MNI US OPEN - Biden, McCarthy Grow More Optimistic on Debt Deal

NEWS

US (NYT): Biden and McCarthy Show Signs of Optimism, but Remain Far Apart on Debt Deal

The negotiations at the White House came a day after the Treasury Department said the government could run out of money to pay its bills by June 1. President Biden and congressional leaders in both parties emerged from a White House meeting on Tuesday offering glimmers of hope about eventually reaching a deal to raise the nation’s borrowing limit, even as they conceded they were still far from averting a default that could come as soon as June 1.

US (BBG): Biden Drops Australia, Papua New Guinea Visit for Debt Talks

President Joe Biden has scrapped planned stops in Australia and Papua New Guinea following his trip to Japan for the Group of Seven meeting to return for continuing negotiations with Republicans over raising the US debt ceiling. The decision to cut short the president’s trip threatens to undermine efforts by the administration to strengthen ties in the Pacific, in a bid to counter Chinese influence.

US (BBG): Fed’s Bostic Says ‘Hard Part’ Still Ahead If Inflation Stubborn

Federal Reserve Bank of Atlanta President Raphael Bostic and his Chicago counterpart Austan Goolsbee voiced optimism they could achieve a soft landing for the US economy, but Bostic warned officials will face a stern test if it turns out they are wrong. “We haven’t gotten to the hard part yet,” he said Tuesday, describing the enormous pressure central bankers would face if they were unable to bring down inflation without causing significant harm to employment. “We are going to have to be super strong and detached.” he said.

US (BBG): Pence Calls for End to Fed’s Jobs Role as He Weighs 2024 Bid

Former Vice President Mike Pence is calling for an end to the Federal Reserve’s dual mandate, saying the central bank should focus solely on fighting inflation and leave creating jobs to Congress and the president. The Fed’s dual mandate for price stability and maximum sustainable employment doesn’t serve the US well, Pence said in an exclusive interview with Bloomberg News before a speech Tuesday in New Hampshire, an early Republican primary state. Pence is considering challenging Donald Trump for the Republican nomination in 2024, but so far hasn’t risen above the low single digits in polling.

US (BBG): Western Alliance Leads US Regional Banks Higher as Deposits Rise

Western Alliance Bancorp gained in premarket trading Wednesday, leading US regional banks higher, after it said deposits have grown by more than $2 billion since the quarter’s end. Shares of Western Alliance were 8.5% higher in premarket trading as of 4:06 a.m. in New York. Regional lending peer PacWest Bancorp gained 7%. The latest figures of Western Alliance indicate deposit levels increased by another $200 million between May 9 and May 12.

ECB (MNI): Stickier Inflation To Choke Growth Outlooks - De Cos

Growth outlooks for the eurozone will be dependent on projections for how quickly inflation slows, Bank of Spain’s governor Pablo Hernandez de Cos said Wednesday. The persistence of higher inflation would slow the recovery and “would very likely lead to further tightening” in the euro area”, de Cos said in a speech in Madrid. The longer higher interest rates remain, the more likely that financing cost rises for banks and a deterioration in the quality of credit risk, he said.

JAPAN (MNI): BOJ Wary Of US Credit Risk to Regional Banks

Bank of Japan officials are examining the potential for a rise in defaults in the U.S. during a future bout of financial instability could undermine the resilience of regional banks, a scenario not included in the latest round of stress tests, MNI understands. While the BOJ's recent Financial Stability Report found the country's financial system to be resilient, it noted that the quality of banks’ domestic and foreign loan portfolios remained high on the whole but some loans entail high credit risk.

JAPAN (MNI): Stronger Q1 Capex, Spending Unsurprising - BOJ

Stronger-than-expected capital investment and private consumption index recorded in preliminary Q1 gross domestic product data were largely in line with consumption activity and capex plans found within the latest Tankan report and expected by Bank of Japan officials, MNI understands. The officials also believe private consumption and capex in Q2 will remain solid despite greater uncertainty, supporting the Bank's view the Japan’s economy will recover moderately.

