US equity futures rose to start the week as investors monitored a subtle optimistic shift in debt-ceiling talks. Both S&P 500 and Nasdaq 100 contracts added 0.4% at 7:30 a.m. ET, following similar increases in the Estoxx50 over the early London session. A subdued market reaction to the US fiscal standoff suggests that investors expect politicians to negotiate a solution after President Joe Biden voiced optimism over the weekend that a deal could be reached. Still, Treasury Secretary Janet Yellen has warned that the the world’s biggest economy risks a catastrophic default as soon as June 1 if the debt limit isn’t suspended or raised. Treasury yields ticked higher while the Bloomberg dollar index dropped to session lows; oil prices are flat, doing little to rebound from the past four weeks of losses. Gold is edging higher this morning, while iron ore and copper also gain.
In premarket trading, Meta shares rose 1.1% as Loop Capital upgraded the social media giant’s stock to buy from hold saying that the company’s revenue picture looks increasingly positive. Meanwhile, Alphabet fell 0.9% as Loop cut the tech giant’s stock to hold from buy, saying concerns surrounding the company’s ability to maintain its dominant position through the ongoing artificial intelligence transformation will weigh on its valuation. Analyst Rob Sanderson says “consider search competition from Microsoft a lesser threat than risk of displacement from behavioral change as users interact more with AI assistants to find information.” Here are some other notable premarket movers:
Oneok shares drop 5.8% in US premarket trading as analysts say the US pipeline operator’s $18.8 billion deal to buy Magellan Midstream Partners was a surprise given their different focus areas, with Magellan more exposed to crude and refined products while Oneok transports natural gas.NeoGames shares more than doubled after Aristocrat Leisure announced the proposed acquisition of the iLottery and iGaming solutions and services company for $29.50 a share in cash.Cryptocurrency-exposed stocks rose as Bitcoin gained for a third consecutive session, its longest streak since late April.Eli Lilly & Co.’s price target was raisedatMorgan Stanley to a Wall Street high of $507 from $478 per share, as analysts took stock of the recent positive clinical data for its experimental Alzheimer’s drug.
After a quiet weekend on the news front, attention remained glued to debt ceiling negotiations, especially since there are now just two weeks until the earliest possible X-date. “It could be argued that the risks appear somewhat overstated, given how regularly we’ve seen this scenario play out over the last few years,” said Michael Hewson, chief analyst at CMC Markets in London. “Nonetheless, the uncertainty being generated by events in Washington is prompting a more defensive bias.”
House Speaker Kevin McCarthy and other congressional leaders are planning to hold further talks on Tuesday. They were previously scheduled to meet on Friday, but postponed it as staff level discussions continued throughout the weekend. “When you look from afar in Europe at American politics right now it is difficult to see how they get to common ground, but the alternative is so bad maybe it forces that ground to be found,” said Luke Hickmore, investment director at Abrdn. “The risks are still there for sure.”
The showdown in Washington is just one of many risks keeping investors sidelined, from recession to cracks in the banking system to disappointed hopes for a turn to easier monetary policy. The S&P 500’s decline of 0.3% last week marked the sixth straight week without a 1% move — the longest stretch of inertia since late 2019.
“There’s quite a fair bit of ongoing risk in the market,” Audrey Goh, senior cross asset strategist at Standard Chartered Wealth Management Group, said in an interview on Bloomberg Television. “The debt-ceiling talks are still in the making, at the same time we’ve also got inflation still quite elevated. There could be further downside from here where equity markets are concerned.”
The VIX held near the lowest since 2021, even as Morgan Stanley’s Michael Wilson said he expects the debate around raising the US government’s $31.4 trillion borrowing limit to trigger some sharp swings in equity markets.
