US stocks finished mixed amid the debt ceiling overhang - Newsquawk Asia-Pac Market Open

• US stocks finished mixed with price action choppy as participants awaited the latest developments in the debt ceiling standoff and digested a slew of Fed rhetoric, although Russell 2,000 saw strong advances and was supported by a bounce in regional banks as PacWest (PACW) surged after announcing the sale of real estate loans.
• USD was firmer albeit within contained ranges amid debt ceiling talks and a slew of Fed commentary including from Fed's Kashkari who noted that the June meeting is a close call and suggested they may need to go north of 6%.
• Looking ahead, highlights include Australian & Japanese Flash PMIs, BoJ Core CPI, Singapore CPI, Supply from Australia & Japan.

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LOOKING AHEAD

• Highlights include Australian & Japanese Flash PMIs, BoJ Core CPI, Singapore CPI, Supply from Australia & Japan.

US TRADE

EQUITIES

• US stocks finished mixed with price action choppy as participants awaited the latest developments in the debt ceiling standoff and digested a slew of Fed rhetoric, although Russell 2,000 saw strong advances and was supported by a bounce in regional banks as PacWest (PACW) surged after announcing the sale of real estate loans.
• SPX +0.02% at 4,192, NDX +0.34% at 13,849, DJIA -0.42% at 33,286, RUT +1.22% at 1,795.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed's Kashkari (voter) said he is not seeing evidence yet that banking stress is doing the work for them on inflation, while he added that the June meeting is a close call and suggested they may need to go north of 6%, but it is not clear, according to a CNBC interview.
• Fed's Barkin (non-voter) said recent use of the discount window is a sign of strength and a signal banks have access to liquidity, while he added that something will have to be done about uninsured deposits, whether it is insurance limits, gating, or structuring different products. Barkin added that he will not pre-judge the June meeting outcome and is still looking to be convinced inflation is in a steady decline.
• Fed's Bostic (non-voter) said the SVB collapse shows that Fed processes and policies will have to change to become on-demand and may need Fed liquidity to be more available and nimble. Bostic said he is comfortable waiting a little bit to see how the economy plays out after the Fed has done a lot of tightening already, while he added that policy acts with a lag and will take decisions on a meeting-by-meeting basis.
• Fed's Bullard (non-voter) said the base case remains relatively slow growth for the rest of this year and into 2024, while he added the SEP median of 5.1% was based on slow growth and inflation improvements that have not occurred and calls for perhaps 50bps more hikes this year.
• Fed's Daly (non-voter) wants to see if policy tightening is affecting the economy and is focused on the whole dashboard of incoming data, while she added the Fed must be very data dependent right now and there are still lots of data to get before the June FOMC.
• Fed Survey noted that households reported a decline in financial wellbeing and higher prices have negatively affected most households. One-third of households said inflation was the main financial challenge, while more workers received and asked for a pay increase or promotion in 2022 vs 2021.
• White House said President Biden and House Speaker McCarthy will meet at 17:30ET/22:30BST on the debt ceiling.
• US House Speaker McCarthy said they don't have a deal and that decisions have to start being made although it was later reported that McCarthy thinks they can make it happen by the debt deadline. Furthermore, McCarthy said they could get a deal tonight or could get a deal tomorrow but added that nothing has been agreed to in negotiations with President Biden on the US debt ceiling.
• US Treasury Secretary Yellen reiterated that debt-limit measures could still run out soon as June 1st and highly likely cash will run out by early June, according to a statement from the Treasury Department.
• White House official said any debt ceiling solution must be able to secure democratic votes and not just the House Freedom Caucus, while the official said House Speaker McCarthy's team last week moved in a more partisan direction and that President Biden continues to look for a bipartisan solution to the debt ceiling. Furthermore, McCarthy's team had proposed additional nutrition programme cuts and annual funding caps three times longer than any recent budget deal.
• US House GOP McHenry said there is still no agreement on major items and does not think there’s any interest in delaying these difficult conversations, according to Fox's Pergram. McHenry is concerned about getting a deal that can pass the House, the Senate, and be signed by the President, while there are no other debt ceiling talks planned before the Biden-McCarthy meeting later tonight, according to CNN's Raju.

FIXED INCOME

• Treasuries saw mild bear-flattening on Monday ahead of supply while Fed speakers stressed it's a 'skip', not a 'pause'.

FX

• USD was firmer albeit within contained ranges amid debt ceiling talks and a slew of Fed commentary including from Fed's Kashkari who noted that the June meeting is a close call and suggested they may need to go north of 6%.
• EUR was choppy and just about edged higher against the greenback after support held at the 1.0800 level.
• GBP failed to sustain early gains against the dollar with strength curbed on hawkish Fed rate expectations.
• JPY weakened and USD/JPY extended above the 138.00 level amid widening US-Japan yield differentials.
• Turkey's 3rd-place candidate Ogan is to endorse incumbent Erdogan in the second round of elections on May 28th, according to Middle East Eye.

COMMODITIES

• Oil prices were ultimately firmer although price action was choppy amid a slew of supply updates, market commentary and debt ceiling updates, with the stronger dollar offset by lower supplies from OPEC+ producers in April.
• Iran set June Iranian light crude price to Asia at Oman/Dubai plus USD 2.60bbl (vs. prev. USD 2.90bbl).
• Turkey has reportedly not yet responded to Iraq's request to restart the northern oil pipeline, although, a source said "it is a matter of weeks, not days" when asked about the resumption of exports with the issue more political than technical.
• Jordan’s Energy Minister announced the resumption of Iraqi crude oil imports, according to a statement.
• Goldman Sachs said rising fears of a US recession and a China slowdown are likely weighing on oil prices and it estimates that forward curves are pricing all the main bearish risks to their USD 95/bbl December 2023 Brent forecast. Goldman Sachs also stated that the oil market is too pessimistic and it expects sustained deficits from June as OPEC+ production cuts are fully realised and demand rises further.

GEOPOLITICAL

• US allies are said to be in support of an Israeli-style security agreement for Ukraine with NATO and allies looking to provide Ukraine with security guarantees. The security agreement would be linked to a process of moving towards future membership in NATO for Ukraine but stop short of actually making NATO a party to any conflict with Russia, according to WSJ sources.
• Ukraine Presidential aide said Ukraine has nothing to do with the Belgorod incursion but is watching with interest.
• Armenia is ready to recognize Nagorno-Karabakh as Azerbaijan's territory if Baku guarantees the security of the Armenian ethnic population.
• German Foreign Minister said the EU will decide on new sanctions against Iran.

ASIA-PAC

• Chinese Commerce Ministry said in a forum with US firms that China's economic operation has maintained a good trend of recovery and market potential continued to be released.
• US State Department spokesperson Miller said the US has no plans to lift sanctions on China's defence minister.
• Japanese and Chinese defence ministers are reportedly arranging a meeting in early June in Singapore, according to Kyodo.

UK/EU

• ECB's de Cos said the bank still has some way to go to tighten monetary policy and rates will have to remain in restrictive territory for an extended period to achieve the inflation goal.
• ECB's Lane said markets believe that inflation will come back to 2% in the foreseeable future.
• ECB's Villeroy said the primary question is not how much further to hike, but how large the pass-through of what is already in the pipe and believes the ECB will be at the terminal no later than September, while he noted that the ECB is clearly already in restrictive territory and could hike or pause in the next three meetings.

DATA RECAP

• EU Consumer Confidence Flash (May) -17.4 vs. Exp. -16.8 (Prev. -17.5)