CHINA (MNI): CPI Set To Increase Later In Year - NDRC

China’s CPI rate will return to average levels later this year, as policies to boost domestic demand take effect and base effects weaken, according to a National Development and Reform Commission (NDRC) spokesperson on Wednesday. The spokesperson noted the smooth resumption of logistics in areas such as fresh fruit had exacerbated base effects on CPI levels this year.

CHINA (MNI): China April GDP Growth At 4.5-5% - Expert

China's economy likely grew between 4.5-5% in April, according to analysts interviewed by 21st Century Herald. Analysts said the industrial sector recovered slower than the service industry and that Tuesday's data release showed growth lower than potential output. Authorities must do more to boost demand, they said. Credit was used in the past to boost demand in previous economic cycles which led to higher debt, however, fiscal policy should be more active to boost consumption.

RBA (MNI): Investors Systematically Underestimating RBA

Markets and macroeconomists are consistently underplaying the potential for higher Australian interest rates, creating a disconnect with what the Reserve Bank of Australia sees as its consistent communication of its determination to achieve its inflation target, MNI understands. While some economists blamed the RBA for investors’ surprise when it hiked the cash rate by 25bp to 3.85% at its May 2 meeting, the Reserve considers that its February forecast for rates to rise had made its intentions clear.

RBA (MNI): RBA Believes Unemployment Likely Below NAIRU

The Reserve Bank of Australia believes the tight labour market and strong wage growth shows unemployment remains below the level compatible with stable inflation, despite calls for it to recalibrate its views of joblessness, MNI understands. Economists recently called on the RBA to cut its Non-Accelerating Inflation Rate of Unemployment (NAIRU) estimate, which remains unchanged from its pre-Covid 4.5%, despite a downward trajectory leading into the pandemic

TURKEY (MNI): CHP Deputy Chair Claims Irregularities at Thousands of Ballot Boxes

Deputy Secretary General of the main opposition Republican People's Party (CHP) Muharrem Erkek states at a press conference that the party has identified irregularities and objected to the results of 2,269 ballot boxes for the presidential election and 4,825 ballot boxes for the parliamentary election. States that 'irregularities range from a single wrong vote to hundreds of votes' adding that 'we are following each vote, even if they don't change the final result'.

CORPORATE (BBG): UBS Sees $35 Billion Gain on Credit Suisse, Warns on Mark-Downs

UBS Group AG is gearing up for an estimated $34.8 billion gain as a result of its emergency takeover of Credit Suisse Group AG, while warning it faces billions in potential legal and regulatory costs from the rescue of its stricken former rival. The Swiss bank stands to benefit from the combined firms’ negative goodwill, based on a first assessment it has made on data as of the end of 2022, according to a regulatory filing posted overnight in Switzerland.

COMMODITIES (BBG): Soy Declines to Lowest Since October on Stronger US Crop Outlook

Soybeans fell to the lowest since October and corn retreated for a second session on stronger crop prospects in the US. Global stockpiles of corn and soybeans are on the rise, with bumper harvests expected in the US. The pace of planting for both crops is well ahead of a year earlier, while the weather outlook is favorable this week in the Midwest.

DATA

EUROZONE DATA (MNI): Final HICP Small Downwards Revision to M/M

• EUROZONE APR FINAL HICP +0.6% M/M (FLASH +0.7%); MAR +0.9% M/M
• EUROZONE APR FINAL HICP +7.0% Y/Y (= FLASH); MAR +6.9% Y/Y
• EUROZONE APR FINAL CORE HICP +1.0% M/M, +5.6% Y/Y (= FLASH); MAR +5.7% Y/Y

The final euro area HICP data for April saw a 0.1pp downwards revision to m/m headline to +0.6% m/m. Both headline and core annualised inflation were confirmed at flash estimates. Headline HICP edged up by 0.1pp to +7.0% y/y, largely due to energy base-effects after having dropped significantly in March. In the final data, food and energy y/y CPI were both 0.1pp softer than flash estimates, however this didn't budge headline HICP. Core HICP edged down 0.1pp to +5.6% y/y, slowing from the euro-era high recorded in March.

