Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
EXECUTIVE SUMMARY
- HOUSE COMMITTEE ADVANCES DEBT-CEILING BILL, SENDING IT OVER TO FULL HOUSE FOR VOTE - DJ
- MCCARTHY CONFIDENT ON DEBT VOTE DESPITE HARD-LINE OUSTER THREAT - BBG
- TOP FED OFFICIAL SEES NO 'COMPELLING' REASON TO WAIT FOR FRESH RATE RISE - FT
- UK BUSINESS CONFIDENCE FALLS FOR FIRST TIME IN 3 MONTHS - BBG
- CHINA’s MAY MANUFACTURING 48.8, SERVICES PMI 54.5 - MNI BRIEF
- RATES CONTRACTIONARY, WILL REMAIN HIGH- RBA’s LOWE - MNI BRIEF
Fig. 1: China PMI & Industrial Production Growth (Y/Y)
Source: MNI - Market News/Bloomberg
U.K.
ECONOMY: UK business confidence fell for the first time in three months as higher-than-expected inflation figures weighed on firms’ sentiment about the economy, a survey by Lloyds Banking Group Plc showed. Lloyds Bank’s Business Barometer showed business confidence fell 5 points in May from the month before to 28%, driven the outlook for the wider economy. The net balance of companies expecting to raise prices in the next year dipped 1 point to 56%, well above the pre-pandemic average. (BBG)
GEOPOLITICS: British Prime Minister Rishi Sunak will hold talks with U.S. President Joe Biden next week when they will discuss improving economic ties and how to sustain military support for Ukraine in its conflict with Russia. Sunak will be in Washington on Wednesday and Thursday next week for meetings with Biden, members of Congress and U.S. business leaders, but there will no talks about a formal free trade deal, Sunak's spokesman said on Tuesday. (RTRS)
EUROPE
RUSSIA: Washington is encouraging Kyiv by publicly ignoring the drone attack that struck several districts of Moscow on Tuesday, Russia's envoy to the United States said on Wednesday, after President Vladimir Putin blamed Ukraine for the strikes. (RTRS)
U.S.
DEBT: The House Rules Committee on Tuesday voted 7-6 in favor of advancing a crucial debt-ceiling bill, in a move that paves the way for action by the full House on Wednesday. The bill is expected to go to a floor of the House on Wednesday for debate and a final vote. If approved, it will advance to the Senate. (DJ)
DEBT: House Speaker Kevin McCarthy dismissed threats from Republican hard-liners to oust him over the debt-limit deal he forged with President Joe Biden and expressed confidence Tuesday that lawmakers will pass legislation in time to avert a US default. The bill, heading for a House vote on Wednesday, prompted GOP Representative Dan Bishop to call for a vote on removing McCarthy as speaker, claiming that the deal granted too many concessions to Democrats. Another conservative member, Chip Roy, promised a “reckoning” for McCarthy. (BBG)
DEBT: The U.S. Congressional Budget Office said on Tuesday its budget deficit projections would be reduced by about $1.5 trillion over the next 10 years if the debt ceiling bill now up for a vote in Congress were enacted in its present form. (RTRS)
DEBT: News of a debt ceiling agreement still leaves uncertainties on the U.S. credit outlook, analysts said, in addition to the immediate risk that Congress may not pass the proposed deal before the country runs out of cash. (RTRS)
FED: A top official at the Federal Reserve said there was no “compelling” reason to wait before implementing another interest rate rise should economic data confirm that more must be done to bring US inflation under control. In an interview with the Financial Times, Loretta Mester, president of the Cleveland Fed, pushed back against recent suggestions from some policymakers who argued the US central bank should forego a rate rise at its next meeting in June. (FT)
FED: Former Treasury Secretary Lawrence Summers sees US interest rates headed higher in the short-run and US taxes rising significantly in the longer run as the world’s biggest economy comes to grips with a persistent inflation problem and burgeoning government debt. In a dinner speech at the Peterson Institute for International Economics on Tuesday, the Harvard University professor said the US seemed stuck with an underlying inflation rate of around 4.5% to 5% that’s more than double the Federal Reserve’s 2% target. (BBG)
OTHER
JAPAN: Bank of Japan Governor Kazuo Ueda says it’s extremely important to carefully analyze various economic data and examine underlying inflation trend. Whether inflation is caused by demand or supply has very important implications for monetary policy, Ueda says in a speech in English at a BOJ conference in Tokyo. (BBG)
