US stocks declined amid debt ceiling fears and after hot UK CPI although futures were boosted after hours on NVIDIA earnings - Newsquawk Asia-Pac Market Open

• US stocks were lower amid debt limit concerns as the US moves closer to a potential default with no deal on the table although the rhetoric has been more optimistic in nature, while treasuries bear-flattened after firmer-than-expected UK CPI data and participants also digested the latest FOMC Minutes which showed officials were split on support for more hikes.
• USD mildly gained amid the risk aversion and to some extent, commentary from Waller who ruled out a pause in June but said the data will tell if they have to hike or skip in June, while the FOMC minutes had little sway and were rather in fitting with recent commentary with officials split on support for more hikes.
• Looking ahead, highlights include Singapore GDP, BoK Rate Decision, Supply from Japan.

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LOOKING AHEAD

• Highlights include Singapore GDP, BoK Rate Decision, Supply from Japan.

US TRADE

EQUITIES

• US stocks were lower amid debt limit concerns as the US moves closer to a potential default with no deal on the table although the rhetoric has been more optimistic in nature, while treasuries bear-flattened after firmer-than-expected UK CPI data and participants also digested the latest FOMC Minutes which showed officials were split on support for more hikes.
• SPX -0.73% at 4,115, NDX -0.50% at 13,604, DJIA -0.77% at 32,800, RUT -1.16% at 1,767
• Click here for a detailed summary.

FOMC MINUTES

• FOMC Minutes showed officials were split on support for more hikes and participants generally agreed the extent to which further interest rate hikes may be appropriate had become less certain, with many focused on the need to retain optionality after the May meeting. Participants generally expressed uncertainty about how much more policy tightening may be appropriate and several participants said if the economy evolved along the lines of their outlooks, further policy firming might not be needed. However, some participants commented that based on their expectations that progress in returning inflation to 2% could continue to be unacceptably slow, additional policy firming would likely be warranted at future meetings, while some participants stressed it was 'crucial' for the policy statement not to signal a likelihood of rate cuts this year or rule out further hikes.

NOTABLE HEADLINES

• Fed's Waller (voter) said whether the Fed should hike or skip at the June meeting will depend on the data over the next three weeks and he is watching labour market data, particularly wages information and additional inflation numbers. Waller added they need to maintain flexibility on the best policy decision for the June meeting and he is not expecting data in the next couple of months to make it clear the terminal interest rate has been reached. Furthermore, Waller does not like that they have mortgage-backed securities on the Fed balance sheet and hopes they can run those off at some point.
• White House said any budget deal will need the support of Democrats and that they will continue to negotiate in good faith to reach a reasonable budget agreement, while the White House Press Secretary said debt ceiling negotiations remain productive and that President Biden and House Speaker McCarthy will speak when the time is right.
• US Treasury Secretary Yellen reiterated the Treasury may run out of cash as soon as June 1st and they will try to increase the level of precision on the day but believes a deal is possible and said President Biden has offered changes that will result in a USD 1tln deficit reduction.
• US House Speaker McCarthy said things are going a little better on debt ceiling talks and said he believes they can get back to the 2022 spending level, while he added that he has always thought they could get a deal in a day and there should not be any fear in markets.
• US House Speaker McCarthy earlier commented that he is sending negotiators to the White House to finish things and noted they are still far apart in a number of places but does not think there'll be a default and thinks they can make progress today. McCarthy also stated that there are still differences over spending but they offered a lot of concessions and firmly believes they will be able to get a deal.
• Punchbowl News stated that with no deal imminent, McCarthy signalled that he’d likely send lawmakers home on Thursday evening, anticipating that negotiations will drag into next week.
• US GOP debt ceiling negotiator Graves said there has not been any progress on talks.
• US House Democrats signed a discharge petition to force a vote on a clean debt ceiling increase.

FIXED INCOME

• Treasuries bear-flattened after hot UK CPI and positive debt ceiling rhetoric despite the lack of a deal, while prices failed to benefit from the solid 5yr auction and mixed FOMC minutes.

