US stocks extended on gains and the S&P 500 printed a 9-month high on debt ceiling optimism and firm data - Newsquawk Asia-Pac Market Open

• US stocks were firmer with sentiment underpinned by optimism regarding a debt ceiling deal and encouraging data including a surge in the Philly Fed Manufacturing survey and a fall in initial jobless claims. All major indices were lifted and the S&P 500 tested the 4,200 level to print a 9-month high, while the Nasdaq was the outperformer amid a Big Tech bias with the heavy lifting done by the likes of Nvidia (NVDA), Amazon (AMZN), and particularly Netflix (NFLX), which saw near double-digit strength after a positive ad tier subscriber update.
• USD was firmer and hit a two-month high on strong US data, hawkish Fed speak, easing regional bank woes, and potential optimism around the debt ceiling. The data and rhetoric resulted in a pick up in the pricing of odds for a June hike, while the focus turns to Fed Chair Powell on Friday in a panel discussion to see if he adds further to this.
• Looking ahead, highlights include New Zealand Trade Data & Credit Card Spending, Japanese National CPI & Enhanced Liquidity Auction.

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LOOKING AHEAD

• Highlights include New Zealand Trade Data & Credit Card Spending, Japanese National CPI & Enhanced Liquidity Auction.

US TRADE

EQUITIES

• US stocks were firmer with sentiment underpinned by optimism regarding a debt ceiling deal and encouraging data including a surge in the Philly Fed Manufacturing survey and a fall in initial jobless claims. All major indices were lifted and the S&P 500 tested the 4,200 level to print a 9-month high, while the Nasdaq was the outperformer amid a Big Tech bias with the heavy lifting done by the likes of Nvidia (NVDA), Amazon (AMZN), and particularly Netflix (NFLX), which saw near double-digit strength after a positive ad tier subscriber update.
• SPX +0.94% at 4,198, NDX +1.81% at 13,834, DJI +0.34% at 33,535, RUT +0.58% at 1,784.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed’s Jefferson (voter) said inflation is "too high" and by some measures, progress is slowing but added that a year is not long enough to feel the full effect of interest rate hikes so far. Jefferson added that the baseline outlook is not for a recession, but growth has "slowed considerably", while he expects job growth to also decline and the unemployment rate may rise.
• Fed's Logan (voter) said the data at this time does not support justifying a pause in June and noted that inflation and employment data in coming weeks could change that view, but are not there yet, while she is still concerned if inflation is falling fast enough, according to CNBC. Logan also said she is keeping an open mind ahead of the June meeting, but data does not yet show skipping a rate hike at the June meeting is appropriate and stated that the effect of banking stress so far is comparable to a 25bps or 50bps Fed rate hike.
• Fed's Barr (voter) said the Fed is weighing stricter liquidity rules post-SVB and noted that there is no inherent conflict between monetary policy and supervision by the Fed.
• Fed's Bullard (non-voter) said higher rates are insurance against inflation and that he will keep an open mind going into the June meeting, while he reiterated the view that a fall in Treasury yields offsets banking sector tightening, according to an FT interview.
• Fed officials have indicated that the decision to raise rates at the June meeting was "shaping up as a close call", according to WSJ's Timiraos. WSJ's Timiraos also wrote that the debt-limit impasse could soon force officials at the Fed to revisit its crisis-management playbook put together during similar fights a decade ago.
• US House Speaker McCarthy said he thinks an eventual debt limit bill needs to be on the floor next week and said that they are not there but he sees a path, according to Punchbowl's Sherman.
• US House Speaker McCarthy expects the House will vote next week if an agreement is reached, according to Politico's Everett.
• US Senate Majority Leader Schumer said debt limit talks are making progress and that the Senate would act right after the House on the debt limit, while US Democratic Senator Sinema said she is beginning to feel confident that a debt agreement will occur.
• US House GOPs in the Freedom Caucus said the Senate must pass the House GOP debt limit package and called for no more talks until the Senate takes action on the House debt limit bill.
• US House GOP McHenry said nothing close to being done on debt ceiling talks.