AUSTRALIA: (MNI) Sydney - Monetary policy is now contractionary and will likely stay elevated for some time on current forecasts, according to Reserve Bank of Australia Governor Philip Lowe. “The strategy's working, inflation is coming down, and the most recently published forecasts by both the RBA and the Government have inflation coming back to 3.5% by mid-2025 and the unemployment rate rising but staying below where it was before the pandemic, and that's at the current level of interest rates,” Lowe told the Senate Economics Legislation Committee meeting Wednesday. (MNI)
AUSTRALIA: (MNI) Sydney - The monthly Consumer Price Index (CPI) indicator rose 6.8% in the year to April 2023, higher than the 6.3% reported in March 2023, but below the high of 8.4% recorded in December 2022, according to the latest data from the Australian Bureau of Statistics. The Reserve Bank of Australia Board will note the persistently high monthly figures when it next meets on June 6. RBA Governor Philip Lowe said this morning monetary policy was contractionary and will likely stay elevated for some time on current forecasts. (MNI)
CHINA
ECONOMY: MNI (Beijing) - China's Purchasing Managers' Index contracted for the fourth consecutive month, registering 48.8 in May, driven by a slowdown from production and consumption, data from the National Bureau of Statistics (NBS) showed Wednesday. The production sub-index marked 49.6 in May, slower than April's 50.2 reading while the new orders sub-index – a gauge of demand – printed at 48.3, sliding from last month's 48.8. Both critical indices in the contraction territory reflected insufficient demand in manufacturing together with the restrained production capacity, the NBS said. (MNI)
POLICY: China is expected to roll out more policies, including rate cuts, to shore up the economy as its recovery remains on shaky ground, the China Securities Journal reports Wednesday, citing analysts. Some economic indicators may show further weakening in June, compared with the previous month or the year-earlier period, due largely to a high base, paper cites GF Securities analyst Liu Yu as saying. (CSJ)
POWER: Cities in eastern China could face electricity shortages during peak hours in summer, while central and southern areas could also see tight power supply, Shanghai Securities News reports Wednesday. Power usage has increased recently in multiple cities due to hot weather. (SSN)
US/CHINA: A Chinese fighter jet swerved in front of a US reconnaissance aircraft over the South China Sea in an “unnecessarily aggressive maneuver,” the Pentagon said, part of what a senior American official described as a pattern of more confrontational behavior in the region. (BBG)
MARKETS: China’s capital markets have recently under performed due to the weak economic rebound and a slowing real estate market, which has put a strain on company profits and cash flows, according to an editorial by Yicai. Authorities should encourage more M&A and consolidation activity to repair firms' balance sheets, and strengthen the asset valuation industry, and price mechanisms. Policymakers should focus on developing the asset management industry to better match risk appetites between investors and fund managers. (Yicai)
POPULATION: The Government should prioritise the development of pension and medical services to support its rapidly ageing society, according to Zhang Shaobai, general manager at Chinese Life Pension Insurance Guizhou province. Zhang noted China’s society is experiencing the fastest rate of ageing in the world and needs support to adequately deal with the new challenge. Policymakers face a complex situation due to fast urbanisation and disparities between rural and urban areas. China’s elderly will benefit from holistic integration of policies and resources across state and private sector, Zhang said. (21st Century Herald)
CHINA MARKETS
PBOC Net Injects CN11 Bln Via OMOs Wednesday
The People's Bank of China (PBOC) conducted CNY13 billion via 7-day reverse repos on Wednesday, with the rates unchanged at 2.00%. The operation has led to a net injection of CNY11 billion after offsetting the maturity of CNY2 billion reverse repo today, according to Wind Information.
