MNI US OPEN - Momentum Builds on Debt Deal With Possible Agreement in Sight

NEWS

US (BBG): McCarthy, Schumer Eye Debt-Limit Votes Ahead of June 1 Deadline

House Speaker Kevin McCarthy and Senate Majority Leader Chuck Schumer are making plans for votes in the coming days on a bipartisan deal to avert a catastrophic US debt default. McCarthy said that negotiators on the federal debt limit may reach an agreement in principle as soon as this weekend, lining up a vote in his chamber. “I can see now where a deal can come together,” the California Republican told reporters Thursday at the Capitol.

US (BBG): Biden Pushes Momentum in Debt Talks as He Begins Summit in Japan

President Joe Biden urged his negotiators to keep pursuing a debt-limit deal after House Speaker Kevin McCarthy indicated that both sides may reach agreement as soon as this weekend to avoid a catastrophic US default. In a call early Friday from Japan, where he’s attending the Group of Seven summit, Biden told his hand-picked negotiating team in Washington that he’s confident Congress will act in time, according to a White House official.

US (BBG): US-Led Pacific Trade Talks Close to Reaching Supply Chains Pact

Fourteen countries in US-led Indo-Pacific trade talks are nearing an agreement on supply chain coordination and may announce a deal as soon as next week, according to people familiar with the discussions. Negotiators would like to announce an agreement at a meeting of ministers in Detroit on May 27, added the people, who asked not to be identified because conversations are unfolding behind closed doors.

US/CHINA (Politico): China’s Commerce Minister to Meet with Raimondo, Tai Next Week, Embassy Says

China is planning to send its commerce minister to the U.S. next week for a visit that will include meetings with Commerce Secretary Gina Raimondo and U.S. Trade Representative Katherine Tai, embassy officials said Thursday. Chinese Minister of Commerce Wang Wentao will sit down with Raimondo in Washington and with Tai in Detroit, the officials said. His visit coincides with a gathering of trade ministers from the Asia-Pacific Economic Cooperation, which the U.S. is hosting next week in Detroit.

US/TAIWAN (BBG): US Agrees on Taiwan Trade Terms, Clouding Plans for China Talks

The US and Taiwan agreed to boost trade ties, the first tangible results under an initiative announced last year that faces vehement opposition from Beijing and clouds the outlook for a visit to the US next week by a Chinese commerce official. The Taiwan initiative isn’t a formal free-trade agreement and doesn’t address thorny issues such as tariffs, but it’s part of a broader drive to deepen trade ties amid heightened tensions with Beijing.

ECB (RTRS): Determined to Bring Inflation Down to 2%, Lagarde Says

The European Central Bank will be courageous and will make the decisions needed to bring inflation down to its mid-term goal of 2%, ECB president Christine Lagarde said on Friday. "We are heading towards more delicate decisions going forward but we will be courageous and we will make the decisions that are needed to bring inflation back to 2%," Lagarde told Spanish state television TVE.

ECB (BBG): ECB Steps Up Scrutiny of Bank Liquidity, May Raise Requirements

The European Central Bank is stepping up scrutiny of lenders’ liquidity reserves and may communicate stricter requirements to individual firms later this year, according to people with knowledge of the matter. The ECB’s annual review of the risks faced by banks will likely pay more attention to the management of liquid funds, including the potential for a higher bar on key metrics such as the liquidity coverage ratio, the people said, asking to remain anonymous as the matter is private.

G7 (MNI): G-7 Decide Against Outright Ban on Exports to Russia

G-7 nations have decided against imposing a near-outright ban on exports to Russia and will instead widen existing restrictions on key goods, Bloomberg report according to people familiar with the matter. G-7 envoys had discussed flipping the existing sanctions regime around, with all exports barred unless exempted. Under the current criteria all exports are allowed unless sanctioned.

G7 (MNI): Ukraine President Zelensky to Attend Hiroshima G7 Summit in Person

Multiple news wires reported overnight that Ukrainian President Volodymyr Zelensky will travel to Hiroshima for a G7 summit, although there has been no official confirmation as of yet. The CNN reported that the leader will make a stopover in Saudi Arabia, where he will attend the Arab League summit on Friday. He will subsequently travel to Japan on a U.S. military plane but the time of his arrival or details of his visit remain unknown.

CHINA (BBG): Xi Vows to Boost Central Asia Security Ties as War Weakens Putin

President Xi Jinping said China is ready to help Central Asian nations bolster their security and defense capabilities as he wrapped a summit of the region’s leaders, underscoring Beijing’s efforts to deepen its influence there as an expansionist Russia raises fresh security issues. China can help the region improve its “law enforcement, security, and defense capability construction,” Xi said during a keynote speech at the inaugural in-person China-Central Asia Summit, according to a report published by the official Xinhua News Agency.

CHINA (BBG): Xi Pledges 26b Yuan Financing Support, Grant to Central Asia

China will provide 26b yuan of financing support and “free assistance” to Central Asian countries, Chinese President Xi Jinping says at the China-Central Asia Summit in Xi’an, Xinhua News Agency reports. China will also upgrade bilateral investment agreements with Central Asia and roll out more trade facilitation measures. China is ready to help Central Asian countries enhance their defense capability construction.

