US Futures, Global Markets Rise On Continued Debt Ceiling Optimism

Futures are slightly higher following yesterday’s strong session driven by what the narrative says is debt ceiling deal optimism after US President Biden said he was confident the US would avoid a default, although how rising stocks – which eases pressure for a debt deal – makes a deal more likely is beyond us. S&P futures were up 0.2%, pointing to a second day of gains for the index, and US regional lenders kept up their momentum in premarket trading, with Western Alliance Bancorp adding 2% and PacWest Bancorp up 6%; longer-dated bond yields are up 1-2bps, with the 10Y TSY trading at 3.60%. USD strength continues despite many investors indicating potential weakness into the x-date; commodities are weaker across all three siloes after the Black Sea Grain Initiative was extended by 2 months, reducing near-term inflation risk. Biden says another debt ceiling update will come Sunday after positive momentum in negotiations. Today, we receive WMT earnings which beat beat on revenue, earnings and comps, pushing the stock higher and a further read on the consumer plus jobless data.

In premarket trading, Walmart shares rose as much as 2.7% after the retailer boosted its adjusted earnings per share forecast for the full year. Peer Target, which maintained its year forecast on Wednesday, is also trading higher after the report. Cisco Systems shares fall as much as 3.9% in premarket trading on Thursday, after the largest network-gear maker said orders declined in the past quarter. Analysts noted that product orders slowed faster than anticipated, but remained positive about the company’s backlog driving growth. Here are some other notable premarket movers:

• Alibaba shares fell as much as 2.4% before paring losses after the Chinese e-commerce firm reported quarterly sales that missed analyst estimates, dragged down by a weaker-than-expected core China commerce unit.
• Bath & Body Works gains 9.5% after stronger-than-expected fiscal first-quarter results prompt the retailer to increase its earnings per share forecast for the year.
• Boot Barn shares tumble 16% after the cowboy-boot seller reported fourth-quarter net sales that missed estimates and provided a forecast for the year that failed to match expectations. The results left analysts disappointed, with Citi highlighting a sizable miss in same store sales and Piper Sandler noting that the FY24 EPS guidance had been impacted by investments in new stores and a new distribution center.
• Canada Goose shares climb as much as 14% after the pricey parka maker reported fourth-quarter results that topped analysts’ estimates, and boosted its 2024 revenue guidance.
• Micron rises as much as 2.4% in premarket trading following news, citing people familiar with the matter, that Japan is poised to provide about ¥200 billion ($1.5 billion) in incentives to help the semiconductor company make next-generation memory chips in the country.
• WeWork shares rise as much as 10% in US premarket trading, before paring the gain to 3.6%, following a record plunge for shares in the co-working company on Wednesday after the sudden departure of its CEO.
• Take-Two Interactive Software shares rise as much as 11% in premarket trading, putting it on course to hit a year-high if gains hold, after the video-game company reported its fourth-quarter results and hinted at a release date for the next version of its popular Grand Theft Auto franchise. Analysts were positive as they speculated that GTA VI is among several games in the pipeline.
• Western Alliance and PacWest Bancorp advance in US premarket trading, set to continue Wednesday’s strong gains after Western Alliance Bancorp said deposits had grown by more than $2 billion since the quarter’s end.
• StoneCo drops 2.1% in US premarket trading after the company’s first-quarter payment volumes fell short of Wall Street estimates despite an increase over the same period a year earlier, and software revenue showed signs of weakness.
• 10x Genomics said it won an injunction in its patent litigation against NanoString Technologies and NanoString Technologies Germany. NanoString (NSTG US) shares fell 7% in US postmarket trading.
• Snowflake has been in advanced talks to acquire search startup Neeva, the Information reports, citing unidentified people who do business with Snowflake.Shares of Snowflake rose 2.9% in postmarket trading following the report

The recent market upside reflects both the progress in Washington and some good news out of embattled US regional lenders. Bank stocks rebounded this week after Western Alliance reported an increase in deposits, easing concern that the industy will succumb to losses on bond investments and a flight by depositors. Taken together, they’re keeping hopes alive that the US will avert a recession and giving way to soft-landing bets after one of the most aggressive Fed tightening cycles in history.

“If the headwinds of banking crisis and debt ceiling recede and consumers stays reasonably resilient, the recession risk may recede,” said Roger Lee, head of UK equity strategy at Investec Bank Plc. Bets on a relief rally were reflected in the VIX which fell below 17 to close at the lowest level since the start of the month.

President Joe Biden expressed confidence there will be no US default, and House Speaker Kevin McCarthy said reaching an agreement this week is “doable.” JPMorgan chief Jamie Dimon said the US government “probably” will not default on its debt after he and other bank leaders met in Washington to discuss the debt limit.

