MNI US OPEN - Biden, McCarthy Debt Limit Talks Resume

NEWS

US (BBG): Biden-McCarthy Meeting Tees Up Tense Week of Debt-Limit Talks

President Joe Biden and Republican House Speaker Kevin McCarthy are set to meet Monday for talks on averting a catastrophic US default as time runs short and key differences remain. Negotiations have whipsawed between progress and deadlock for days as the two sides simultaneously grapple for political advantage and a deal. The leaders’ hand-picked negotiators met for more than two hours Sunday evening in McCarthy’s office at the US Capitol but did not discuss the status of those discussions with reporters.

US/CHINA (MNI): MoFA - Urge US to Bring Bilateral Relations Back on Track

Chinese Foreign Ministry spox Mao Ning talks on US-China stance following comments from US President Joe Biden that a shift in relations could occur soon. Spox 'urges the US to have the right understanding of China, meet China halfway, and bring bilateral relations back on track'. Spox states that there is no information on a potential meeting between President Xi Jinping and Biden. Comes after Biden's comments last week that he and Xi will meet 'whether its soon or not'.

US/CHINA (BBG): China Bars Micron Chips in Escalation of US Tech Clash

China delivered the latest salvo in an escalating semiconductor war with the US, announcing that Micron Technology Inc. products have failed to pass a cybersecurity review in the country. In a statement Sunday, Beijing warned operators of key infrastructure against buying the company’s goods, saying it found “relatively serious” cybersecurity risks in Micron products sold in the country.

CHINA (BBG): China’s New Covid Wave Set to See 65 Million Cases a Week

China is likely to see its Covid-19 wave peaking at about 65 million infections a week toward the end of June, according to a senior health adviser, while health authorities rush to bolster their vaccine arsenal to target the latest omicron variants. XBB has been fueling a resurgence in cases across China since late April and is expected to result in 40 million infections a week by the end of May, before peaking at 65 million a month later, local media outlet the Paper reported Monday.

UK (BBG): Sunak’s UK Tories Face Fresh Turmoil Flowing From Braverman

Prime Minister Rishi Sunak will consult his ethics adviser Monday on whether Home Secretary Suella Braverman violated the ministerial code over her handling of a speeding ticket last year, a scandal that threatens to exacerbate fast-growing splits in the governing Conservative Party. The Sunday Times reported over the weekend that Braverman asked civil servants to help arrange a private driving-awareness course to prevent her speeding violation becoming public knowledge, a potential violation of ministerial rules against using public employees for personal affairs.

UK (BBG): NatWest to Buy £1.3 Billion of Shares From UK Government

NatWest Group Plc has agreed to buy back £1.26 billion ($1.6 billion) of its shares from the UK government as the Treasury continues to sell down its stake after a bailout during the financial crisis over a decade ago. The off-market purchase of 469.2 million shares will be made at Friday’s closing price of 268.4 pence, according to a statement Monday. The deal will see the Treasury’s voting rights in the lender drop to about 38.6% from about 41.4% previously. NatWest’s shares were trading up 0.6% as of 8:16 a.m. in London.

JAPAN (MNI): Ex-BOJ’s Sekine Sees YCC Adjustment in June

The Bank of Japan is likely to raise its target for the 10-year bond yield as early as its June 15-16 meeting given that it can point to a rise in trend inflation rate above 1% from zero percent, a former BOJ chief economist told MNI. The BOJ could raise its target rate to around 1% from about 0% and widen the acceptable yield range to between plus and minus 100bp at the policy-setting meeting, said Toshitaka Sekine.

SOUTH KOREA (MNI): Rate to Hold at 3.5%, Policy Shift in Focus

The Bank of Korea will likely keep its policy interest rate unchanged at 3.5% at its meeting on May 25 as focus shifts to a potentially weaker economy amid sluggish exports, observers told MNI. “The unemployment rate fell but the number of employees is falling," said Kota Hirayama, senior economist in charge of emerging economies at SMBC Nikko Securities. "Weaker exports may filter through to the labor market situation."

GREECE (BBG): Greek Premier Set to Consolidate Power in New Election

Greek Prime Minister Kyriakos Mitsotakis pummeled his opposition in Sunday’s national election, moving a step closer to getting another four-year term and sending markets higher on the prospect that the premier’s investment-friendly policies will continue. Mitsotakis’s center-right New Democracy received almost 41% of the vote compared to about 20% for the leftist Syriza party of former premier Alexis Tsipras. The premier fell short of the threshold to immediately form a government on his own, meaning he will likely opt for another ballot in about a month rather than try to form a coalition.

