MNI US OPEN - Negotiators Move Closer to Agreement on Debt Limit

NEWS

US (BBG): Debt Deal Takes Shape to Raise Limit, Cap Spending for Two Years

Republican and White House negotiators are moving closer to an agreement to raise the debt limit and cap federal spending for two years, according to people familiar with the matter, as time grows short to avert a catastrophic US default. The two sides have narrowed differences in talks over recent days, according to the people, though the details agreed to are tentative and a final accord is still not in hand. The two sides have yet to agree on the amount of the cap.

US (BBG): McCarthy Vows to Work Through Long Weekend on Debt Deal

Congressional Republicans and the White House still have ground to cover before reaching an agreement on averting an approaching US debt default, House Speaker Kevin McCarthy said Thursday night. “We know where our differences lie,” McCarthy told reporters at the Capitol, adding that he planned to work through the holiday weekend there. “We do not have an agreement yet. We knew this would not be easy. It’s hard, but we’re working. And we’re gonna continue to work till we get this done,” he said.

US/CHINA (MNI): US Commerce Secretary & China Commerce Minister Meet In Washington

Some details have been released of the meeting in Washington between US Commerce Secretary Gina Raimondo and China's Commerce Minister Wang Wentao. The US Commerce Department stated that "The two had candid and substantive discussions on issues relating to the U.S.-China commercial relationship, including the overall environment in both countries for trade and investment and areas for potential cooperation."

US (NYT): DeSantis Campaign Says It Raised $8.2 Million in First 24 Hours

The cash haul points to the strengths Ron DeSantis will have in taking on Donald Trump. Gov. Ron DeSantis of Florida raised $8.2 million in his first 24 hours as a presidential candidate, his campaign said on Thursday, a huge sum that cements his standing as the leading Republican rival to Donald J. Trump. Mr. DeSantis’s campaign began on Wednesday evening with a glitch-filled kickoff on Twitter, but that apparently did not slow donor enthusiasm. The campaign said on Wednesday that it had raised $1 million during a single hour.

US (WaPo): Trump Workers Moved Mar-a-Lago Boxes a Day Before FBI Came for Documents

Two of Donald Trump's employees moved boxes of papers the day before an early June visit by FBI agents and a prosecutor to the former president's Florida home to retrieve classified documents in response to a subpoena — timing that investigators have come to view as suspicious and an indication of possible obstruction, according to people familiar with the matter.

ECB (MNI): Covid Dividend Ban Linked to SME Credit Rise

Withholding bank dividends boosted lending during the Covid-19 pandemic, with vulnerable businesses benefiting most from the subsequent re-allocation of capital at the same time as banks’ capacity to absorb losses was strengthened, the latest ECB research bulletin shows. The central bank asked institutions not to pay out dividends in March 2020, hoping to drive up credit to households and firms. Banks that complied lent 18.1% more on average in the first quarter of the pandemic (declining to 2.2%) without an increase in risk-taking, with “economically significant, but short-lived” effects for SMEs in particular.

FRANCE (MNI): Wage Growth in Line with Return to 2% Target - BdF

Wage increases between the end of 2020 and the beginning of 2023 do not indicate a wage-price spiral, the Banque de France said Friday, with inflation set to decline over the course of this year before reaching the ECB’s 2% target no later than the end of 2025.Rising industry wages have been fuelled principally by 2022’s increase to the national minimum wage, the bank said. Firm-level negotiated wage hikes for 2023 average 4.44%, up from 2.8% last year and 1.4% in 2021. However this is in line with expectations, the March-April 2023 Bulletin reported.

NEW ZEALAND (BBG): New Zealand Cyclone Less Inflationary Than Feared, RBNZ Says

A cyclone that devastated large parts of New Zealand’s North Island in February has proved to be less inflationary than first feared, according to a senior official at the nation’s central bank. The Reserve Bank initially estimated that Cyclone Gabrielle would add 0.3 percentage point to inflation in both the first and second quarters, but has since downgraded that impact to just 0.1, Assistant Governor Karen Silk said in an interview Friday in Wellington. While the storm drove up food costs, it didn’t inflate the prices of other goods such as used cars, she said.

RUSSIA (MNI): Negotiations w/Ukraine Impossible While Zelenskyy In Charge - Medvedev

State-run TASS reporting comments from Deputy Chairman of the Security Council of the Russian Federation and former president Dmitriy Medvedev stating that negotiations with Ukraine are 'impossible' while Volodymyr Zelenskyy remains in power in Kyiv.