JAPAN DATA (MNI): Japan Q1 GDP Posts First Rise in Three Quarters

• JAPAN Q1 CAPEX +0.9% Q/Q; +0.2 PP CONTRIBUTION
• JAPAN Q1 REAL GDP +0.4% Q/Q; MNI MEDIAN +0.2%
• JAPAN Q1 REAL GDP +1.6% ANNUALIZED; MNI MEDIAN +0.6%
• JAPAN Q1 CONSUMPTION +0.6% Q/Q; +0.3 PP CONTRIBUTION

Japan's economy in Q1 posted its first growth in three quarter due to strong private consumption and capital investment, preliminary GDP data released by the Cabinet Office Wednesday showed. Q1 GDP rose 0.4% q/q , or an annualised 1.6%, following a revised 0.0% q/q, or an annualised revised fall of 0.1%, for Q4 2022. Q1 growth was stronger than the MNI median forecast that pointed to a rise of 0.2% q/q, or an annualised 0.6%.

AUSTRALIA DATA (MNI): Aussie Wages Stronger at 3.7% Y/Y

The seasonally adjusted wage price index rose 0.8% over the March quarter and 3.7% over the year, up from 3.6% recorded over Q4 2022 and beating expectations of a 3.6% rise, according to Australian Bureau of Statistics data released today. Private sector wages increased 0.8% and the public sector gained 0.9%. “While the public sector recorded higher quarterly growth, the much larger size of the private sector meant it was the main driver of Australian wage growth,” the ABS stated.

CHINA DATA (MNI): PBOC Injects CNY2 Billion Via OMOs Wednesday

The People's Bank of China (PBOC) conducted CNY2 billion via 7-day reverse repos on Wednesday, with the rates unchanged at 2.00%. The operation has led to an unchanged liquidity after offsetting the maturity of CNY2 billion reverse repo today, according to Wind Information. The operation aims to keep banking system liquidity reasonable and ample, the PBOC said on its website.

FOREX: Greenback Extends Tuesday's Modest Run Higher

• The greenback is extending the modest run higher posted into the Tuesday close, putting the USD Index within range of 103.00 as markets read positive tones into the meetings held between POTUS and Republican leaders. Resultingly, the USD is higher against most others in G10 - outperformed by only the NZD, led higher by a revision higher for RBNZ rate expectations at ANZ, who now see the OCR hitting 5.75% at its peak.
• Focus ahead remains on the nearing X-date and the debt ceiling debacle in the US. The meeting held yesterday between POTUS Biden and Congressional leader McCarthy resulting in some greenshoots of optimism, as Biden curtailed the second half of his Asia trip to focus in on a debt ceiling resolution.
• The risk backdrop is mixed, with US equity futures seen higher, while European indices are putting in a more modest performance. JPY is the poorest performer in G10 - helping tip USD/JPY briefly above the 200-dma at 137.07 for the first time since May 1st. Clearance and progress above here opens 137.77 and 137.91 for direction.
• US housing starts and building permits data take focus going forward, with the central bank speaker slate similarly busy: ECBs Elderson, Centeno, de Guindos & Rehn are on the docket, as well as BoE's Bailey.

BONDS: Leaning Bull Flatter Amid US Debt Ceiling Uncertainty

Global core FI is on the front foot in early Wednesday trade, with attention on the US debt limit impasse.

