to work around the debt ceiling won't "fix the current problem" but wouldn't shut the door entirely on pursuing the strategy if they can't reach a deal, according to USA Today.
• US GOP Rep. Graves said they don't have additional meetings set up and noted there are some areas where they are very close although there are still substantial gaps including over the debt limit duration.
• Fox's Pergram tweets "Unclear where debt ceiling talks stand today. Talks have continued. But there has yet to be a breakthrough".
• US Democrats have reportedly criticised Republican negotiators for seeking an increase in military spending in debt ceiling discussions, via WSJ citing sources; some in the admin. reportedly struggling to see a path forward in the discussions
• Punchbowl News, on the US debt ceiling talks, says "with no deal imminent, McCarthy has signalled that he’d likely send lawmakers home Thursday evening, anticipating that negotiations will drag into next week."
• White House and Republicans are expected to resume debt talks today, according to Reuters sources.
• Click here for the US Early Morning Note.

GEOPOLITICS

• Russian PM Mishustin, in Beijing, says relations between Russia and China are at an unprecedented high level. Adding, Xi's Russia visit in March was another confirmation of the "special" nature of bilateral relations. Subsequently echoed by Chinese President Xi.
• Russian Foreign Minister Lavrov (according to a translated tweet) says that increasing Western involvement in Ukraine will lead to nuclear war.
• Russia's Deputy Foreign Minister says F-16s will be a "legitimate target" for Russia if supplied to Ukraine, according to RIA.

CRYPTO

• Bitcoin is underpressure as the risk tone remains downbeat as the clock ticks down to the US X-date; currently, BTC is at the trough of USD 26.6-27.3k parameters.

APAC TRADE

• APAC stocks were mostly lower following the negative lead from Wall St where sentiment was weighed on by the ongoing debt limit impasse with just 9 days left to the X-date and amid US-China frictions after the US House China Select Committee Chair called for retaliation against China’s ban on Micron.
• ASX 200 declined with the resilience in the commodity-related sectors offset by weakness across the broader market and after the Westpac Leading Index remained depressed.
• NZX 50 was underpinned after a dovish RBNZ rate hike which signalled the end of its rate increases.
• Nikkei 225 was pressured after its recent pullback to beneath the 31,000 level despite reports that the government is to consider childcare handouts for those up to 18 years old, while the first positive reading this year in the monthly Reuters Tankan manufacturing survey did little to spur risk appetite.
• Hang Seng and Shanghai Comp. were lower amid US-China frictions after the White House spoke out against the Micron ban, while a lawmaker called for the Commerce Department to add Changxin Memory Technologies to the entity list and ensure no US export licenses are granted to firms operating in China which are used to backfill Micron.
• Xiomi (1810 HK) Q1 2023 (CNY): Revenue 59.5bln (exp. 58.8bln), Net Income 4.2bln (exp. 2.5bln), Global MAUs +12.4% Y/Y, Smartphone revenue 35bln (prev. 45.8bln).

NOTABLE ASIA-PAC HEADLINES

• China’s new ambassador to the US Xie said US-China relations face serious difficulties and hopes the US will get back on the right track, while he added that they will seek to enhance China-US exchanges and cooperation.
• RBNZ hiked the OCR by 25bps to 5.50% as expected, while it maintained the peak rate forecast at 5.50% and noted that the OCR is set to remain restrictive for the foreseeable future. RBNZ said the level of interest rates is constraining spending and inflation and it forecasts negative GDP growth in Q2 and Q3. Furthermore, the rate decision was made by a majority of five votes to two and the Committee discussed the suitability of a pause or a 25bps hike.
• RBNZ Governor Orr said during the press conference that the newest data is satisfactory after a long battle and noted it was the first time the Monetary Policy Committee voted on the decision, while he added that they have seen inflation, core inflation and inflation expectations come down, but as a cautious central bank, they are foreshadowing keeping restrictive monetary policy for some time.
• RBA Official Jacobs says the balance sheet is starting to unwind pandemic bond purchases, around AUD 20bln of purchased bonds have matured, pace will increase to circa. AUD 35-45bln/year. Click here for more detail.

DATA RECAP

• Australian Westpac Leading Index MM (Dec) 0.0% (Prev. 0.0%)
• New Zealand Retail Sales QQ (Q1) -1.4% (Prev. -0.6%); YY (Q1) -4.1% (Prev. -4.0%)