CHINA/RUSSIA (MNI): PM Mishustin to Meet Chinese President & Premier on 23-24 May Trip

Russian Prime Minister Mikhail Mishustin is set to visit China from 23-24 May for talks with his counterpart Premier Li Qiang as well as President Xi Jinping. The visit comes just after the conclusion of the G7 summit in Japan, and will mark the senior most visit of a Russian gov't official to China since President Vladimir Putin attended the opening of the 2022 Beijing Winter Olympic games shortly before he launched his invasion of Ukraine.

JAPAN (MNI): BOJ's Ueda Vows to Continue With Easy Policy

Bank of Japan Governor Kazuo Ueda has vowed to maintain easy policy for as long as it takes for the Japanese economy to achieve the Bank's 2% price target. “Under these circumstances, the BOJ will continue to maintain the stability of financing, mainly of firms, and financial markets, and will not hesitate to take additional easing measures if necessary,” Ueda told business leaders. He noted the Bank will monitor whether recent wage gains are sustainable and the extent they spread to small- and medium-sized firms.

JAPAN (MNI): BOJ Stands Ready If U.S. Defaults - Ueda

Bank of Japan Governor Kazuo Ueda told lawmakers Friday that the central bank will take policy action in a flexible manner to maintain the stability of financial markets amid a potential U.S. debt default. He reassured parliament a potential US Treasury default would not impact the BOJ's ability to provide liquidity to the country's financial institutions.

NEW ZEALAND (MNI): Hike Expected as Key Inflation Inputs Sticky

The Reserve Bank of New Zealand will likely increase the Official Cash Rate again at its May 24 meeting, with markets and commentators tipping another 25-50bp from its current 5.25% despite emerging signs of moderating inflation. The OCR decision will coincide with the quarterly publication of the RBNZ’s Monetary Policy Statement, which the market will watch closely for an update to the peak rate forecast. In its last two statements, the RBNZ forecasted a 5.5% peak some time in the middle of 2023.

NEW ZEALAND (BBG): New Zealand Budget Won’t Fuel Rate Hikes, Robertson Says

New Zealand Finance Minister Grant Robertson said the increase in government spending announced in yesterday’s budget isn’t a reason for the central bank to raise interest rates. “It might sound like a lot of money but across the government’s budget it isn’t sufficient to argue that interest rates need to rise,” Robertson said in an interview with Radio New Zealand Friday in Wellington.

COMMODITIES (BBG): Copper in Worst Run of Weekly Losses Since July on China Woes

Copper headed for a fifth weekly loss, the longest streak of declines since July, on deepening concerns over the strength of demand in top consumer China as the country’s economic recovery falters. Copper fell to the lowest in almost six months this week after data showed industrial output, retail sales and fixed investment grew at a much slower pace than expected in April, damping optimism over a post-Covid recovery.

DATA

UK DATA (MNI): Consumer Confidence Improves for 4th Straight Month

• UK GFK MAY CONSUMER CONF -27 (=FCAST); APR -30

UK consumer confidence recovered by a further three points to -27 in the GfK May report, the fourth consecutive monthly improvement and the strongest performance since February 2022 due in large part to significant gains in the forward-looking personal finance and major purchase index sub-components.* Despite recent improvements, the indicator still signals an overall pessimistic outlook, substantially lower than the historical average of -10.

GERMAN DATA (MNI): April PPI Falls to 4.1% y/y, but m/m Data an Upside Surprise

• GERMANY APR PRODUCER PRICES +4.1% Y/Y

German PPI surprised to the upside on a monthly reading in April, recording the first m/m gain since Sept 2022, although the year-on-year reading came in below expectations. April PPI rose 0.3% m/m and rose 4.1% y/y. Consensus had been looking for a seventh consecutive decline in Germany PPI in April, albeit to a lesser extent at around -0.3% m/m, whilst easing 2.7pp to +4.8% y/y. Cooling energy prices have been driving the fall in producer prices, which now stands substantially lower than the record peak of +45.8% y/y recorded in August/September.

JAPAN DATA (MNI): Japan Apr Core CPI Rises 3.4% Vs Mar 3.1%

• JAPAN APR CORE CPI +3.4% Y/Y; MAR +3.1%
• JAPAN APR CORE CPI +3.4% Y/Y; MAR +3.1%
• JAPAN APR CPI FOOD EX-PERISHABLES +9.0% Y/Y; MAR +8.2%
• JAPAN APR CPI ENERGY COST -4.4% Y/Y; MAR -3.8%

Japan's annual y/y core CPI rose 3.4% in April – accelerating from March's 3.1% – beating Bank of Japan expectations, Ministry of Internal Affairs and Communications data released Friday showed. Higher food prices, excluding fresh food, and lower energy price drove the latest print, which will increase pressure on the BOJ to revise up the median forecast for core CPI this fiscal year from 1.8% made in April. The strong price view may prompt the BOJ to change its forecast that the y/y rise in core CPI will fall below 2% toward the middle of fiscal 2023.