- The operation aims to keep banking system liquidity stable at the end of month, the PBOC said on its website.
- The 7-day weighted average interbank repo rate for depository institutions (DR007) fell to 2.0369% at 09:24 am local time from the close of 2.0650% on Tuesday.
- The CFETS-NEX money-market sentiment index closed at 46 on Tuesday, the same as the close on Monday.
PBOC SETS YUAN CENTRAL PARITY RATE AT 7.0821 WED VS 7.0818 TUES
The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 7.0821 on Wednesday, compared with 7.0818 set on Tuesday.
OVERNIGHT DATA
SOUTH KOREA APR INDUSTRIAL PRODUCTION M/M -1.2%; MEDIAN -2.0%; PRIOR 5.3%
SOUTH KOREA APR INDUSTRIAL PRODUCTION Y/Y -8.9%; MEDIAN -7.8%; PRIOR -7.6%
SOUTH KOREA APR CYCLICAL LEADING INDEX M/M -0.2; PRIOR -0.2
UK MAY LLOYDS BUSINESS BAROMETER 28; PRIOR 33
JAPAN APR RETAIL SALES M/M -1.2%; MEDIAN 0.5%; PRIOR 0.3%
JAPAN APR RETAIL SALES Y/Y 5.0%; MEDIAN 7.1%; PRIOR 6.9%
JAPAN APR DEPT. STORE, SUPERMARKET SALES Y/Y 4.8%; PRIOR 3.2%
JAPAN APR IP M/M -0.4%; MEDIAN 1.4%; PRIOR 1.1%
JAPAN APR IP Y/Y -0.3%; MEDIAN 2.0%; PRIOR -0.6%
JAPAN MAY CONSUMER CONFIDENCE xx; MEDIAN 36.0; PRIOR 35.4
JAPAN APR HOUSING STARTS Y/Y xx; MEDIAN -0.8%; PRIOR -3.2%
NZ MAY ANZ ACTIVITY OUTLOOK -4.5; PRIOR -7.6
NZ MAY ANZ BUSINESS CONFIDENCE -31.1; PRIOR -43.8
AU APR CPI Y/Y 6.8%; MEDIAN 6.4%; PRIOR 6.3%
AU Q1 CONSTRUCTION WORK DONE Q/Q 1.8%; MEDIAN 0.5%; PRIOR 1.0%
AU APR PRIVATE SECTOR CREDIT M/M 0.6%; MEDIAN 0.3%; PRIOR 0.2%
AU APR PRIVATE SECTOR CREDIT Y/Y 6.6%; PRIOR 6.8%
CHINA MAY MANUFACTURING PMI 48.8; MEDIAN 49.5; PRIOR 49.2
CHINA MAY NON-MANUFACTURING PMI 54.5; MEDIAN 55.2;PRIOR 56.4
CHINA MAY COMPOSITE PMI 52.9; PRIOR 54.4
MARKETS
US TSYS: Slightly Richer In Asia-Pac Trade, Focus Also On US Employment Data
TYU3 is currently trading at 114-06, +5 from NY closing levels. There have been no new developments on the debt-ceiling bill’s passage other than the previously outlined news that a key House of Representatives committee voted to send it to the full chamber for a Wednesday vote.
- Cash tsys are around 1bp richer across major benchmarks in Asia-Pac trade.
- The attention now shifts towards crucial employment data scheduled for release later this week. The ADP private employment data, typically released on Wednesday, will be published on Thursday due to the holiday. The May Non-Farm Payrolls report will be unveiled on Friday, with the current median estimate projecting a gain of +190,000 jobs for May compared to the previous figure of +253,000.
- Fed enters policy blackout at midnight Friday.
JGBS: Richer, Curve Twist Flattens, Weaker Data, BoJ Ueda Comments On Inflation
JGB futures are stronger in afternoon Tokyo trade, reaching a session high of 148.79 in morning trade and currently standing at 148.73, +19 compared to the settlement levels.