Investor attention later turns to initial US jobless claims data, which could provide clues on what the Federal Reserve intends to do next in its monetary policy tightening campaign. Earnings due from Walmart Inc. will provide insights on the state of the economy and the American consumer.

European stocks are firmly in the green following gains on Wall Street on Wednesday and Asia overnight after US President Biden said he was confident the US would avoid a default. The Stoxx 600 is up 0.5% with autos, tech and banks the strongest-performing sectors while utilities and miners fall; markets in Nordic countries and Switzerland are closed for holidays Thursday. Here are the most notable European movers:

• Aston Martin Lagonda shares jump as much as 25% after China’s Geely commits £234 million to become the third-largest shareholder in the British luxury carmaker.
• Genuit rises as much as 6.5% after the plastic-piping system manufacturer says it now expects full-year operating profit to be slightly ahead of current consensus for the year. That prompts analysts to raise their estimates.
• Petrofac shares rise as much as 12% after a joint venture led by the oil services company alongside China Huanqiu Contracting & Engineering Corporation was conditionally awarded a $1.5b petrochemical EPC contract by Sonatrach subsidiary STEP Polymers.
• ConvaTec shares gain as much as 3.3% after the wound care and ostomy products firm raised its organic growth guidance, offsetting a small miss for the first four months of the year.
• Vistry shares rise as much as 4.2%, hitting the highest since August, after the UK homebuilder raised its guidance and analysts highlighted how its model — split between building and partnerships — is proving a unique differentiator to its competitors.
• EasyJet shares fluctuated in a narrow range in early trading after the low-cost airline’s FY results, with analysts saying there were scant surprises given the group issued a trading update in April, though the tone of the statement remains positive.
• BT shares fall by as much as 10%, their biggest decline since November, after the UK telecom operator retained capital spending at a high level to aid its fiber buildout, a move that came at a cost of a lower-than- expected cash flow target.
• Burberry shares drop as much as 6.2%, the most since March 13, after the British luxury goods company reported results. Morgan Stanley said the fiscal 2024 profitability forecast suggests Ebit will be slightly below consensus estimates, while RBC said the pace of recovery in the Asia-Pacific region might not be as strong as market expectations.
• International Distributions Services falls as much as 5.5% after the Royal Mail owner’s downbeat outlook overshadows slightly better-than-expected full-year earnings.
• Future plc shares slump as much as 19%, dropping to the lowest level since April 2020, after the international multimedia company issued a profit warning for the full year.

A gauge of Asian stocks headed for its biggest gain since March, with benchmarks in Australia, Hong Kong and South Korea advancing. Japan’s Topix index climbed around 1% to set a fresh 33-year high. Gains in Alibaba Group Holding Ltd. ahead of its earnings release spurred tech stocks higher in both Hong Kong and Japan. Chipmakers were among best performers on the Nikkei 225 on government plans to boost the country’s domestic semiconductor sector. ASX 200 was led by outperformance in tech and strength in the financial and commodity-related sectors but with advances contained after disappointing jobs data which showed a surprise contraction in Employment Change and an uptick in the Unemployment Rate.

Nikkei 225, which just surpassed 30,000 yesterday, surged more at the open amid reports of potential Japanese subsidies for chipmakers following PM Kishida’s meeting with foreign chip executives. However, the index then stalled just short of its best levels in over three decades and after weaker-than-expected trade data.

Hang Seng and Shanghai Comp. were positive amid the broad risk appetite but with further upside somewhat limited by the disappointment from Tencent’s earnings which posted a 27% rise in net profit but missed against expectations, while it was also reported that Montana became the first US state to ban TikTok which will take effect from January next year.

In India, key stock gauges in India fell for the third straight day as ITC and State Bank of India retreated after their earnings. The S&P BSE Sensex fell 0.2% to 61,431.74 in Mumbai, while the NSE Nifty 50 Index declined 0.3% to 18,129.95. Indian market underperformed their Asian peers as the MSCI Asia-Pacific Index climbed 0.7% for the day. ITC and SBI were among the top two contributors to Sensex’s decline. Indian stocks have seen profit booking in the last three sessions after nearing their record highs earlier as concerns persist over valuations and recovery in rural demand. Out of 30 shares in the Sensex index, 10 rose, while 20 fell

In FX, the Bloomberg Dollar Spot Index rose for a third day as much as 0.4% to 1,237.32, its highest since late March; the US currency climbed to a six-month high of 137.94 yen, while the euro slumped to 1.0806, its weakest since early April. Across FX trading, the Norwegian krone and Swedish krona are the weakest currencies. In China, the yuan fell for a third day, dropping further past the key 7 per dollar level, even after the PBOC set a stronger-than-expected currency fixing; USD/CNH rose 0.5% to 7.0433; USD/CNY gained 0.5% to 7.0277. Positive dollar momentum continues after US President Joe Biden expressed confidence that negotiators would reach an agreement to avoid a catastrophic default, seeking to reassure markets before he departs on a trip to Japan