European stocks rose tracking US equity futures: the Stoxx 600 is up 0.3% with miners, consumer products and utilities the strongest performing sectors. Here are the biggest movers Monday:
Evotec gains as much as 6.4%, the most on the Stoxx 600 and the benchmark’s health-care subindex. Citi says today’s numbers “provides comfort” and last week’s Sandoz deal adds “significant credibility”Alstom shares rise as much as 4.8% as JPMorgan raises its PT on the French train maker, saying its “significantly positive” free cash flow forecast helps to ease balance sheet concernsAxa rises as much as 3.2%, with analysts saying the insurer’s quarter results are encouraging, with strong pricing in Property & Casualty premiums and a positive surprise in its capital guidanceSiemens Energy rises as much as 3.6%, outperforming the wider Stoxx Energy Index, with Citi saying today’s results to be taken positively, highlighting a 20% beat on orders and a 10% beat on revenueDiploma rises as much as 2.9% after the UK components and seals distributor’s 1H results topped expectations, with good organic growth, a beat on margins and a strong outlook, analysts saidCurrys shares rise as much as 7.6% after the UK electronics-and-appliances retailer raised its profit forecast for the year. Analysts noted the better-than-expected sales performance in the UKBayer declines as much as 2.6%, extending losses to a fourth consecutive session, after Berenberg says Germany-based pharmaceutical and agrochemicals company may issue a profit warning in 2HLotus Bakeries shares fall as much as 3% after KBC Securities cuts the Belgian food producer to hold from accumulate. The broker sees short-term upside as “too limited” after recent strengthAsos shares drop as much as 12% after JPMorgan slashed its price target on the UK online fast fashion retailer, citing concerns about the medium-term outlook and a lack of visibilityAFRY shares drop as much as 3.4% after the Swedish engineering consultancy firm loses its clean sweep of positive ratings following a downgrade to hold from buy by Nordea
In other markets, the Turkish lira weakened as the country’s presidential election looked set for a runoff vote in two weeks. Losses were cushioned by state banks that earlier intervened to support the exchange rate, according to people familiar with the matter. The Thai baht rallied after pro-democracy parties emerged as the biggest winners in Sunday’s election.
Earlier in the session, Asian equities gained, with a late rally in Chinese stocks putting the regional benchmark on track for its first advance in five days. The MSCI Asia Pacific Index rose as much as 0.7%, led by financials and communication services shares. Thailand’s benchmark was the worst performer in Asia following elections on Sunday, owing to uncertainty over talks between opposition parties to form a coalition government. China’s benchmark CSI 300 Index jumped the most since Feb. 20. Financials rallied following a state media reported that the Shanghai stock exchange will host a seminar to discuss topics including boosting the sector’s valuation. Gauges in Hong Kong also climbed, with Tencent being a key contributor ahead of its earnings scheduled for Wednesday. Market watchers will be keenly watching the latest China figures on industrial output, retail sales and fixed-asset investment Tuesday to gauge the momentum of the nation’s economic recovery.
Focus will also be on US debt-ceiling talks as President Joe Biden, House Speaker Kevin McCarthy and other congressional leaders plan to meet to discuss budget negotiations to avoid a default.
In Japan, the key Topix gauge inched closer to reaching its highest level since 1990, with the nation’s biggest banks predicting their highest profits in years. Goldman Sachs is predicting more upside for Japanese stocks, which extended their recent outperformance versus global peers amid strong earnings and renewed weakness in the yen. “We note the solid fundamentals compared with stocks on overseas markets, and we also think that expectations for structural changes/reforms could push Japanese equities up even further,” Goldman strategists Kazunori Tatebe and Bruce Kirk wrote in a note.
Indian stocks advanced to trade near their all-time highs as falling wholesale prices helped makers of consumer goods amid hopes of a recovery in demand. The S&P BSE Sensex rose 0.5% to 62,345.71 in Mumbai, while the NSE Nifty 50 Index advanced by a similar measures. Both are less than 2% away from their record levels set in early December. They have increased about 8% since March. The stock market reacted after data showed India’s wholesale prices contracted for the first time in almost three years, tracking softening global commodity prices. Companies, especially consumer goods and staples firms, which have struggled to report volume growth on weak demand, could find support. The broader market gains also countered worries over ruling Bharatiya Janata Party’s election defeat in southern Karnataka state, where opposition Congress party secured a majority last week. “While the election results may introduce some ‘political risk’ to markets and rejuvenate the opposition, we note that Mr Modi enjoys very high approval rating on the national level,” Kotak Institutional Equities analysts led by Sajeev Prasad wrote in a note, referring to Prime Minister Narendra Modi. Shares of billionaire Gautam Adani’s group declined amid concerns over potential equity dilution after boards of two firms approved proposals to raise as much as $2.6 billion
In FX, the Bloomberg Dollar Spot Index is down 0.1%. The Australian dollar is the strongest of the G-10 currencies, rising 0.5% against the greenback. The Japanese yen is the weakest while the Turkish lira has also dropped as the presidential election appears to be heading for a runoff vote.
