US stocks declined amid mixed data and debt ceiling concerns - Newsquawk Asia-Pac Market Open

• US stocks finished mostly lower in what was a risk-off session amid mixed data releases from the US and ongoing debt ceiling concerns as President Biden and congressional leaders held a meeting which was said to be good and productive with the stage set to carry on further discussions between the Biden administration and House Speaker McCarthy's team, although McCarthy noted that he was not more optimistic regarding getting a deal by the end of the week.
• USD was marginally firmer following the latest data releases including better-than-expected Industrial Production and although US Retail Sales missed on the headline, the core metrics were in line and the control group saw a notable rise. There were also several Fed speakers including Mester who appeared to be swaying towards another rate hike in which she noted that she is not sure the Fed has done enough to be sufficiently restrictive, while Goolsbee and Barkin repeated commentary from Monday.
• Looking ahead, highlights include Australian Wage Price Index and Leading Index, Japanese GDP, Singapore Non-Oil Exports, Chinese House Prices, Speech from Fed's Bostic, Supply from Australia & Japan.

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LOOKING AHEAD

• Highlights include Australian Wage Price Index and Leading Index, Japanese GDP, Singapore Non-Oil Exports, Chinese House Prices, Speech from Fed's Bostic, Supply from Australia & Japan.

US TRADE

EQUITIES

• US stocks finished mostly lower in what was a risk-off session amid mixed data releases from the US and ongoing debt ceiling concerns as President Biden and congressional leaders held a meeting which was said to be good and productive with the stage set to carry on further discussions between the Biden administration and House Speaker McCarthy's team, although McCarthy noted that he was not more optimistic regarding getting a deal by the end of the week.
• SPX -0.64% at 4,109, NDX +0.09% at 13,426, DJIA -1.01% at 33,012, RUT -1.44% at 1,736.
• Click here for a detailed summary.

FED SPEAKERS

• Fed's Goolsbee (voter) said he has not decided anything for the June rate meeting and it would be a mistake to commit to a rate move when more data is coming. Goolsbee said they have seen some froth taken off labour markets and are starting to see some slowing in activity but is not sure if they have put enough restraint on the economy yet.
• Fed's Logan (voter) said central banks should review post-GFC stress episodes and that they may need to travel more slowly when conditions are uncertain. Logan stated gradual policy adjustments can be helpful in mitigating against financial stability risks and that the speed of increases and length of time at peak rate can influence the impact on stability.
• Fed's Williams (voter) said the economy is facing unacceptably high inflation but stated the economy is starting to get back to more normal patterns with demand and supply moving back into balance. Furthermore, Williams said that inflation is moving gradually in the right direction and he expects the economy to continue to grow this year.
• Fed's Barkin (non-voter) said demand is cooling but not yet cold, while he is still looking to be convinced on inflation and said the Fed still has optionality.
• Fed's Mester (non-voter) said a lower neutral interest rate could return and the Fed remains committed to getting inflation back to 2%, while she added that current trends point to slow long-run growth for the US economy. Mester said she would like the policy rate to get to a point where it could equally be a potential increase or decrease and does not think they are at that hold rate yet. Mester also commented that given how stubborn inflation is, she cannot say they are at a level where it is equally probable the next move would be an increase or a decrease.
• Fed Vice Chair of Supervision Barr (voter) said the agency is considering stricter rules on accounting for unrealised losses for banks over USD 100bln in assets and he expects to be able to present thinking on the Fed's holistic capital review by this summer. Barr also said they should be careful and prudent in thinking about making capital changes, while they are looking at whether changes in the value of Available For Sale (AFS) securities should be taken into account for capital requirements.

DEBT CEILING

• White House said President Biden directed staff to meet daily on outstanding issues and said he would like to check in with leaders later this week by phone and meet with them upon return from overseas. Biden also emphasised that while more work remains on a range of difficult issues, he is optimistic that there is a path to a budget agreement.
• White House Press Secretary said the White House believes talks on the debt limit have been "very productive". In relevant news, White House's Kirby said President Biden will travel to Japan on Wednesday for the G7 and that they are taking a look at the Australian portion when asked about potential changes to President Biden’s travel due to debt ceiling talks, while it was later reported that President Biden will return to the US on Sunday after the G7 to focus on the debt ceiling talks, according to NBC.
• US House Speaker McCarthy said they set the stage to carry on further conversations in debt talks and that President Biden agreed to appoint a couple of people from the administration to negotiate directly with his team. McCarthy also said there is a lot of work to do in a short amount of time and that they are still very far apart but added it is possible to get a deal by the end of the week and it is not that difficult to reach an agreement. However, McCarthy later said he is not more optimistic about getting a deal by the end of the week.
• US Senate Majority Leader Schumer said the debt meeting was good and productive, while he added that they all agreed a default is a horrible option.
• White House and congressional staff had reportedly met for several days on the debt ceiling and sources suggested they have been making incremental progress, according to WSJ. It was also reported that President Biden’s and House Speaker McCarthy’s aides were said to be discussing tighter work requirements for welfare programs SNAP and TANF in debt ceiling talks, according to Reuters sources.
• US House Speaker McCarthy earlier said there has been no progress in debt ceiling talks since Monday evening. In relevant news, Punchbowl's Sherman tweeted that McCarthy said in a closed GOP meeting that they are not going to get a clean debt ceiling. Furthermore, McCarthy noted they have 16 days left and that President Biden wants to spend 8 abroad, while he said that the debt limit deal must include something on work requirements which is a red line for him.
• US Senate Republican Leader McConnell earlier told Senate Republicans there had not been much progress on debt ceilings talks with POTUS and other leaders.
• US Treasury Secretary Yellen said a US default would result in an unprecedented economic and financial storm and the resulting income shock could lead to a recession.
• Over 140 leaders of the biggest US companies including Goldman Sachs (GS), Pfizer (PFE) and KKR (KKR), have urged the White House and congressional leaders to raise the debt ceiling and avoid a “potentially devastating scenario”, according to FT.
• US Treasury Secretary Yellen plans to meet with bank CEOs on Thursday afternoon in Washington as part of an annual meeting held by the Bank Policy Institute, while talks will likely focus on the debt ceiling and the banking crisis, according to CNN citing sources.