INDIA (BBG): India Keeps Normal Monsoon Forecast, Easing Inflation Fears

India maintained its forecast for a normal monsoon this year, tempering concerns about weather risks to inflation. Rainfall during the June-September season may reach 96% of a long-term average, D.S. Pai, a senior scientist at the India Meteorological Department, said in an online briefing Friday. The latest prediction matches with its previous forecast in April. The monsoon is inextricably linked to India’s economy. It waters half of the country’s farmlands, and has the power to determine prices of food staples and the livelihoods of hundreds of millions of farmers.

DATA

UK DATA (MNI): Retail Sales Showing Tentative Signs of Recovering

• UK APR RETAIL SALES +0.5% M/M, -3% Y/Y

UK retail sales data for April was slightly stronger than anticipated. Sales rose +0.5% m/m including fuel and by +0.8% m/m when excluding fuel, beating consensus expectations of +0.3% and +0.4% growth. Non-food sales grew by +1.0% m/m in April, partly rebounding from -1.8% m/m in March, where wet weather conditions saw reduced demand. Food sales increased +0.8% m/m in April, yet remain weak (-2.7% compared to Feb 2020) due to persistently high food inflation. Downwards pressure came from fuel sales in April (-2.2% m/m).

FRANCE DATA (MNI): Consumer Sentiment Plateaus, Future Outlooks Edging Up

• FRANCE MAY CONSUMER CONF 83 (FCST 84); APR 83

French consumer confidence was stable in May at 83, remaining well below the long-run average of 100 and missing consensus expectations of a one-point uptick. Further improvements in financial situation expectations, aided by a sharp fall in inflation concerns, were evident in May, alongside an uptick in expectations of living standards in France. A slight increase in unemployment concerns was noted, albeit these concerns remain very low.

ITALY DATA (MNI): Consumer Confidence Edges Down, Adds to Plateauing EZ Sentiment

• ITALY MAY CONSUMER CONFIDENCE 105.1
• ITALY MAY BUSINESS CONFIDENCE 108.7

A slip in future economic climate and personal finances saw Italian consumer confidence dip 0.4 points to 105.1 in May, largely as expected. Consumer confidence in the bloc failed to see substantial improvement in May. French sentiment held steady (and remained very downtrodden), German improved slightly and the eurozone flash confidence inched up by a marginal 0.1 point. The eurozone indicator remains around five points below the historical average, signalling continued pessimism despite the May flash print being the least-negative reading since February 2022 (pre-Russia-Ukraine war).

SWEDEN APR RETAIL SALES -6.5% Y/Y (MNI)

JAPAN DATA (MNI): Japan May Tokyo CPI Rise 3.2% Vs. Apr 3.5%

• JAPAN MAY TOKYO CORE CPI +3.2% Y/Y; APR +3.5%
• JAPAN MAY TOKYO CPI ENERGY COSTS -8.2% Y/Y; APR -2.6%
• JAPAN MAY TOKYO CPI FOOD EX-PERISHABLES +8.9% Y/Y; APR +8.9%
• JAPAN APR SERVICES PPI +1.6% Y/Y; MAR REV +1.7%
• JAPAN APR SERVICES PPI +0.2% M/M; MAR REV +0.6%

The Tokyo core inflation rate decelerated to 3.2% y/y rise in May from April's 3.5%, the 12th straight month above the Bank of Japan's 2% target, driven by lower energy prices and indicating that the nationwide May core CPI will likely slow from April's 3.4%, Ministry of Internal Affairs and Communications data showed Friday. The core-core CPI, a key indicator in the underlying trend of inflation which excludes fresh food and energy, rose 3.9% y/y in May, accelerating from 3.8% in April due to strong food prices.

AUSTRALIA APR RETAIL SALES +0% M/M (MNI)

RATINGS: Friday’s Rating Slate

Potential sovereign rating reviews of note scheduled for after hours on Friday include:

• Fitch on Lithuania (current rating: A; Outlook Stable) & Spain (current rating: A-; Outlook Stable)
• Moody’s on the Czech Republic (current rating: Aa3; Outlook Negative) & Slovakia (current rating: A2; Outlook Negative)
• DBRS Morningstar on Poland (current rating: A, Stable Trend)

FOREX: Data Deluge to Round Off the Week

• The greenback is softer to finish the final session of the week, with the dollar slipping slightly against all others in G10.
• Scandi currencies are seeing some relief, with SEK and NOK off the week's lowest levels but still well within range of nearby support. USD/NOK touched a new cycle high Thursday of 11.0741, and markets have faded back toward the 11.00 handle ahead of the NY crossover.
• The risk backdrop is tentatively softer, with European equities giving back some of the week's late recovery. Most major indices are in the red, helping US futures indicate a mildly lower open Friday.
• Key US releases Friday include prelim April durable goods orders, personal income/spending and the final UMich sentiment survey for May. Markets see a staggered early close due to the US Memorial Day holiday set for Monday.
• The central bank speaker slate is thin to round off the week, with focus remaining on any signs of progress in debt ceiling negotiations given McCarthy's pledge to work through the extended weekend.

