US EARLY MORNING: US equity futures are flat and Treasuries are bid ahead of debt ceiling talks, retail sales, Fedspeak

OVERNIGHT: APAC stocks were mixed as participants digested weaker-than-expected Chinese activity data (see below). Japanese stocks were underpinned by earnings results, and the TOPIX climbed to a fresh 33-year high. China was mixed: Hong Kong was supported by strength in tech stocks after Alibaba announced to merge its DAMO Academy autonomous driving lab with its Cainiao logistics network, while ‘Big Short’ investor Michael Burry reportedly boosted bullish bets on and Alibaba. But the mainland was subdued after disappointing activity data from China in which Industrial Production, Retail Sales and Fixed Assets Urban Investment all missed analysts’ forecasts. In Australia, RBA minutes said its surprise decision to raise rates was a difficult, given there remain factors that could lead to higher inflation; members also stated that the forecast for interest rate hikes were based on a technical assumption. Our APAC wrap is here. Europe saw a lacklustre start following disappointing China activity data overnight, and mixed jobs data out of the UK (we recap below). Our European cash open note is here

US PRE-MARKETS: US equity futures are trading around neutral, while Treasury yields are lower by 2-4bps, with outperformance in the belly. The Dollar Index is slightly beneath the watermark. Crude futures have a small bid following news that the US would be adding to the SPR, though the disappointing activity data out of China overnight is adding caution to the risk mood ahead of key US retail sales data later today (preview in the Day Ahead section, below), earnings from retailer Home Depot (preview below) which will help shape expectations of numbers due from WMT and TGT later this week. There are also the Debt Ceiling talks between President Biden and Congressional leaders, scheduled for 15:00EDT/20:00BST – expectations around a potential for a deal have been downplayed by House Speaker McCarthy ahead of the talks (see our preview below). There is also a solid amount of Fedspeak on today’s agenda, including from the influential NY Fed President Williams.

BOFA MAY FMS: BofA May Global Fund Manager Survey says investors are bearish, Fed done, risk assets are resilient so long as the landing is soft. BofA reports FMS cash levels at 5.6%, allocation to bonds is at a 14-year high, allocation to commodities is at a 3-year low. In terms of growth, BofA says global growth expectations are the worst in 2023, but majority of those surveyed are in soft-landing camp rather than a hard landing, or no landing (4%); BofA says this is corroborated by investors forecasting a tiny 1% drop in global EPS in next 12 months. On the US debt ceiling, the vast majority of investors expect US debt ceiling resolution before “X-date.” Regarding the Fed, the survey shows most think the Fed's hiking cycle over, and the first Fed rate cut is likely to be seen in January 2024. These expectations mean that forecasts for a steeper yield curve are now at a 2-year high. In terms of the risks faced, survey participants see the biggest tail risks as: credit crunch/recession, high inflation/hawkish central banks, while CRE seen as most likely source of credit event. On asset allocation, allocation to stocks is creeping higher, and is now at a 5-month high; BofA notes a big rotation out of commodities, and into tech stocks (which is now at the highest since December 2021) as well as the Eurozone. Investors are the most long of growth stocks vs its value counterpart since July 2020. The most crowded trades are seen as long big tech, short banks, short USD. Meanwhile contrarian trades are Long REITs, banks and value stocks; short bonds, tech and growth.











16 May 2023 - 09:00- Research Sheet- Source: Newsquawk

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