- JGB futures were supported by a slight richening in US tsys in Asia-Pac trade. Cash tsy yields are around 1bp lower as a bill to suspend the $31.4 trillion U.S. debt ceiling advanced as a key House of Representatives committee voted to send it to the full chamber for a Wednesday vote.
- In terms of domestic drivers, weaker-than-expected data supported the market, but this impetus was somewhat neutralised by comments from BoJ Governor Ueda on inflation, stating that it may be tough to deny the chance we are already in a new normal, different from the period of “low for long”.
- Cash JGBs hold their twist flattening in afternoon Tokyo trade with yields lower beyond the 1-year zone. The benchmark 10-year yield is 1.1bp lower at 0.424%. The outperformer on the curve is the 20- to 40-year zone, which sees yields 1.3 to 1.9bp lower.
- The swaps curve has bull flattened with rates 0.3-2.2bp lower. Swap spreads are tighter across the curve.
- The local calendar tomorrow sees Q1 Capital Spending and Company Profits, Weekly Investment flow data and Jibun Bank PMI Mfg (May F).
- The MoF also plans to sell Y2.7tn of 10-year JGBs.
AUSSIE BONDS: Richer, Mid-Range After CPI Monthly Upside Surprise
ACGBs continue to display strength on the day, with YM +3.0 and XM +5.5. However, they are currently positioned mid-range for the Sydney session. Futures opened at their highest levels of the session but experienced a downward spike in response to the release of stronger-than-expected monthly CPI data (6.8% y/y versus 6.4%). The market quickly realised that a significant portion of the inflationary surprise was driven by automotive fuel prices. As a result, futures swiftly reversed their initial movement and have since traded within a narrow range.
- Cash ACGBs are 4-5bp richer with the curve flatter.
- The AU-US 10-year yield differential is 2bp wider after the data at -5bp.
- Swap rates are 2-3bp lower with EFPs wider.
- The bills strip twist flattens with pricing -7 to +6.
- RBA dated OIS is 4-8bp firmer across meetings with a 40% chance of a 25bp hike in June priced.
- Bloomberg reports that Goldman now expects the RBA to hike +25bp in June and July to a terminal rate of 4.35%.
- The local calendar has Judo Bank PMIs (May F) and Private Capex Expenditure (Q1) scheduled for release tomorrow. Expectations point towards increases in capital expenditure for both equipment and building & structures. Additionally, the second estimate for planned capital expenditure in 2023-24 will be disclosed.
NZGBS: Richer But Off Bests, Underperforms US Tsys
NZGBs closed 2-3bp richer but at session cheaps. The intra-session decline was influenced by the movement of US tsys, which retreated from their earlier highs in the Asia-Pacific session Cash US tsys remain richer, but only by 1bp across benchmarks. NZGBs nonetheless underperformed US tsys with the NZ/US 10-year differential 4bp wider at +60bp.
- Swap rates closed flat to 4bp lower with the 2s10s curve 4bp flatter.
- RBNZ dated OIS closed 1-2bp softer across meetings.
- ANZ business confidence rose to -31.1 in May from -43.8, which is the highest since December 2021, but still well below the +4.3 historical average. Business activity rose to -4.5 from -7.6 and while it has been improving over 2023 also remains well below average. Activity is signalling that growth probably troughed in H1 2023 and inflation expectations that CPI inflation should moderate further.
- The local calendar is light tomorrow ahead of Q1 data for the Terms of Trade and Volume of All Buildings on Friday.
- Later today sees the release of the May Chicago PMI, April JOLTS and the Fed’s Beige Book.
- The NZ Treasury announced that they plan to sell NZ$200mn of the 0.25% 15 May 2028 bond, NZ$150mn of the 4.25% 15 May 2034 bond and NZ$50mn of the 2.75% 15 May 2051 bond tomorrow.
EQUITIES: Hang Seng 20% Off January Highs
Regional equities are by and large weaker across the board. Focus has again been on China/Hong Kong shares. We opened up weaker and losses accelerated post the China PMI data print misses. US futures have also been dragged lower. Eminis were last down over -0.20%, tracking near 4205. Nasdaq futures have shed earlier gains, last -0.15%.