DATA RECAP

• US Philly Fed Business Index (May) -10.4 vs. Exp. -19.8 (Prev. -31.3)
• US Leading Index Chg MM (Apr) -0.6% vs. Exp. -0.6% (Prev. -1.2%)
• US Existing Home Sales (Apr) 4.28M vs. Exp. 4.3M (Prev. 4.44M, Rev. 4.43M)
• US Initial Jobless Claims w/e 242k vs. Exp. 254.0k (Prev. 264.0k)
• US Continued Jobless Claims w/e 1.799M vs. Exp. 1.818M (Prev. 1.813M, Rev. 1.807M)

FIXED INCOME

• Treasuries bear-flattened further after strong Philly Fed data, a fall in jobless claims, and hawkish comments from Fed's Logan and Bullard.

FX

• USD was firmer and hit a two-month high on strong US data, hawkish Fed speak, easing regional bank woes, and potential optimism around the debt ceiling. The data and rhetoric resulted in a pick up in the pricing of odds for a June hike, while the focus turns to Fed Chair Powell on Friday in a panel discussion to see if he adds further to this.
• EUR suffered from the dollar's strength which dragged EUR/USD beneath 1.0800, while there were comments from ECB's de Guindos that there is still scope to keep raising rates but most of the tightening has already been done.
• GBP was pressured by the firm US data, while there was a slew of BoE comments but nothing new to shift the dial with Governor Bailey noting he doesn't envisage the balance sheet returning to where it was before the financial crisis.
• JPY underperformed as yield differentials widened and with havens pressured by the broader risk sentiment.
• Mexican Central Bank kept its rate unchanged at 11.25%, as expected, via a unanimous decision. Banxico stated that inflation expectations for 2023 decreased but those for the longer-term remained relatively stable at levels above target and inflation is still projected to converge to the 3% target in Q4 2024, while it considered that the economy has begun to undergo a disinflationary process given that many pressures have eased.

COMMODITIES

• Oil prices were lower as strong US economic data and hawkish Fed rhetoric saw the Dollar surge to a two-month high amid increasing expectations that the Fed could hike in June.
• India plans to import about 5.5mln bbls of crude after October to fill part of its Mangalore SPR.

GEOPOLITICAL

• US Pentagon reportedly overvalued US equipment sent to Ukraine by around USD 3bln, while the error opens up the possibility of more weapons being sent to Kyiv, according to Reuters citing sources.
• Belarusian Security Council said they have recorded attempts to bring weapons into the country across the border with Ukraine with the aim of carrying out sabotage operations, according to Al Jazeera.

ASIA-PAC

• Chinese Premier Li said more targeted measures should be taken to expand domestic demand and stabilise external demand, while they will speed up the development of new business models and modes of foreign trade, as well as find ways to stabilise China’s international market share, according to state media.
• China said it is concerned about recent signs of negative China-related developments at the G7 and called on Japan to stop interfering in internal affairs and suppressing China trade.

UK/EU

• BoE Governor Bailey said he does not envisage the BoE balance sheet returning to where it was before the financial crisis and said QT is not an active policy tightening instrument.
• BoE's Deputy Governor Ramsden said QT has some effect on the economy, but fairly small and reiterated QT will be gradual and predictable.
• BoE's Deputy Governor Ramsden said his take is markets are more concerned about inflation in the UK than in the US and said UK gilts may still have some risk or liquidity premium from LDI issues last year.
• BoE's Broadbent said they received reports that GBP 100bln per year of QT may disrupt market liquidity and therefore decided on GBP 80bln.
• UK-India FTA is unlikely to conclude during PM Modi's second term with the sides unable to agree on duty-reduction plans for autos and whisky, while India is not in favour of some investment protection provisions sought by the UK although talks will continue despite delays on the final agreement, according to Reuters sources.
• ECB's de Guindos said service inflation is the most concerning for the ECB and that there is still scope to keep raising interest rates, although most of the tightening has already been done.
• ECB’s Muller said it is premature to expect the ECB to cut rates in early 2024.