In rates, treasuries extended Wednesday’s losses, with yields cheaper by 1.5bp to 3bp across the curve, as optimism about a US debt-ceiling resolution lifts S&P 500 futures to weekly highs.  Losses led by long-end of the curve into early US session; 2s10s, 5s30s spreads unwind a portion of Wednesday’s flattening move, widening 1.5bp and 0.5bp on the day. The yield on the two-year Treasury edged up around 1 basis point to 4.17%, matching a three-week high hit the previous day; yields on longer-dated maturities rise around 2 basis points, slightly steepening the yield curve. 10-year yields sit around 3.60%, cheaper by 3bp vs prior day’s close whille German and UK 10-year borrowing costs rise by 6bps and 4bps respectively. The IG issuance slate is empty so far; ten companies priced almost $9b Wednesday, taking weekly total above $57b, on pace to be the second busiest week of the year so far. Traders reduced bets for the possibility of Fed rate cuts in the coming months; pricing suggests around 30 basis points of cuts by November, and 52 basis points by December, down from around 60 basis points on Wednesday.

In commodities, Crude futures decline with WTI falling 0.5% to trade near $72.50. Spot gold drops 0.3% to around $1,976. Bitcoin rises 0.1%. Bitcoin was incrementally firmer though ranges are very slim with specifics limited ahead of a busy US session; currently, BTC is just shy of USD 27.5k.

To the day ahead now, and data releases from the US include the weekly initial jobless claims, existing home sales for April, the Conference Board’s leading index for April, and the Philadelphia Fed’s business outlook for May. Otherwise from central banks, we’ll hear from the Fed’s Jefferson, Barr and Logan, ECB Vice President de Guindos and the ECB’s Muller, along with BoE Governor Bailey and the BoE’s Broadbent, Ramsden and Pill. Finally, earnings releases include Walmart.

Market Snapshot

• S&P 500 futures up 0.2% to 4,178.00
• MXAP up 0.7% to 162.21
• MXAPJ up 0.5% to 513.62
• Nikkei up 1.6% to 30,573.93
• Topix up 1.1% to 2,157.85
• Hang Seng Index up 0.9% to 19,727.25
• Shanghai Composite up 0.4% to 3,297.32
• Sensex up 0.1% to 61,639.27
• Australia S&P/ASX 200 up 0.5% to 7,236.78
• Kospi up 0.8% to 2,515.40
• STOXX Europe 600 up 0.6% to 466.69
• German 10Y yield little changed at 2.40%
• Euro down 0.2% to $1.0815
• Brent Futures down 0.4% to $76.64/bbl
• Gold spot down 0.4% to $1,974.48
• U.S. Dollar Index up 0.23% to 103.12

Top Overnight News

1. China’s fiscal revenue rose 11.9% in the first four months of 2023 from the same period a year earlier, accelerating sharply from a 0.5% rise in January-March, official data showed, as the economy stages a gradual but uneven post-COVID recovery. Fiscal revenue totaled 8.32 trillion yuan ($1.20 trillion)in the first four months while fiscal expenditure grew 6.8% to 8.64 trillion yuan, the ministry said in a statement on Thursday. RTRS
2. China’s embrace of artificial intelligence for warfare has touched off alarm bells everywhere from Silicon Valley to the Pentagon. Former Google Chief Executive Officer Eric Schmidt is among those raising concerns, and he testified at a House hearing about China Wednesday evening as head of an initiative that’s focused on speeding the US defense establishment’s adoption of AI. BBG
3. Australia employment unexpectedly dipped in April after two months of outsized gains, and the jobless rate also ticked up in a sign the red-hot labor market might be cooling, bolstering the case for a pause in interest rate hikes next month. RTRS
4. Seven of the world’s largest semiconductor makers have set out plans to increase manufacturing and deepen tech partnerships in Japan as western allies step up efforts to reshape the global chip supply chain amid rising tensions with China. At an unprecedented meeting in Tokyo with Japanese prime minister Fumio Kishida, the heads of chipmakers including Taiwan Semiconductor Manufacturing, South Korea’s Samsung Electronics and Intel and Micron of the US described plans that could transform Japan’s prospects of re-emerging as a semiconductor powerhouse. FT
5. Russia acknowledges it has “problems” with oil/gas revenues slumping given Western sanctions and restrictions (energy revenue fell by more than 50% in Q1 Y/Y). FT
6. Deutsche Bank has agreed to pay $75 million to settle a proposed class-action lawsuit charging that the financial institution facilitated Jeffrey Epstein’s sex-trafficking ring, said lawyers who sued the bank on behalf of alleged victims. WSJ
7. A fresh push by Britain and the Netherlands to provide Ukraine with F-16 fighter planes has exposed the latest fault line among Western allies who have wrangled repeatedly over sending powerful weapons of war, once again pitting a reluctant United States against some of its closest European partners. NYT
8. Holders of the Credit Suisse debt wiped out in March forced the regulator to release the order that justified it. A Swiss court told Finma to release the decree that let Credit Suisse wipe out about $17 billion of AT1 notes, documents show. CDS tied to CS subordinated debt are down after a panel ruled the wipe-out won’t trigger a payout. One-year CDS were indicated at 392 bps, according to CMAI data, down about 390 bps from yesterday. BBG
9. US commercial real estate prices fell in the first quarter for the first time in more than a decade, according to Moody’s Analytics, heightening the risk of more financial stress in the banking industry. The less than 1% decline was led by drops in multifamily residences and office buildings, data culled by Moody’s from courthouse records of transactions showed. BBG
10. Foreign sales accounted for 29% of the $16 trillion of aggregate S&P 500 revenues in 2022, unchanged from 2021. The largest regional non-US exposures were Asia Pacific (9%, $1.3 trillion) and Europe (6%, $919 billion). Based on company filings, just 2% percent of S&P 500 revenues ($378 billion) were explicitly derived from Greater China. Only one sector generates more than half of its revenues overseas: Information Technology (60%). The 1% YTD weakening of the trade-weighted US dollar has supported the stock performance of international-facing US companies, but stocks have outpaced their typical relationship with the currency. GIR