- We didn't see much of market reaction after the US debt ceiling bill cleared its first major hurdle. It was passed in the Republican controlled House Rules Committe by 7-6 votes. This clears the way for the bill to be voted on by the full house on Wednesday.
- In Hong Kong the HSI is off by over 2% to the break. This puts the index down over 20% from Jan highs. The tech sub index is 2.47% weaker.
- The CSI 300 is down over 1% and back sub 3800 at the break. We did see a decent rebound post the break yesterday and into close. Data momentum continues to soften though, with PMIs surprising again on the downside for May, with detail also soft.
- The Topix has faltered, down over 1%, while the Nikkei 225 is off by 1.5% at this stage, with weaker tech related plays weighing. The Kospi and Taiex are also modestly lower.
- SEA stocks are mostly weaker, although losses are under 1% this stage. The ASX 200 is down by 1%, with lower commodity prices weighing on the materials sector.
FOREX: USD Higher As Weaker China PMIs Hit Equity/Commodity Sentiment, NZD/USD Tests Sub 0.6000
The USD is higher across the board, with the BBDXY last near 1247.20, around 0.20% firmer versus NY closing levels from Tuesday. Recent highs in the index rest between 1248.50-75. China matters have dominated the Asia Pac session, with weaker official PMI prints weighing on broader risk appetite and boosting the USD.
- NZD/USD has been the weakest performer, falling nearly 0.70% and briefly dipping sub 0.6000. ANZ activity and business confidence figures suggested the economy likely troughed in H1, but inflation pressures continued to ease.
- NZD was weighed by softer commodity prices, weaker equity sentiment, as was the AUD. AUD/USD has fallen through 0.6500, last at 0.6495, very close to recent lows. Iron ore is back $97/ton, while CMX copper has lost 0.8% so far today. The weaker China PMIs clouding the demand outlook.
- AU Apr CPI was firmer than expected, and Goldman's is now forecasting RBA hikes in June and July, but this hasn't provided much offset for AUD/USD (AUD/NZD is higher though, last near 1.0820).
- USD/JPY is slightly higher, the pair last at 139.85, although the yen has outperformed in the G10 space on heightened risk aversion. Japan Apr activity data was weaker than expected, while BoJ Governor Ueda gave a wide ranging speech, but nothing that shifted the policy needle.
- Later the Fed publishes its Beige Book and Collins, Bowman, Harker and Jefferson all speak. In terms of data, there are the May Chicago PMI and April JOLTS job openings released. The EU Financial Stability Review is due and ECB President Lagarde will speak.
OIL: Prices Just Above Tuesday’s Lows As China Demand Outlook Deteriorates
Oil prices sank by over 4% on Tuesday and those losses have been slightly extended during the APAC session as markets remain risk averse in the face of disappointing May China PMI data. Crude markets have struggled in the face of China’s disappointing recovery and today’s PMIs confirmed that sentiment. Oil prices are down around 0.3% today while the USD index is up is 0.2%.
- Brent is trading around $73.50/bbl, off the intraday low of $73.41. WTI has held above $69 with a low of $69.15 and is currently trading at about $69.25.
- The China composite PMI in May eased to 52.9 from 54.4 with manufacturing falling further below the breakeven-50 level at 48.8. China is the world’s largest importer of crude and so this was not good news for markets.
- Market indicators are pointing to ample near-term physical supply. Later API US inventory data are published. Bloomberg cited Wood Mackenzie data showing that crude stocks at Cushing rose 1.05mn barrels in the latest week indicating softer demand.
- Later the Fed publishes its Beige Book and Collins, Bowman, Harker and Jefferson all speak. In terms of data, there are the May Chicago PMI and April JOLTS job openings released. The EU Financial Stability Review is due and ECB President Lagarde will speak.
GOLD: Higher With Lower US Tsy Yields, Focus Shifts Employment Data
Gold is exhibiting slight weakness in the Asia-Pacific session, trading at 1958.18 (-0.1%). This follows a 0.8% gain in the gold price on Tuesday as US tsy yields declined, driven by hopes that the US Congress will successfully pass a debt-ceiling deal to avoid a default.
