MNI US OPEN - Risk of Fitch Cut on Debt Deal Impasse; McCarthy Optimistic

NEWS

US (BBG): US Credit Rating at Risk of Fitch Cut on Debt-Limit Impasse

The tension around the US debt-limit negotiations ratcheted up after Fitch Ratings warned the nation’s AAA rating was under threat from a political standoff that’s preventing a deal. Fitch may downgrade its assessment to reflect the increased partisanship that is hindering a resolution despite the fast-approaching so-called X date, it said in a statement, referring to the point at which Washington runs out of cash. It moved the US to “rating watch negative” under its classification.

US (BBG): McCarthy Signals Debt Deal Optimism as US Put on Credit Watch

House Speaker Kevin McCarthy’s optimism that White House and GOP negotiators would reach a deal in time to avert a potentially catastrophic default didn’t mollify analysts as the US was put on a ratings watch. The California Republican said after a four-hour meeting between his and President Joe Biden’s hand-picked negotiators that a deal was possible before June 1, the date by which Treasury Secretary Janet Yellen has warned the US could run out of money to pay its bills.

US (BBG): DeSantis Makes 2024 Presidential Bid Leaning on Culture Wars

Ron DeSantis officially launched his long-awaited 2024 presidential campaign Wednesday, signaling he will lean into culture war issues as a central strategy to wrestle the Republican nomination from Donald Trump. The Florida governor held a Twitter Spaces event with its owner Elon Musk that was initially delayed when the thousands of listeners caused the platform to crash. DeSantis enters the race as the strongest challenger yet to the former president and current GOP frontrunner in most polls.

US/CHINA (MNI): Chinese Commerce Minister to Visit US, Meet Counterparts

Chinese Commerce Minister Wang Wentao is set to visit the US for the Asia-Pacific Economic Cooperation Ministers Responsible for Trade meeting taking place in Detroit, MI 25-26 May. During the course of the meeting he will hold talks with USTR Katherine Tai. Prior to this he will meet with US Commerce Secretary Gina Raimondo in Washington, D.C. These talks mark the first meetings between US and Chinese Cabinet-level officials since the 'spy balloon' controversy of Jan-Feb.

US/CHINA (Telegraph): China 'Hacked Microsoft to Spy on Critical US Military Base'

A Chinese government-backed hacking group has been spying on critical US infrastructure organisations, including targeting the US island territory of Guam, home to strategic military presence. Hackers managed to insert computer code that blended into Microsoft Windows systems, evading detection while maintaining access and gathering information, according to separate reports from Microsoft and Western intelligence agencies.

CORPORATE (BBG): Nvidia Ignites $260 Billion AI Rally After ‘Blow-Out’ Forecast

Nvidia Corp.’s forecast for surging revenue surprised even the most bullish analysts on Wall Street, propelling the chipmaker to the cusp of a $1 trillion market capitalization and igniting a global jump in stocks linked to artificial intelligence. The Santa Clara, California-based company gained as much as 29% in extended US trading, on course for a record high, after saying it expects about $11 billion of sales in the three months ending July. That gain puts Nvidia on track also to rack up the biggest one-day valuation jump in US company history.

ECB (BBG): ECB Must Still Raise Interest-Rates More, Vasle Tells Delo

The European Central Bank must lift borrowing costs further to return inflation to its target, Governing Council member Bostjan Vasle told Slovenia’s Delo newspaper. “Further interest-rate increases will be needed,” Vasle said in an interview published Thursday. “But they’ll be smaller than they were in the past. We’re approaching the level of rates that’s restrictive enough to bring inflation back toward 2%.”

UK (BBG): UK Energy Bills to Drop as Easing Gas Costs Finally Register

British consumers are set to see a big drop in energy bills that have been crippling household budgets since the start of the war in Ukraine. Gas prices have been declining steadily since late last year and this will finally feed through to hard-pressed consumers. A new price cap announced Thursday will mean that from July, average bills are set to fall 17% below the current level guaranteed by government subsidies.

JAPAN (BBG): Japan Raises Growth View in May as Spending, Production Rise

Japan’s government raised its monthly economic assessment in May for the first time in 10 months as consumption, production and exports improved. The Cabinet Office said in its latest report Thursday that the economy is recovering at a moderate pace, saying the trend is expected to continue with the jobs and income situation improving. It also upgraded its assessment of consumer spending, production and exports.

CHINA (Yicai): Finance Industry to Serve Science and Technology - PBOC

The People's Bank Of China has released 27 measures to increase support for the science and technology sector. The central bank aims to create a financial system capable of developing a world class innovation sector with global influence. Policymakers will promote high-quality innovative SMEs to list on the stock exchange and support the sector to make use of international and domestic markets. Under the plan, banks are encouraged to increase credit and R&D loans to the sector.