In rates, treasuries fall with the US 10-year yield rising 2bps to 3.48%. Bunds are also in the red with German 10-year borrowing costs rising 3bps to 2.31%. Italian 10-year yields have dropped 1bps after Fitch affirmed their BBB rating on Friday. Treasuries were cheaper across the curve, following wider losses in bunds, amid contained risk-on sentiment. Treasury yields are cheaper by 1bp to 2bps across the curve with 10-year yields around 3.48%, trading ~0.5bp richer vs. bunds. IG issuance slate includes five deals already with a weekly total of around $30b expected — the majority of issuance is expected to be front loaded, according to dealers. US auctions this week include $15b 20-year bond sale Wednesday and 10-year TIPS Thursday
In commodities, Crude futures advance with WTI rising 0.4% to trade near $70.30. Spot gold adds 0.3% to around $2,017. Bitcoin rises 1.6%.
Finally, after a tumultuous week at one of the largest crypto exchanges which had temporarily paused withdrawals mid-week, Bitcoin fell back -10.5% on the week (and -5.18% on Friday itself). Ethereum likewise fell back -3.82% on Friday to bring the weekly loss to -10.16% as the impact of its major Shapella update continues to be felt.
Market Snapshot
S&P 500 futures up 0.4% to 4,155.00STOXX Europe 600 up 0.3% to 466.75MXAP up 0.6% to 161.75MXAPJ up 0.7% to 513.95Nikkei up 0.8% to 29,626.34Topix up 0.9% to 2,114.85Hang Seng Index up 1.8% to 19,971.13Shanghai Composite up 1.2% to 3,310.74Sensex up 0.8% to 62,497.75Australia S&P/ASX 200 up 0.1% to 7,267.13Kospi up 0.2% to 2,479.35German 10Y yield little changed at 2.29%Euro up 0.2% to $1.0875Brent Futures up 0.3% to $74.38/bblGold spot up 0.5% to $2,020.20U.S. Dollar Index down 0.16% to 102.52
Top Overnight News from Bloomberg
China’s rate swaps program with Hong Kong began, giving overseas funds easier access to onshore derivatives. The long-anticipated Swap Connect comes after global investors cut holdings of Chinese sovereigns by $169 billion in the last five quarters. An advantage of the channel will be lower trading costs, Linklaters said, though analysts say it may not deter short-term outflows. BBGSweden’s April inflation cools by more than anticipated, taking pressure off the central bank to continue hiking rates (core inflation came in at +8.4% Y/Y in April, down from +8.9% in March and below the Street’s +8.7% forecast). BBGEurozone inflation and GDP to outperform prior expectations according to new European Commission forecasts (GDP is now seen +1.1% and +1.6% in ’23 and ’24, respectively, up from +0.9% and +1.5% previously; inflation is now seen +5.8% and +2.8% in ’23 and ’24, respectively, up from +5.6% and +2.5% previously). WSJDebt ceiling talks are making modest progress, and issues on the table have “narrowed” in the last few days (a final deal is unlikely to happen before Biden’s trip to the G7 in Japan, but could be in place when he gets back). FTIraq does not expect OPEC+ to make further cuts to oil output at its next meeting in June, its oil minister Hayan Abdel-Ghani said, in the first indication from an OPEC minister about a potential decision as oil prices slide. RTRSSupermarket chains are increasingly pushing back against aggressive price increases from consumer staples companies, a trend that will help consumer spending power but could jeopardize margin expansion and earnings projections at some firms. FTM&A Monday. Newmont sealed its $19.2 billion acquisition of Newcrest in the gold mining industry’s largest transaction. Oneok will buy Magellan Midstream for $18.8 billion in cash and stock to create one of the biggest US oil and gas pipeline operators. And Microsoft’s $69 billion purchase of Activision Blizzard is expected to win EU approval today, which may provide fodder for its legal challenge of the UK’s decision to block the deal. BBGStocks are preparing for an upside breakout, and its time investors started preparing – US disinflation and the end of Fed tightening will be powerful tailwinds for equities. Barron’sQuant hedge funds are buying stocks at one of the fastest paces in the last 10 years while human traders and PM sit on the sidelines due to macro worries. FTInstitutions have pulled a net $333.9 billion from stocks over the past 12 months, according to S&P Global Market Intelligence data, while individual investors have yanked another $28 billion. Billions have flowed into cash equivalents, driving total assets in money markets to a record $5.3 trillion as of May 10, according to the Investment Company Institute. WSJ
A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded mixed following the subdued performance last Friday on Wall St where risk sentiment was hampered by a disappointing University of Michigan Survey and US debt ceiling concerns, while participants in the region brace for this week’s key economic releases including the latest Chinese activity data due tomorrow. ASX 200 was rangebound amid losses in the top-weighted financial sector and weakness in tech although the downside in the index was cushioned by resilience in mining stocks and several M&A-related headlines. Nikkei 225 outperformed with many of the biggest gainers in the index driven by earnings results. Hang Seng and Shanghai Comp. were mixed with Hong Kong choppy and the mainland pressured after reports that G7 Leaders will discuss shared principles on China’s economic coercion and with the US to look at how outbound investment assessment can complement export controls to prevent the transfer of sensitive technologies to China.