FX

• USD mildly gained amid the risk aversion and to some extent, commentary from Waller who ruled out a pause in June but said the data will tell if they have to hike or skip in June, while the FOMC minutes had little sway and was rather in fitting with recent commentary as it showed officials were split on support for more hikes.
• EUR was choppy and ultimately softened after EUR/USD failed an attempt to reclaim the 1.0800 status.
• GBP continued to weaken after fading the initial support from the firmer-than-expected CPI data.
• JPY remained pressured and USD/JPY climbed to a fresh YTD high amid rising US yields.

COMMODITIES

• Oil prices were firmer after a titanic 12.5mln bbl draw in weekly crude stocks and Russian supply risks which overshadowed the firmer dollar and downbeat risk tone.
• US EIA Weekly Crude Stocks w/e -12.456M vs. Exp. 0.775M (Prev. 5.04M)
• OPEC watchers see steady output even as Saudis warn speculators.
• Russian Energy Minister said they are considering restrictions on gasoline exports and not a ban, while he added retail gasoline prices are stable now and they will monitor the situation, as well as propose a restriction on exports of gasoline and diesel if needed.

GEOPOLITICAL

• Russian Foreign Minister Lavrov warned that increasing Western involvement in Ukraine will lead to nuclear war, according to a translated tweet cited by Al Arabiya.
• Russia's Defence Minister said Russia will react to attacks like the one in the Belgorod region in a "pretty tough" manner, according to RIA. It was also reported that the Russian Defence Ministry said the warship Ivan Hurs was attacked by Ukrainian naval drones in the Bosphorus area and that the warship was attempting to protect Turkstream and Bluestream gas pipelines when attacked.
• Russia's Deputy Foreign Minister said F-16s will be a "legitimate target" for Russia if supplied to Ukraine, according to RIA.
• White House is looking to play down the rift with South Africa over the allegation that Pretoria covertly shipped arms to Russia, while it is looking to deal with it in private and not damage the relationship, according to FT.

ASIA-PAC

• Chinese President Xi said in a meeting with Russian PM Mishustin that China is willing to continue to support issues concerning each other's core interests. It was also reported that President Xi will hold a third Belt and Road forum in H2 2023, according to state TV.
• White House's Kirby said China's move to ban Micron (MU) is clearly an attempt to undermine the strong stance taken by G7 on economic coercion and that China’s action is inconsistent with its assertion that it is opening its markets. Kirby added the administration is trying to see if it can get a more productive engagement with China in future months and is working on possible visits to China by Treasury Secretary Yellen and other cabinet secretaries, while they are still in discussions on a possible meeting between USTR's Tai and her Chinese counterpart. Furthermore, Kirby said discussions remain open with China but they will not sit by idly if Beijing acts inappropriately.
• Microsoft (MSFT) warned that Chinese state-sponsored hackers had compromised “critical” US cyberinfrastructure across numerous industries with a focus on gathering intelligence, according to CNBC.
• RBA official Jacobs said the balance sheet is starting to unwind pandemic bond purchases and around AUD 20bln of purchased bonds have matured with the pace to increase to around AUD 35bln-45bln/year.

UK/EU

• BoE Governor Bailey said it is too soon to know if the government’s goal of halving inflation this year is at risk and he is not willing to speculate on where April inflation data leaves them in terms of forecasts. Bailey added that the commitment to bringing inflation to the target is absolute and that April CPI data showed a welcome fall below double digits in inflation.
• ECB's President Lagarde reiterated the ECB will bring rates to sufficiently restrictive levels and keep them at those levels for as long as necessary.
• Germany’s economy is expected to grow modestly in Q2 as a rebound in the industry offsets stagnating household consumptions, according to the Bundesbank monthly report.

DATA RECAP

• UK CPI YY (Apr) 8.7% vs. Exp. 8.2% (Prev. 10.1%)
• UK Core CPI YY (Apr) 6.8% vs. Exp. 6.2% (Prev. 6.2%)
• German Ifo Current Conditions New (May) 94.8 vs. Exp. 94.8 (Prev. 95.0; Rev. 93.1)
• German Ifo Expectations New (May) 88.6 vs. Exp. 91.9 (Prev. 92.2)
• German Ifo Business Climate New (May) 91.7 vs. Exp. 93.0 (Prev. 93.6, Rev. 93.4)