CHINA (Yicai): Shanghai to Boost Private Sector Confidence - Official

The Shanghai government will boost private sector confidence, according to Chen Jining, secretary of the Municipal Party Committee in Shanghai. The Government will encourage private firms to invest in innovative technology and participate in major national projects, and strategies. Authorities will create a market environment for fair competition with equal access and treatment, and work to remove hidden barriers.

MNI RBNZ REVIEW: MAY 2023 - RBNZ Moves to Neutral

The RBNZ hiked rates 25bp to 5.5%, as generally projected. The forecasted peak in the OCR remains at 5.5%, thus the central bank appears to have reached its terminal rate and so has shifted to a neutral stance from its tightening bias. The discussion also shifted down a step to whether to hike 25bp or pause. In the vote that followed 5 chose the hike and 2 a pause. The statement focused on the slowing impact of restrictive policy and the transmission lags rather than upside risks to inflation. It now looks highly likely that the RBNZ will be on hold at its July 12 meeting.

AUSTRALIA (MNI): Electricity Prices to Rise Over 20% from July 1

The energy regulator has announced that electricity prices are to rise by over20% from July 1, according to the Australian. The Default Market Offer (DMO)will be allowed to rise between 19.5% and 23.7%, which is slightly higher than the estimate made in March. Victoria will see the highest rise and South Australia the lowest. The increase will feed into the CPI and add pressure on the RBA, which has stated that supply needs to be raised to reduce power prices.

BOK (MNI): Bank of Korea Keeps Policy Rate At 3.50%: Press

The Bank of Korea on Thursday kept its policy interest rate unchanged at 3.5% amid growing concern over the weaker economy, despite the country's inflation rate remaining at high levels, Wowkorea reported. The decision was widely expected as the country's economy suffers from a slowdown due to weaker exports. The next meeting is scheduled for July 13.

RUSSIA (NYT): Wagner Group Forecasts Disaster if Russia Does Not Move Into Total War Footing

Yevgeny Prigozhin has been ramping up pressure on Russia’s military leadership and extending his criticism to the country’s moneyed elites. As Russia vowed to respond “extremely harshly” to a rare, two-day border incursion by pro-Ukrainian fighters, the leader of Russia’s largest mercenary force warned that it faced further setbacks unless its ruling elite took drastic, and likely unpopular, measures to win the war. “We are in such a condition that we could lose Russia,” he continued, he said in a speech laced with profanity

DATA

GERMAN DATA (MNI): Final GDP Print Signals German Economy Dips into Recession

• GERMANY Q1 FINAL GDP -0.3% Q/Q (FLASH 0.0%); Q4 2022 -0.5% Q/Q
• GERMANY Q1 FINAL GDP -0.5% Q/Q (FLASH -0.1%); Q4 2022 -0.1% Q/Q

German final Q1 GDP was revised downwards to -0.3% q/q, from 0.0% estimated in the flash. This follows a -0.5% q/q contraction in Q4 and as such implies that the German economy entered a technical recession over Q4/Q1. In aggregate final consumption expenditure declined -2.3% q/q. Private consumption slumped in Q1, contracting by -1.2% q/q (consensus estimate -0/7%), following a -1.7% q/q Q4 decline. High inflation underpinned the decline in spending, evident across weak consumption in food, apparel furnishings and vehicles (new vehicles particularly following the reduction of grants for hybrid/electric cars).

GERMAN DATA (MNI): GfK Consumer Confidence Edges Up, Consumers Remain Wary

• GERMANY JUN GFK CONSUMER CONF -24.2 (FCST -24.0); MAY -25.8r

German consumer confidence strengthened by a further 1.6 points to -24.2 in GfK's forward-looking June indicator. This was only marginally softer than anticipated and represents an eighth month of improvements. Cooling German CPI and higher wage expectations underpinned the uptick in income expectations, yet the propensity to buy and economic expectations were weaker in the June index. This implies that German consumers are reluctant to spend due to prevailing uncertainty.

FRANCE DATA (MNI): Weakening Manufacturing Sentiment Reflects Muted Demand

• FRANCE MAY MANUFACTURING SENTIMENT 99 (FCST 101); APR 101

French manufacturing confidence dipped below the long-term average in May, weakening by two points to 99 against expectations of holding steady. This was the third consecutive month of deteriorating sentiment. Past production levels alongside weakening order books contributed to the decline, the latter highlighting that weak demand conditions prevail. Firms judged production outlooks to have worsened in May.