Top Asian News
PBoC Monetary Policy Implementation Report (Q1): Inflation may rebound gradually in H2 2023. Prudent monetary policy will be precise and forceful; will keep policy reasonably ample. Click here for more detail.PBoC says should not exaggerate temporary fall in CPI; GDP growth-inflation gap is due to delays in demand.US official said the G7 Leaders’ statement is to discuss shared principles on China’s economic coercion and the US will look at how outbound investment assessment can complement export controls to prevent the transfer of sensitive technologies to China, while the statement will also discuss tools used to counter economic security threats including those posed by China, according to Reuters.China jailed US citizen John Shing-Wan Leung for life on espionage charges, according to AFP.BoJ Governor Ueda said he told G7 counterparts that Japan’s economy is picking up and its core CPI is likely to slow the pace of increase towards the middle of the current fiscal year, while he said the BoJ is continuing with easy monetary policy to sustainably and stably achieve the price target, according to Reuters.Japanese PM Kishida is to order the government and BoJ to assess the wage outlook to determine if recent wage hikes would be sustainable, according to Nikkei.Thailand’s pro-democracy opposition took an early lead in polling results in which the Pheu Thai party had about 23% of votes and was closely followed by the Move Forward party with about 22.5% of votes in what was seen as a rebuke against the military-aligned government with the United Thai Nation party and ruling Palang Pracharath party seen trailing at 8% and 10% of votes, respectively, according to FT. It was later reported that the Thailand Election Commission announced that with 99% of votes counted, Move Forward have 151 seats and Pheu Thai have 141 seats.Indian PM Modi’s BJP lost control of the state assembly in the crucial election in the southern state of Karnataka which was closely watched ahead of the national poll that takes place in under a year, according to FT.
European bourses are firmer, Euro Stoxx 50 +0.3%, but with magnitudes modest amid limited specific newsflow. Sectors are predominantly in the green though Chemicals & Real Estate lag while for bourses the IBEX 35 -0.2% is the clear laggard given pressure in BBVA -4.6% after inconclusive Turkish election results. Stateside, futures are firmer with the ES +0.2% sitting just above the 4150 mark with Fed speak due today before the week’s US data/retail earnings and debt ceiling negotiations.
Top European News
UK will begin trade talks with Switzerland in an effort to boost services trade, according to Bloomberg.Bank of England is to water down rules for lenders to boost competitiveness, according to The Telegraph.ECB’s de Guindos said rate hikes are in their final stretch and warned that higher borrowing costs could put stress on banks’ asset quality and push up bad debt levels, according to Il Sole 24 Ore.ECB’s Kazimir said they may need to keep raising rates longer than previously thought to help tame inflationary pressures and he thinks there are more meetings ahead where they will decide on hiking rates.EU Commission increases 2023/24 EZ Inflation and GDP forecasts; click here for more detail.Italy is to overhaul plan for EUR 200bln in EU Covid recovery funds, according to FTFitch affirmed Italy at BBB; Outlook Stable, affirmed Sweden at AAA; Outlook Stable and affirmed Denmark at AAA; Outlook Stable.