RUSSIA/UKRAINE (BBG): Zelenskiy Signals Bakhmut Falling, Russian Casualties High

Ukrainian President Volodymyr Zelenskiy suggested his country was losing control of Bakhmut after months of fierce fighting but downplayed Russian claims it now fully occupied the eastern city. “Today our people are performing an important task — they are in the Bakhmut, Zelenskiy said in Japan where he had met with leaders from the Group of Seven nations and other invited guests. “I will not share the points where. Bakhmut is not covered by the Russian Federation, there must not be multiple interpretations.”

UKRAINE/BRAZIL (BBG): Zelenskiy’s Plans to Meet Brazil’s Lula at G-7 Fall Through

Volodymyr Zelenskiy and President Luiz Inacio Lula da Silva of Brazil failed to hold one-on-one talks while attending a summit in Japan, even as Ukraine seeks to engage countries in the Global South on taking a harder line against Russia for its war. “I met almost everyone, all the leaders. All of them have their own schedules, that is why we couldn’t meet with the Brazilian president,” the Ukrainian president told reporters on Sunday in Hiroshima at a briefing on the sidelines of the Group of Seven meeting.

CORPORATE (BBG): Meta Fined Record $1.3 Billion in EU Over US Data Transfers

Facebook owner Meta Platforms Inc. was hit by a record €1.2 billion ($1.3 billion) European Union privacy fine and given a deadline to stop shipping users’ data to the US after regulators said it failed to protect personal information from the prying eyes of American security services. The social network giant’s continued data transfers to the US didn’t address “the risks to the fundamental rights and freedoms” of people whose data was being transfered across the Atlantic, according to a decision by the Irish Data Protection Commission announced on Monday.

DATA

EUROZONE DATA (MNI): March Construction Output Contracts as Weak Demand Prevails

• EUROZONE MAR CONSTRUCTION -2.4% M/M, -1.5% Y/Y

Eurozone construction production contracted by -2.4% m/m in March. Germany accounted for the bulk of the downwards contribution, contracting by -4.6% m/m. In aggregate, Q1 construction grew by +0.3% q/q, boosted by robust growth in January and February. Outlooks for the euro area construction sector remain bleak, with the eurozone construction PMI having remained in contractive territory for 12 months.

JAPAN DATA (MNI): Japan Mar Machine Orders -3.9% M/M

Japan's core machinery orders, excluding those for power generation equipment and ships, fell 3.9% m/m in March, narrowing from last 4.5% m/m decrease, posting the second monthly drop. Orders from manufacturing sectors, decreased 2.4% m/m, largely down from last 10.2% m/m increase in February. Orders from the non-manufacturing sector, fell 4.5% m/m, following the previous 14.7% m/m fall. The outlook for the April-June period is for a rise of 4.6%, compared with the 2.6% growth over the previous quarter.

CHINA DATA (MNI): China’s May Loan Prime Rate Unchanged

China's Loan Prime Rate remained unchanged on Monday, according to a People's Bank of China statement, in line with market expectation following the PBOC's decision to keep a key policy rate steady on May 21.The decision comes despite calls for a cut as the economic recovery softens. The one-year LPR, based on the PBOC’s Medium-term Lending Facility rate and quotes submitted by 18 banks, was left at 3.65% and the five-year plus maturity was held at 4.3% – the ninth consecutive month the rates have been left unchanged.

FOREX: Debt Ceiling the Focus, With No Data to Distract

• Markets continue to revolve around US matters early Monday, with debt ceiling negotiations and tensions with China top of mind for traders. Ahead of another touted meeting between McCarthy and Biden later today, the greenback sits stronger - although off the best levels of the session - keeping prices within range of the multi-month highs posted last week. For the USD Index, 103.295 marks the next intraday upside level in the USD Index, ahead of 103.373 (61.8% retracement for the Thurs - Monday downleg) ahead of multi-month highs at 103.624.
• Signs of a shakier footing for US/China relations has also unsettled equities, tipping European markets into a soft early performance. As such, CHF and JPY are also faring better, as core bond yields retreat.
• Larger options rolling off at today's cut include a sizeable strike at 1.0825-40 in EUR/USD (E2.3bln), with E609mln set to roll off just above at 1.0845-50. Some interest also noted in USD/JPY near current spot rate at Y137.90-05 ($567mln) and below at Y137.50 ($825mln).
• There are no data releases set to distract markets Monday, keeping focus on a busy calendar of central bank speak. ECB's Vujcic, de Guindos, Holzmann, Lane, Villeroy and de Cos make up a frantic European calendar, while Fed's Bullard, Bostic, Barkin and Daly represent the FOMC.