FOREX: Greenback Strength Abates, Providing Relief Among Majors

• The greenback sits softer early Friday as the currency pulls back a small part of this week's rally. Nonetheless, the USD Index remains stronger on the week by around 0.7%. GBP is similarly weak, allowing the EUR/GBP May pullback to abate slightly off the mid-month lows at and prevent the RSI from tilting into oversold territory.
• Antipodean currencies are firmer, keeping AUD and NZD top of the pile in G10. NZD/USD remains pinned within the 50- and 100-dma channel, leaving 0.6275 as the main upside level. Market moves come ahead of the RBNZ rate decision next week, at which consensus looks for a 25bps hike to 5.50% - with a number of sell-side analysts switching their views to see a peak rate further north of current levels after this week's budget.
• Weakness in the Chinese currency put in a minor reversal Friday, helping drag USD/CNH back below the 7.04 level - nonetheless, the onshore currency close cemented a 1% decline on the week.
• A light data slate Friday should keep focus on the speaker calendar - with Fed's Powell, Williams & Bowman scheduled as well as ECB's Schnabel, Lagarde and de Cos. Canadian retail sales round off the week's economic releases, expected to slow to -1.4% from -0.2% prior for the headline.

BONDS: Fed Speakers Eyed With Core Curves Trading Mixed

Global core FI is a touch stronger in early Friday trade, with curves trading mixed.

• Limited price action in bonds is reflective of consolidation across asset classes, with equities trading sideways/higher, and the USD partially paring Thursday's rise.
• The US and UK short ends are stronger as BoE and Fed terminal rate hike pricing has softened about 1bp apiece vs Thursday's US data / Fed speaker induced jump; ECB is up <1bp after a flat performance yesterday.
• Bull steepening is evident in the US curve, with twist steepening in the UK and a flat German curve out to 10Y.
• Gilt futures touched a 2023 low (continuous contract) with Bunds at May's low before regaining ground. Tsys are trading within Thursday's ranges (and a 7 tick daily range).
• With a limited data slate Friday, including no major US releases, the main events on the schedule are central bank speakers: BoE's Haskel, ECB's Schnabel / Lagarde / de Cos, and Fed's Williams, Bowman, and Powell.
• Looking ahead to the weekend, attention will remain on developments in US debt limit negotiations.

Latest levels:

• Jun US 10Y futures (TY) up 5/32 at 114-2.5 (L: 113-30 / H: 114-05)
• Jun Bund futures (RX) up 4 ticks at 134.07 (L: 133.76 / H: 134.33)
• Jun Gilt futures (G) down 7 ticks at 98.91 (L: 98.76 / H: 99.21)
• Italy / German 10-Yr spread 0.8bps tighter at 185.9bps

EQUITIES: Eurostoxx 50 Futures, E-Mini S&Ps Trade to Fresh Cycle Highs

Eurostoxx 50 futures traded higher yesterday and cleared resistance at 4363.00, the Apr 21 high and the bull trigger. The break confirms a resumption of the bull cycle that started Mar 20 and confirms a continuation of the medium-term uptrend. This opens the 4400.00 handle ahead of 4409.50, the Nov 18 2021 high on the continuation chart and a key resistance. Key support has been defined at 4233.00, the May 4 low. S&P E-minis traded higher again Thursday and the contract has cleared key 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 key short-term 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 234.42 pts or +0.77% at 30808.35 and the TOPIX ended 3.84 pts higher or +0.18% at 2161.69.
• Elsewhere, in China the SHANGHAI closed lower by 13.778 pts or -0.42% at 3283.542 and the HANG SENG ended 276.68 pts lower or -1.4% at 19433.46.
• Across Europe, Germany's DAX trades higher by 98.71 pts or +0.61% at 16219.06, FTSE 100 higher by 29.5 pts or +0.38% at 7762.06, CAC 40 up 44.86 pts or +0.6% at 7476.98 and Euro Stoxx 50 up 31.42 pts or +0.72% at 4385.35.
• Dow Jones mini up 25 pts or +0.07% at 33627, S&P 500 mini up 5.5 pts or +0.13% at 4215.75, NASDAQ mini up 23 pts or +0.17% at 13907.

COMMODITIES: Gold Remains in Bearish Cycle and Close to Recent Lows

WTI futures traded higher Wednesday. However, a short-term bearish threat remains present and initial resistance at $73.93, the Apr 28 low, is intact. A resumption of weakness and a break of $69.41, the May 15 low, would strengthen near-term bearish conditions. The recent print below $64.58, the Mar 20 low and a key support, is a medium-term 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 has cleared support at $1976.2, 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 up $0.23 or +0.32% at $72.56
• Natural Gas down $0.01 or -0.23% at $2.596
• Gold spot up $7.3 or +0.37% at $1967.07
• Copper up $4.8 or +1.3% at $373.75
• Silver up $0.21 or +0.89% at $23.7744
• Platinum up $2.54 or +0.24% at $1060.73