FX
DXY drifts after running into resistance just above a Fib, at 102.750 and then losing this upside to sub-102.50 with peers broadly firmer.Aussie regroups as risk appetite recovers, base metals bounce and NAB delivers hawkish RBA call, AUD/USD eyes 0.6700 from just shy of 0.6650.Yen retreats between 135.61-136.32 parameters as BoJ Governor Ueda reaffirms the need to keep an ultra-accommodative stance at the G7.Euro and Sterling rangy vs Dollar within 1.0846-80 and 1.2446-98 respective bands after more weak Eurozone data and ahead of a BoE speech.Swedish Crown underperforms after sub-forecast inflation metrics and Turkish Lira in limbo after inconclusive first-round election result leaves current President Erdogan in contention to prevail.PBoC set USD/CNY mid-point at 6.9654 vs exp. 6.9658 (prev. 6.9481)
Fixed Income
Debt is off worst levels, but still under pressure after extending intraday boundaries on both sides.Bunds, Gilts and T-note within 136.06-135.61, 100.82-43 and 115-15/08+ respective ranges.Hawkish Central Bank vibes overshadow weak data awaiting Empire State survey, NY Fed credit and debit report, Fed speakers and BoE’s Pill.
Commodities
WTI and Brent are modestly firmer having pared back initial APAC downside given the session’s relatively-flimsy risk tone.Currently, the benchmarks are towards the top end of circa. USD 1/bbl parameters with WTI and Brent topping out at USD 70.42/bbl and USD 74/51/bbl respectively.G7 and the EU will reportedly agree to ban the restart of Russian gas pipelines, according to FT; on this, desks write that it can be seen as more of a symbolic move as it won’t change flows.Gazprom continued shipping gas to Europe via Ukraine with the volume on Saturday seen at 40.4mln cubic metres and the volume on Sunday seen at 40.3mln cubic metres, according to Reuters.Spot gold edges higher and eyes its 10 DMA (USD 2,025.34/oz) after briefly dipping under its 21 DMA overnight at USD 2,008.06/oz, but remains within Friday’s parameters thus far, while base metals are bid after last week’s pressure.
Turkish Election
Turkish President Erdogan’s share of votes is below the 50% threshold needed to win in the first round of the Presidential Election with 49.2% although he was still ahead of main opposition candidate Kilicdaroglu who has 45.0% of the votes after 99% of votes were counted. It was also reported that Erdogan’s AK Party received the most votes in the parliamentary election with over 35% of votes after more than 92% of votes were counted.Turkish President Erdogan said the preliminary results show his side is far ahead and both domestic and abroad vote counts will continue, while he added that the opposition are trying to fool people by saying they are ahead, while he added that if there is a run-off, he will respect that.Turkish presidential candidate Kilicdaroglu said President Erdogan did not get the result he wanted. Furthermore, Kilicdaroglu said he will accept a run-off and thinks he will win in the run-off, while the third Turkish Presidential candidate said he is not closer to supporting either side in the presidential run-off vote.
Geopolitics
Ukrainian President Zelensky visited Rome on Saturday to meet with Italian President Mattarella, Italian PM Meloni and the Pope where Matterella told Zelensky that Italy is by his side and Meloni said that they will support Ukraine for the entire time that it is necessary. Zelensky also visited Germany and met with Chancellor Scholz who said that Germany will support Ukraine for as long as it takes and ensured that aid to Ukraine will continue in the coming years, while Scholz gave Germany’s full support to Ukraine’s journey towards membership in the European Union. Furthermore, Germany announced to provide a new EUR 2.7bln military aid package to Ukraine and President Zelensky then travelled to France for talks with French President Macron.France is to send dozens of armoured vehicles and light tanks including AMX-10RC armoured fighting vehicles to Ukraine in the coming weeks, according to Reuters.Ukrainian President Zelensky said that they are ready to discuss proposals for peace but must be based on Ukraine’s peace plan and noted that Ukrainians believe in the success of the coming counteroffensive, while he also stated that they can make the defeat of Russia inevitable this year, according to Reuters.Ukraine said its troops are gradually advancing in two directions in the suburbs of Bakhmut and that the situation in the city centre is more complicated, while Russia said Ukraine made mass attempts to break through its defences in north and south Bakhmut which were repelled and that Russian forces conducted long-range strikes on the city Ternopil which targeted Ukrainian deployment site and depots, according to Reuters, RIA and Interfax.Ukrainian President Zelensky reportedly proposed in private to conduct attacks on Russian territory and possibly invade border cities to be in a better position to negotiate peace, according to US documents leaked online cited by Washington Post. However, Zelensky told reporters on Sunday that Ukraine had no plans to attack Russian territory and was only interested in regaining occupied land.Ukrainian official said the Chinese envoy is to visit Kiev on Tuesday and Wednesday, according to Sky News Arabia.Russian Kremlin says President Putin will hold a meeting of the security council on Monday, the meeting has been moved from the usual Friday slot.G7 leaders plan to increase pressure on Russia with steps on sanctions evasion, energy production and exports aiding war efforts, while Ukrainian President Zelensky is expected to address G7 leaders virtually or in person, according to officials cited by Reuters.UK Chancellor Hunt said the impact of sanctions on the Russian economy has not been as effective as military support for Ukraine and that economic pressure on Russia is more of a ‘slow burn’ with the pressure to eventually bite, while he noted that G7 members talked about the need to stop the sanctions leakage, according to Reuters.Egypt brokered a ceasefire agreement between Israel and Palestinians on Saturday. However, it was reported the following day that Israel conducted an air strike on a militant post in Gaza after a rocket was fired at Israel due to a “technical error”, according to Hamas Aqsa Radio.