• The US, UK, and German curves are leaning slightly bull flatter, with risk appetite limited.
• That's despite some apparently constructive debt limit developments overnight, including Pres Biden's plan to shorten his trip to Asia in order to refocus on negotiations.
• The US short end is underperforming, with Fed hike pricing ticking up slightly (vs lower pricing for ECB/BoE) amid lingering doubts that the hiking cycle is over.
• Eurozone data hasn't really had an impact; final Apr HICP saw a downward revision to M/M, while French unemployment was in line. US housing starts and building permits data feature later.
• This morning's supply has included a strong Gilt auction and a decent French OAT sale. Supply later includes $15B 20Y US Tsy Bonds.
• BoE Governor Bailey, and ECB's Centeno/Guindos/Rehn are up later.

Latest levels:

• Jun US 10Y futures (TY) up 2.5/32 at 115-0 (L: 114-28 / H: 115-2.5)
• Jun Bund futures (RX) up 38 ticks at 135.68 (L: 135.28 / H: 135.7)
• Jun Gilt futures (G) up 35 ticks at 100.78 (L: 100.41 / H: 100.79)
• Italy / German 10-Yr spread 0.7bps wider at 187.5bps

EQUITIES: European, US Equity Futures Recover From Intraday Lows

Eurostoxx 50 futures continue to consolidate. Price is trading above support at 4244.60, the 50-day EMA. The recent move down is considered corrective and the broader uptrend is intact. A resumption of gains would signal scope for a test of 4363.00, the Apr 21 high and a bull trigger. Clearance of this level would confirm a resumption of the uptrend. A clear break of the 50-day EMA is required to signal a top. S&P E-minis are unchanged and remain in consolidation mode. Price is trading above the 50-day EMA, which intersects at 4109.81. A resumption of gains would open key resistance and the bull trigger at 4206.25, the May 1 high. Clearance of this level would confirm an extension of the bull trend that started Mar 13. Key support has been defined at 4062.25, the May 4 low. A move through this level would instead highlight a bearish threat.

• Japan's NIKKEI closed higher by 250.6 pts or +0.84% at 30093.59 and the TOPIX ended 6.43 pts higher or +0.3% at 2133.61.
• Elsewhere, in China the SHANGHAI closed lower by 6.755 pts or -0.21% at 3284.232 and the HANG SENG ended 417.68 pts lower or -2.09% at 19560.87.
• Across Europe, Germany's DAX trades higher by 57.32 pts or +0.36% at 15923.62, FTSE 100 higher by 0.4 pts or +0.01% at 7737.11, CAC 40 down 7.8 pts or -0.11% at 7384.79 and Euro Stoxx 50 up 2.69 pts or +0.06% at 4310.38.
• Dow Jones mini up 98 pts or +0.3% at 33117, S&P 500 mini up 11.25 pts or +0.27% at 4127.75, NASDAQ mini up 24.75 pts or +0.18% at 13483.25.

COMMODITIES: Gold Remains in Midst of Corrective Pullback

WTI futures remain below recent highs and the short-term outlook is bearish. The recovery from the May 4 low appears to have been a correction and this allowed an oversold trend condition to unwind. Initial resistance is at $73.93, the Apr 28 low ahead of $76.92, the Apr 28 high. On the downside, the recent print below $64.58, the Mar 20 low and a key support, reinforces a bearish theme. A clear break of it would resume the medium-term downtrend. Gold trend conditions are bullish, however, the yellow metal remains in bearish cycle and the recent move lower is considered corrective. Moving average studies are in a bull-mode set-up and this highlights an uptrend. Support to watch is $1976.8, the 50-day EMA and $1969.3, the Apr 19 low. A clear break of this support zone is required to highlight a stronger bearish threat. Key resistance and the bull trigger is at $2063.0, the May 4 high.

• WTI Crude down $0.22 or -0.31% at $70.26
• Natural Gas down $0 or -0.17% at $2.364
• Gold spot down $2.29 or -0.12% at $1988.33
• Copper up $3.6 or +0.98% at $368.65
• Silver down $0.11 or -0.45% at $23.6497
• Platinum up $5.26 or +0.49% at $1069.31