US EARLY MORNING: US equity futures are lower ahead of a House vote on the debt ceiling deal; incoming European inflation metrics have been softer-than-expected

OVERNIGHT: Asia-Pac stocks mostly lower due to mixed sentiment on Wall Street amid debt ceiling jitters, weak China PMI data (we recap below), lower oil prices (see here), and North Korea tensions, as the pariah nation attempted to launch its first military spy satellite, triggering emergency alerts South Korea and in Japan. Aussie CPI data for April was above expectations, prompting some to revise up their RBA rate hike calls (see below). Our APAC wrap is here. European equities started on the back foot, though European fixed income is rallying after initial German regional inflation data was lower than expected, which follows cooling inflation in Spain; the French inflation metrics also fell short of expectations (we recap below). Our European morning cash open note is here

US PRE-MARKETS: US equity futures are beneath neutral ahead of a House vote on the debt ceiling deal; some hardliners have indicated that they would be voting against the measures, though this was always expected, and it is likely to take a bipartisan effort to get it done. Treasuries are rallying, with some support coming from EGB counterparts, which are higher after inflation data from Spain and France, as well as some German inflation metrics, have come in lower than expected in May (we review below). The Dollar Index downside after the long-weekend has proven to be short-lived, with the Greenback up around the 104.50 handle again; the Buck's upside overnight may have been a function of further weakness in China's yuan, with the currency sliding to a fresh six-month low in wake of disappointing NBS PMI data (we review below). Crude benchmarks are tilting downwards again today, with contracts settling around USD 3.00 lower on Tuesday amid some signs of global demand weakness, and ahead of OPEC's June 4th policy meeting, which comes at a time of heightened tensions between the Saudis and Russians. Citi's latest positioning model suggests that investors are continuing to add more risk flows to US equities, with both S&P and Nasdaq bullish flows increasing - the latter's positioning is now at a three-year high, amid elevated profit levels and increasing profit taking risk. We are also now entering a key data window that could determine whether the Fed adds more monetary tightening: Friday will see the BLS release the May jobs data, on the same day we will get the manufacturing ISM report for the month; next Monday, the services equivalent will be released, and then a day before the Fed announcement (June 13th), the CPI report will be out (during the Fed blackout). Markets are currently discounting a 25bps rate hike with around 65% certainty, while no cuts are fully priced for this year. Today will see further Fedspeak, by way of Fed’s Bowman (voter, recently said that more policy tightening was likely appropriate), Fed's (non-voter, seems open to a June pause), Fed’s Harker (voter, in April argued that the Fed was close to where it needed to be on rates), and Fed Vice Chair nominee Jefferson (voter, who recently said inflation remained too high, and that the impact from hikes is yet to be fully felt). The Fed will enter blackout at the end of this week ahead of the June 13-14th policy meeting.

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31 May 2023 - 09:01- EquitiesData- Source: Newsquawk

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