US Event Calendar
08:30: May Empire Manufacturing, est. -4.0, prior 10.816:00: March Net Foreign Security Purchases, prior $71b
Central Banks
07:30: Fed’s Bostic Speaks on CNBC08:30: Fed’s Goolsbee Speaks on CNBC08:45: Fed’s Bostic Has Opening Remarks at Financial Markets…09:15: Fed’s Kashkari Takes Part in a Moderated Discussion14:00: Fed’s Bostic Speaks on Bloomberg TV15:00: Fed’s Bostic Holds Media Availability17:00: Fed’s Cook Gives Commencement Address at UC Berkeley
DB’s Jim Reid concludes the overnight wrap
As a British person and someone who has proudly worked at a German bank for nearly 19 years, I have to confess that I threw my sofa pillow across the room in disgust at just after midnight on Saturday. Yes the UK and Germany were the bottom two acts in the Eurovision Song Contest. How can two countries that combined have given the world The Beatles, The Rolling Stones, Elton John, David Bowie, Led Zepplin, Pink Floyd, oh and Nena scores so badly. It’s an outrage. At least both got more than “Nul Points”. Anyone who watched will know why the UK didn’t do well. They had to follow Croatia who were one of the most extraordinary acts I have seen for many a year. I was in a state of shock after.
I’ve just about recovered but fortunately the week ahead doesn’t have a whole calendar filled with big likely events. There are no blockbuster US data releases, but US retail sales (tomorrow) and a selection of US housing data will be the highlights. Elsewhere we see the monthly China economic activity data dump (tomorrow), GDP and CPI reports from Japan (Wednesday and Friday), along with labour market reports in the UK (tomorrow). In addition, there are a lot of central bank speakers, especially from the Fed. Fed Chair Powell and ECB President Lagarde both speak on Friday with the latter also up tomorrow.
Elsewhere the latest G7 summit starts on Friday in Hiroshima and earnings season still lingers with notable companies reporting being US retailers Walmart and Home Depot, along with China’s tech giants Alibaba and Tencent.
In more detail now let’s start with US retail sales tomorrow. Our economists expect the headline to print at +0.7% in April, up from -0.6% previously, or +0.5% vs -0.4% ex autos. Headline will likely be boosted by strong auto sales in the month. The gain in ex-autos sales is likely to be gas price related and our economists expect a flat reading on retail control (unch. vs. -0.3%), which is the direct input into GDP for goods spending. So consumption is likely grinding lower after a strong start to the year. Investors will get a read on the US consumer from US retailers which report earnings, including Walmart (Thursday), Target (Wednesday) and Home Depot (tomorrow).
Tomorrow’s NAHB housing market index (DB at 44 vs. 46) starts the week for US housing data and will be followed by Wednesday’s housing starts and permits and then Thursday’s existing home sales.
Thursday’s jobless claims will be more important than usual for a couple of reasons. Firstly it is the survey week for the next payrolls release and secondly we saw it confirmed on Friday that a decent slug of the recent rise in claims were likely due to fraudulent filings in Massachusetts. This state seems to have accounted for around half the +23% rise in the 4-week moving average claims number from the late January lows. The 4-week moving average for continuing claims is up around 10% this year so the labour market is easing but not quite as much as the raw claims numbers had suggested. Read more about this story here in our economists’ debrief of this story.