DATA RECAP

• US Industrial Production MM (Apr) 0.5% vs. 0.0% (Prev. 0.4%)
• US Manufacturing Output MM (Apr) 1.0% vs. Exp. 0.1% (Prev. -0.5%, Rev. -0.8%)
• US Retail Sales MM (Apr) 0.4% vs. Exp. 0.8% (Prev. -0.6%, Rev. -0.7%)

FIXED INCOME

• Treasuries bear-flattened Tuesday after hot April retail sales and industrial production were aided by more hawkish Fed Speak, offsetting weak global data.

FX

• USD was marginally firmer following the latest data releases including better-than-expected Industrial Production and although US Retail Sales missed on the headline, the core metrics were in line and the control group saw a notable rise. There were also several Fed speakers including Mester who appeared to be swaying towards another rate hike in which she noted that she is not sure the Fed has done enough to be sufficiently restrictive, while Goolsbee and Barkin repeated commentary from Monday.
• EUR slightly softened against the dollar but with losses stemmed after hawkish comments from ECB's Holzmann.
• GBP was choppy and ultimately weakened with cyclical currencies pressured by the cautious mood.
• JPY continued to weaken against the greenback which coincided with the upside in US yields.

COMMODITIES

• Oil prices were marginally lower as the recent weak economic data out of China offset decent US retail sales and a higher demand forecast from the IEA.
• US Energy Inventory Data (bbls): Crude 3.7mln (exp. -0.9mln), Gasoline -2.5mln (exp. -1.1mln), Distillate -0.9mln (exp. +0.1mln), Cushing +2.9mln
• IEA Monthly Oil Market Report stated that oil demand is set to increase by 2.2mln BPD in 2023 to a record of 102mln BPD (vs. April view of 101.9mln BPD).
• OPEC Secretary General al-Ghais invited Ecuador to rejoin OPEC three and a half years after it left, according to Argus Media.
• Libya's NOC outlined steps to raise oil production rates during the current year.
• White House Energy Adviser Hochstein said he does not see a big surge in oil prices this summer that will be a threat.
• US President Biden’s administration granted a permit to allow the Mountain Valley pipeline to run through the Jefferson National Forest, according to NYT.

GEOPOLITICAL

• Russia's Kremlin said many questions remain open regarding the Russian part of the grain deal and Russia has to take a decision on whether to renew the deal or not.
• US Defense Secretary Austin said they will soon provide significant additional security assistance to Taiwan through the Presidential drawdown authority.

ASIA-PAC

• Chinese Premier Li held a call with Dutch PM Rutte and said that China is willing to promote cooperation with the Netherlands, while China hopes the Netherlands will adhere to market principles, safeguard the common interest of both countries and their enterprises, as well as maintain a smooth flow of the global supply and industrial chain, according to state media.
• China’s Defence Minister and Japan’s Defence Minister held the first phone call via the maritime-air liaison direct line, according to a statement.
• US President Biden vetoed the repeal of the admin's suspension of tariffs on solar panels from four Southeast Asian nations.
• US Commerce Secretary Raimondo said the US must be aggressive when it comes to enforcing trade rules and antidumping duties on steel, while she said they are extremely focused on a green steel and aluminium arrangement that will disadvantage China.

UK/EU

• ECB's Holzmann (Hawk) said the ECB is hopefully moving towards a terminal rate somewhere above 4%. Holzmann also said he would have preferred a 50bps hike at the May meeting and that they shouldn't pause hikes until they reach 4%, while he added that bigger rate hikes are appropriate to reach the terminal rate but hikes above 25bps are probably not possible now.

DATA RECAP

• UK Employment Change (Mar) 182k vs. Exp. 160k (Prev. 169k)
• UK ILO Unemployment Rate (Mar) 3.9% vs. Exp. 3.8% (Prev. 3.8%)
• UK Average Earnings (Ex-Bonus) (Mar) 6.7% vs. Exp. 6.8% (Prev. 6.6%)
• UK Average Weekly Earnings 3M YY (Mar) 5.8% vs. Exp. 5.8% (Prev. 5.9%, Rev. 5.8%)
• German ZEW Economic Sentiment (May) -10.7 vs. Exp. -5.3 (Prev. 4.1)
• German ZEW Current Conditions (May) -34.8 vs. Exp. -37.0 (Prev. -32.5)
• EU GDP Flash Estimate QQ (Q1) 0.1% vs. Exp. 0.1% (Prev. 0.1%)
• EU GDP Flash Estimate YY (Q1) 1.3% vs. Exp. 1.3% (Prev. 1.3%)
• EU Employment Flash QQ (Q1) 0.6% vs. Exp. 0.3% (Prev. 0.3%)
• EU Employment Flash YY (Q1) 1.7% (Prev. 1.5%)
• EU ZEW Survey Expectations (May) -9.4 (Prev. 6.4)