SWEDEN APR UNEMPLOYMENT 7.5% (MNI)

FOREX: Greenback Firmer for Fourth Session as Markets Adopt Cautious Approach

• Following a more tumultuous Wednesday session, GBP/USD is looking more stable, trading back to flat/minor positive territory to erase the ~30 pips losses suffered in Asia trade. Despite the more steady spot rate, the short-term outlook remains negative, with downtrendline resistance sitting just above at 1.2395, ahead of yesterday's highs at 1.2470. A break and close above here is required to steady the current bearish outlook.
• For a second successive session, NZD is the poorest performer in G10 - extending losses on the back of the unexpected declaration from the RBNZ that their tightening phase had concluded. This puts NZD/USD over 2.75% lower than pre-CB decision levels, and at the lowest level since November last year. Support undercuts at 0.6025, the 50% retracement for the October - February upleg.
• The greenback trades well, with markets adopting a more cautious footing after the warning over US' sovereign ratings from Fitch late yesterday. The USD Index is firmer for a fourth consecutive session, tipping the measure to a new multi-month high.
• Focus ahead turns to CB speak, with ECB's Villeroy, Centeno and de Cos on the docket as well as Fed's Barkin & Collins and BoE's Haskel. The data focus looks to weekly US jobless claims, secondary read for Q1 GDP and the pending home sales release for April.

​EGB/GILT SUMMARY: 2yr Gilts Lead the Way Cheaper As BoE Terminal Pricing Touches 5.50%

• Gilt weakness remains the story of the day in the wider core government bond sphere, with continued adjustment to yesterday’s UK CPI data evident.
• Bear flattening prevails, with the major Gilt benchmarks running 5.5-8.5bp cheaper as of typing, although it is only 2s that have moved beyond yesterday’s peak in yield terms. Futures are down ~100 ticks, but comfortably clear of yesterday’s low, for now.
• BoE-dated OIS now indicates a terminal rate of 5.50%, come the end of the Bank’s December gathering (the highest sell-side call we have seen on that front is 5.25%, more to come on that shortly).
• Comments from BoE’s Haskel headline the UK docket today, with CBI sales data not a traditional market mover.
• Weakness in Gilts surrounding the hawkish BoE repricing touched on elsewhere and equities moving away from session cheaps keeps any bounce in Tsys contained, with TYM3 last dealing a touch above session lows (after a brief show below Tuesday’s base earlier in the session).
• Cash Tsys bear flatten, with the major benchmarks running 0.5-2.5bp cheaper. FOMC-dated OIS is generally as it was in our previous update, with ~19bp of cumulative tightening priced for the end of the July gathering, followed by ~43bp of cuts showing by year-end.

EQUITIES: Eurostoxx Futures Remain Soft After Trading Lower Wednesday

Eurostoxx 50 futures traded lower Wednesday and the contract remains soft - for now. The 50-day EMA, at 4266.20, 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 low yesterday and this resulted in a test of the 50-day EMA at 4124.40. A clear break of this average would highlight a stronger short-term reversal and open 4062.25, the May 4 low and a key support. Initial key resistance has been defined at 4227.25, the May 19 high. A reversal higher and a breach of this resistance would confirm a resumption of the uptrend that started on Mar 13.

• Japan's NIKKEI closed higher by 118.45 pts or +0.39% at 30801.13 and the TOPIX ended 6.25 pts lower or -0.29% at 2146.15.
• Elsewhere, in China the SHANGHAI closed lower by 3.49 pts or -0.11% at 3201.26 and the HANG SENG ended 369.01 pts lower or -1.93% at 18746.92.
• Across Europe, Germany's DAX trades lower by 82.98 pts or -0.52% at 15760.67, FTSE 100 lower by 29.94 pts or -0.39% at 7597.13, CAC 40 down 32.81 pts or -0.45% at 7218.96 and Euro Stoxx 50 down 1 pts or -0.02% at 4263.21.
• Dow Jones mini down 95 pts or -0.29% at 32760, S&P 500 mini up 21.25 pts or +0.52% at 4147.25, NASDAQ mini up 221.25 pts or +1.62% at 13872.

COMMODITIES: Gold Holds Close to Multi-Week Lows

WTI futures traded higher yesterday and this resulted in a test of the 50-day EMA, which intersects at $74.41. 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. Trend signals still highlight a bear market. Support to watch lies at $69.39, the May 15 low. A break would be bearish. The bear cycle in Gold remains intact and price is trading closer to its recent lows. The yellow metal last week cleared support at $1975.3, the 50-day EMA and $1969.3, the Apr 19 low. This highlights a stronger bearish threat and opens $1934.3, the Mar 22 low and $1931.4, trendline support drawn from Nov 3 2022. Key resistance and the bull trigger is at $2063.0, May 4 high. Initial firm resistance is $2022.6, the May 12 high.

• WTI Crude down $0.86 or -1.16% at $73.58
• Natural Gas down $0.03 or -1.08% at $2.373
• Gold spot up $5.34 or +0.27% at $1963.46
• Copper up $2.2 or +0.62% at $358.35
• Silver up $0.05 or +0.23% at $23.1306
• Platinum up $0.68 or +0.07% at $1029.13