US EARLY MORNING: US equity futures are higher ahead of PPI, weekly jobless claims data and Fedspeak

OVERNIGHT: On Wall Street, stocks were mixed (Dow underperformed, Nasdaq outperformed) as Treasury yields narrowed following US CPI data, which didn’t contain any hawkish surprises, as some were fearing following hot payrolls last week. Afterhours, DIS slipped following its results, HOOD gained. Our US wrap can be accessed here. APAC stocks were also mixed. China reported softer inflation data which supported arguments of a slow economic rebound ahead, while factory g ate prices saw deeper deflation (we review in our day ahead section, below). Aussie share markets saw weakness in utilities and commodity sectors overshadowing outperformance in tech and after consumer inflation expectations ticked higher. Japanese shares were indecisive, and the BoJ’s Summary of Opinions provided very little in the way of fresh insight. Our APAC wrap is here. In Europe, indices were in the green after the open, though the UK's FTSE 100 was lagging ahead of today's BoE rate decision, where a 25bps hike is largely expected. ECB's German representative Nagel reiterated that rate hikes are not over, and the ECB has more to do. Our European cash open note is here.

US PRE-MARKETS: US equity futures are higher in pre-market trade, Treasury yields are mixed. The Dollar Index is rallying, perhaps helped by a lower CNH (soft CPI metrics – we recap below), and lower EUR (signs of slowing global growth, along with some dovish commentary from ECB officials this week). Oil is finding its footing after Wednesday’s slide; macro data implies a growth slowdown ahead, while this week’s inventory data saw a larger than expected crude build, but some are framing today’s upside on the bigger than expected decline in gasoline stocks, which could allude to strong demand for transportation fuels. Today, weekly claims data, PPI, and Fedspeak are the main focus for US traders, while any commentary on the debt ceiling will be looked to; Treasury Secretary Yellen has given remarks ahead of the G7 meetings in Japan, and reiterated the urgency for Congress to raise the debt ceiling, and cautioned that a US default would result in economic and financial catastrophe.

ASSET ALLOCATION: In its May asset allocation update, Pimco says the Fed is likely to pause its rate cycle rather than quickly pivot toward rate cuts. Still, history suggests fixed income can offer attractive return potential, especially relative to equities. Pimco says it favours bonds for their diversification, capital preservation, and upside opportunities. "Starting yields appear competitive and we favour high quality duration and liquid credit exposures, as well as US agency mortgage-backed securities," it said. It believes that the overall resilience seen in equity markets this year would diminish in a downturn. "Earnings expectations appear too high, and valuations too rich," it says, adding that it is underweight equities in its multi-asset portfolios. Within these multi-asset portfolios, it sees opportunities in emerging Asian markets, particularly areas likely to benefit from economic growth in China.

DAY AHEAD:

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11 May 2023 - 09:00- EquitiesData- Source: Newsquawk

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