Here in Europe, the UK labour market data tomorrow will be interesting following last week’s twelfth consecutive BoE meeting hike. Whether the data shows persistent wage pressures, following the last hot print, will likely contribute to whether a pause is feasible at the next meeting on June 22, although another round of wages and inflation data will be due by then as well. The house view is that they will hike another 25bps in June which will be the last for the cycle but with the risks that there’ll be more. See here for more on why as they review last week’s hike.
Elsewhere in Europe, key indicators include the ZEW survey (tomorrow) and the PPI report (Friday) for Germany and Q1 GDP, trade balance for March (tomorrow) and industrial production (today) for the Eurozone.
This week will also be a busy one for the major Asian economies. Starting with Japan, Q1 GDP will be released on Wednesday, trade balance data on Thursday, and the CPI report on Friday.
In China, investors will be focused on the latest economic activity signals tomorrow, with the release of retail sales, industrial production and property investment data. Amid base effects, our economists expect +11% and +21% YoY growth in industrial production and retail sales, respectively (vs 3.9% and 10.6% in March). The industrial production print and its contrast with retail sales will be especially in focus given flailing momentum in the former. New home prices data are due on Wednesday.
China will also be in the spotlight for corporate earnings this week. Its tech giants, including Alibaba (Thursday), Tencent (Wednesday) and Baidu (Tuesday) will be among the most anticipated reports. The full day-by-day week ahead in at the end as usual.
This morning in Asia, equity markets are mostly softer following weak US markets on Friday due to concerns over the US debt ceiling and disappointing economic data. As I check my screens, the Shanghai Composite (-0.94%), the CSI (-0.30%) and the KOSPI (-0.34%) are lower while the Nikkei (+0.40%) and Hang Seng (+0.24%) are slightly higher. US stock futures are pretty flat with those on the S&P 500 (-0.02%) and NASDAQ 100 (-0.03%) marginally down.
Early this morning, the People’s Bank of China (PBOC) offered to keep the rate on 125 billion yuan ($18 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions unchanged at 2.75% for a ninth month. The central bank’s operation added 25 billion yuan more than the amount maturing in May, to keep the economic recovery on track as credit growth slumped.
Now, looking back on last week. On Friday, we had the University of Michigan’s long-run inflation expectations come in with an upside surprise, rising to 3.2% from 3% (vs 2.9% expected), their highest since 2011. This number is often revised down so we’ll see if that 12-yr high stays. One-year inflation expectations likewise beat expectations at 4.5% (vs 4.4% expected) but had receded from 4.6% in April. Consumer sentiment also fell back 9%, falling from 63.5 to 57.7 (vs 63 expected). Long-run expectations slipped from 60.5 to 53.4 (vs 60.8 expected) as consumers stated they were increasingly concerned that an economic downturn would not be short-lived.
After the inflation expectations number, fixed income sold off on both sides of the Atlantic. 10yr US Treasury yields climbed +7.8bps on Friday, to finishing slightly higher (+2.6bps) on the week. The more policy-sensitive 2yr yield rose +7.3bps week-on-week (and +8.8bps on Friday), approaching 4% again at 3.987%. In Europe, German bund yields finished the week slightly lower (-1.5bp) on a weekly basis despite the selloff on Friday (+5.1 bps).
With inflation concerns weighing on markets, the S&P 500 fell back -0.16% on Friday, and -0.29% week-on-week. The first back to back weekly declines since February. The NASDAQ relatively underperformed on Friday falling -0.36% but was up +0.40% in weekly terms after a rally mid-week. Whilst US stocks slipped, the STOXX 600 climbed +0.40% and was up by a modest +0.04% week-on-week.
In commodities, we closed off the fourth consecutive week of declines in oil as concerns over weak demand hang heavy following the US debt ceiling political standoff and Friday’s weak data. WTI crude fell back -1.82% to $70.04/bbl week-on-week (and -1.17% on Friday), Brent crude followed suit, falling -1.50% week-on-week to $74.17/bbl (and -1.08 % on Friday). Copper prices also fell -4.00% in weekly terms after soft Chinese import and export data earlier in the week, the largest down move since the first week of February.
Finally, after a tumultuous week at one of the largest crypto exchanges which had temporarily paused withdrawals mid-week, Bitcoin fell back -10.5% on the week (and -5.18% on Friday itself). Ethereum likewise fell back -3.82% on Friday to bring the weekly loss to -10.16% as the impact of its major Shapella update continues to be felt.
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