BONDS: Constructive Start With Debt Limit Talks And CenBank Speakers In Focus

Global core FI has had a constructive start to a week that begins quietly in terms of data (nothing of note in either the European or US calendars), with US debt limit intrigue and central bank speakers the primary focus Monday.

• UK and German curves are trading mildly bull flatter (yields down 1-2bp), with the US outperforming in a bull steepening move (2-5Y yields down 3+bp, 10-30Y down 1-2bp). Terminal central bank pricing is a little softer (ECB/BoE down 2 to 2.5bp, Fed off 1.1bp).
• Periphery spreads are tighter. Greek bonds are easily outperforming following a market-favorable outcome in Sunday's legislative elections (GGBs/Bunds 13bp narrower).
• The session's focus will be the debt limit talks between Pres Biden and House Speaker McCarthy which are set for this afternoon ET, no time specified as yet.
• Over the weekend, Tsy Sec Yellen warned that the odds of getting to June 15 without running out of cash were "quite low"; staff-level talks resumed Sunday.
• With no key data to be released, central bank speakers highlight the docket, including ECB's Lane, Villeroy, and Holzmann.
• For the FOMC, Bullard, Bostic, Barkin, and Daly are ahead - Kashkari over the weekend floated the idea of a "skip" of hiking at a meeting "to get more information", but not "any kind of declaration that we're done".

Latest levels:

• Jun US 10Y futures (TY) up 9.5/32 at 113-27.5 (L: 113-20 / H: 113-30)
• Jun Bund futures (RX) up 31 ticks at 134.55 (L: 134.12 / H: 134.68)
• Jun Gilt futures (G) up 47 ticks at 98.83 (L: 98.45 / H: 98.98)
• Italy / German 10-Yr spread 2.3bps tighter at 182.1bps

EQUITIES: US, European Equity Futures Ease Off Friday Cycle Highs

Eurostoxx 50 futures traded higher again Friday and the contract remains just below its recent highs. Price has cleared resistance at 4363.00, the Apr 21 high and a bull trigger. The break confirms a resumption of the bull cycle from Mar 20 and a continuation of the medium-term uptrend. This opens 4409.50, the Nov 18 2021 high on the continuation chart and a key resistance. Firm support is at 4257.80, the 50-day EMA. S&P E-minis traded higher last week and the contract breached key short-term resistance and the bull trigger at 4206.25, the May 1 high. Clearance of this level confirms an extension of the bull trend from Mar 13. This opens 4244.00, the Feb 2 high and the next important resistance. Key support is at 4062.25, the May 4 low. A move through this level would highlight a bearish threat.

• Japan's NIKKEI closed higher by 278.47 pts or +0.9% at 31086.82 and the TOPIX ended 14.21 pts higher or +0.66% at 2175.9.
• Elsewhere, in China the SHANGHAI closed higher by 12.927 pts or +0.39% at 3296.469 and the HANG SENG ended 227.6 pts higher or +1.17% at 19678.17.
• Across Europe, Germany's DAX trades lower by 19.77 pts or -0.12% at 16255.06, FTSE 100 higher by 23.23 pts or +0.3% at 7780.14, CAC 40 down 4.86 pts or -0.06% at 7487.1 and Euro Stoxx 50 down 2.96 pts or -0.07% at 4392.34.
• Dow Jones mini up 4 pts or +0.01% at 33499, S&P 500 mini up 0.5 pts or +0.01% at 4205, NASDAQ mini up 7 pts or +0.05% at 13865.

COMMODITIES: Gold Remains in Bearish Cycle Despite Recovery From Last Week's Lows

A short-term bearish threat in WTI futures remains present and initial resistance at $73.81, the May 10 high, is intact. A resumption of weakness and a break of $69.39, the May 15 low, would strengthen near-term bearish conditions. The recent print below $64.67, the Mar 20 low and a key support, is a key bearish development. A clear break of it would resume the broader downtrend. Gold remains in a bearish cycle and is trading closer to its recent lows. The yellow metal last week cleared support at $1976.3, the 50-day EMA and $1969.3, the Apr 19 low. A clear break of this support zone highlights a stronger bearish threat and opens $1934.3, the Mar 22 low. Key resistance and the bull trigger is at $2063.0, the May 4 high. Initial firm resistance is at $2022.6, the May 12 high.

• WTI Crude down $0.1 or -0.14% at $71.45
• Natural Gas down $0.04 or -1.55% at $2.546
• Gold spot up $1.72 or +0.09% at $1979.06
• Copper down $3.9 or -1.05% at $369.4
• Silver down $0.05 or -0.21% at $23.7935
• Platinum up $10.05 or +0.94% at $1075.85