BONDS: Treasuries Outperforming Pre-PCE

US Treasuries are outperforming in European morning trade Friday, with Bunds trading constructively and Gilts steadier following their sell-off earlier this week.

• Yields have pulled back from session's highest levels, with Bunds notably retracing after testing the Mar 10 high of 2.557% - helping the rest of core FI pare losses.
• Gilt yields are flat on the session, with stronger-than-expected retail sales data offset by poorer revisions to prior.
• With attention remaining on debt limit negotiations going into the Memorial Day weekend (including a shortened session today and most US markets closed Monday) 10Y Tsy yields are down 3bp.
• A very slight steepening bias has been seen so far, with peak rate pricing pulling back for the BoE (-4bp), Fed (-3bp) and ECB (-2bp). But all foreseen terminal rates remain well above levels at the start of the week.
• No major supply or central bank speakers expected for the rest of the session, but we get a busy US data schedule ahead of the long weekend including PCE, durable goods orders, inventories, and final UMich survey.

Latest levels:

• Jun US 10Y futures (TY) up 4/32 at 112-24 (L: 112-15.5 / H: 112-26)
• Jun Bund futures (RX) down 30 ticks at 133.32 (L: 132.83 / H: 133.34)
• Jun Gilt futures (G) down 9 ticks at 94.58 (L: 94.13 / H: 94.78)
• Italy / German 10-Yr spread 1.2bps wider at 188.8bps

EQUITIES: Eurostoxx Futures Pare Overnight Gains

Eurostoxx 50 futures have traded lower this week and the contract remains soft - for now. The 50-day EMA, at 4266.60, has been pierced and this signals scope for weakness towards 4233.00, the May 4 low and a key short-term support. A break of this level would strengthen bearish conditions. On the upside the bull trigger is at 4409.50, the Nov 18 2021 high (cont) and a major resistance. S&P E-minis traded lower Wednesday and this resulted in a test of the 50-day EMA at 4125.79. A clear break of this average would highlight a stronger short-term reversal and expose 4062.25, the May 4 low and a key support. Price did recover yesterday. A continuation higher would refocus attention on initial key resistance at 4227.25, the May 19 high. Clearance of this hurdle would resume the uptrend that started on Mar 13.

• Japan's NIKKEI closed higher by 115.18 pts or +0.37% at 30916.31 and the TOPIX ended 0.31 pts lower or -0.01% at 2145.84.
• Across Europe, Germany's DAX trades lower by 6.2 pts or -0.04% at 15777.43, FTSE 100 higher by 8.98 pts or +0.12% at 7585.83, CAC 40 up 2.16 pts or +0.03% at 7230.26 and Euro Stoxx 50 up 6.05 pts or +0.14% at 4273.44.
• Dow Jones mini down 40 pts or -0.12% at 32770, S&P 500 mini down 5.5 pts or -0.13% at 4151.5, NASDAQ mini up 1.75 pts or +0.01% at 13955.

COMMODITIES: WTI Futures Pullback Follows Failure to Overcome 50-Day EMA

WTI futures traded lower Thursday and the pullback means that - for now - the contract has failed to overcome resistance at the 50-day EMA, which intersects at $74.31. Recent short-term gains are considered corrective, however, a clear breach of the 50-day EMA would highlight a stronger bullish theme and expose $76.74, the Apr 28 high. Support to watch lies at $69.39, the May 15 low. A break would be bearish. The bear cycle in Gold remains intact as the yellow metal extends the downtrend that started on Apr 26. This week’s break lower paves the way for a move towards $1933.6, trendline support drawn from Nov 3 2022. A clear break of the trendline would reinforce bearish conditions and open $1903.5, a Fibonacci retracement. Key resistance and the bull trigger is at $2063.0, May 4 high. Initial firm resistance is $1985.3, the May 24 high.

• WTI Crude up $0.03 or +0.04% at $71.89
• Natural Gas down $0.01 or -0.56% at $2.298
• Gold spot up $11.09 or +0.57% at $1955.94
• Copper up $6.25 or +1.74% at $363.95
• Silver up $0.38 or +1.66% at $23.1043
• Platinum up $4.85 or +0.47% at $1034.1