- Both President Joe Biden and Republican House Speaker Kevin McCarthy have expressed confidence in garnering the necessary support for the bill ahead of the upcoming vote, which could take place as early as Wednesday. The agreement has received early backing from influential members of both parties' moderate and pragmatic factions.
- The market focus now turns to the release of the ADP private employment data on Thursday and the Non-Farm Payrolls report on Friday. These releases come amidst increasing expectations that the Federal Reserve will likely raise interest rates again in June or July in an effort to address persistent inflationary pressures. This anticipation has weighed on the price of gold in recent weeks. It is worth noting that the Federal Reserve will enter a policy blackout period starting at midnight on Friday.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Flag | Country | Event |
| 31/05/2023 | 0530/0730 | *** |  | DE | North Rhine Westphalia CPI |
| 31/05/2023 | 0600/1400 | ** |  | CN | MNI China Liquidity Suvey |
| 31/05/2023 | 0630/0830 | ** |  | CH | Retail Sales |
| 31/05/2023 | 0630/0730 |  | UK | DMO to Publish Gilt Op Calendar for Jul-Sep | |
| 31/05/2023 | 0645/0845 | *** |  | FR | HICP (p) |
| 31/05/2023 | 0645/0845 | ** | | FR | PPI |
| 31/05/2023 | 0645/0845 | *** | | FR | GDP (f) |
| 31/05/2023 | 0645/0845 | ** | | FR | Consumer Spending |
| 31/05/2023 | 0755/0955 | ** | | DE | Unemployment |
| 31/05/2023 | 0800/1000 | *** |  | IT | GDP (f) |
| 31/05/2023 | 0800/1000 | *** | | DE | Bavaria CPI |
| 31/05/2023 | 0830/0930 | ** | | UK | BOE M4 |
| 31/05/2023 | 0830/0930 | ** | | UK | BOE Lending to Individuals |
| 31/05/2023 | 0900/1100 | *** | | IT | HICP (p) |
| 31/05/2023 | 0900/1100 | *** | | DE | Saxony CPI |
| 31/05/2023 | 1100/0700 | ** |  | US | MBA Weekly Applications Index |
| 31/05/2023 | 1200/1400 | *** | | DE | HICP (p) |
| 31/05/2023 | 1230/0830 | *** |  | CA | GDP - Canadian Economic Accounts |
| 31/05/2023 | 1230/0830 | *** | | CA | Gross Domestic Product by Industry |
| 31/05/2023 | 1230/0830 | *** | | CA | CA GDP by Industry and GDP Canadian Economic Accounts Combined |
| 31/05/2023 | 1230/1430 |  | EU | ECB Lagarde Q&A at Generation Euro Students' Awards | |
| 31/05/2023 | 1250/0850 | | US | Boston Fed's Susan Collins | |
| 31/05/2023 | 1250/0850 | | US | Fed Governor Miki Bowman | |
| 31/05/2023 | 1255/0855 | ** | | US | Redbook Retail Sales Index |
| 31/05/2023 | 1315/1415 | | UK | BOE Mann Panellist at Pictet Family Forum | |
| 31/05/2023 | 1342/0942 | ** | | US | MNI Chicago PMI |
| 31/05/2023 | 1400/1000 | ** | | US | JOLTS jobs opening level |
| 31/05/2023 | 1400/1000 | ** | | US | JOLTS quits Rate |
| 31/05/2023 | 1430/1030 | ** | | US | Dallas Fed Services Survey |
| 31/05/2023 | 1730/1330 | | US | Philadelphia Fed's Pat Harker | |
| 31/05/2023 | 1730/1330 | | US | Fed Governor Philip Jefferson | |
| 31/05/2023 | 1800/1400 | | US | Fed Beige Book | |
| 01/06/2023 | 2300/0900 | ** |  | AU | IHS Markit Manufacturing PMI (f) |
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.