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were higher as the region took its cue from the momentum on Wall Street where stocks rallied amid optimism amongst regional banks and debt ceiling talks, although some of the gains were capped as participants digested soft data releases. ASX 200 was led by outperformance in tech and strength in the financial and commodity-related sectors but with advances contained after disappointing jobs data which showed a surprise contraction in Employment Change and an uptick in the Unemployment Rate. Nikkei 225 surged at the open amid reports of potential Japanese subsidies for chipmakers following PM Kishida’s meeting with foreign chip executives. However, the index then stalled just short of its best levels in over three decades and after weaker-than-expected trade data. Hang Seng and Shanghai Comp. were positive amid the broad risk appetite but with further upside somewhat limited by the disappointment from Tencent’s earnings which posted a 27% rise in net profit but missed against expectations, while it was also reported that Montana became the first US state to ban TikTok which will take effect from January next year.

Top Asian News

• China’s ambassador to Australia said China will resume imports of Australian timber from today and that it is in communication with Australia for a convenient time regarding a PM visit, according to Reuters.
• Montana’s Governor signed the bill to ban TikTok which prohibits mobile application stores from offering TikTok within the state effective January 2024, while TikTok commented that the Montana law infringes on the First Amendment rights of the people of Montana, according to Reuters.
• New Zealand Budget forecasts 2023/24 GDP at 1.0% (prev. -0.3%) and sees the unemployment rate at 5.0% (prev. 5.5%), while the Treasury no longer expects the country to move into a recession, according to Reuters.

European bourses are firmer across the board, Euro Stoxx 50 +1.1%, following Wednesday’s firmer Wall St. action and a relatively solid APAC lead; within Europe specifically, action is slightly limited by partial Ascension Day closures. Sectors are mostly positive with Autos/Parts outperforming amid Volkswagen strength while Real Estate & Basic Resources lag. Stateside, futures post upside of circa. 0.2%; though, ultimately, the sideways action continues as we await WMT and more substantive debt updates.

Top European News

• UK PM Sunak is to agree on a historic deal on security with Japan amid rising tensions with China and will sign the ‘Hiroshima Accord’ on Thursday ahead of the G7 meeting, according to The Telegraph. Furthermore, it was noted that the UK is to step up defence cooperation with Japan to uphold stability in Indo-Pacific with the Hiroshima Accord to include doubling the UK troop numbers in upcoming joint exercises and committing to deploy a carrier strike group to the Indo-Pacific in 2025, while the UK and Japan will launch a semiconductor partnership with commitments to pursue cooperation, skills exchange & bolstering supply chain resilience, according to a statement.
• UK PM Sunak considers following the US lead on Chinese investment curbs, according to the FT.
• Germany is reportedly proposing forcing EU firms to include “no Russia clauses” when some high-tech goods are sold to certain nations, via Politico citing a paper.
• ECB’s de Guindos says there is still scope to keep raising interest rates, though most of tightening has already been done.
• ECB’s Muller says it is premature to expect the ECB to cut rates in early 2024
• BoE Governor Bailey says he does not envisage BoE balance sheet returning to where it was before the financial crisis; Deputy Governor Ramsden says QT has some effect on the economy, but fairly small; reiterates QT will be gradual and predictable, there’s potential for QT sales number to go up, but does not see it going down. Broadbent says they received reports that GBP 100bln p.a. of QT may disrupt market liquidity, thus BoE decided on GBP 80bln p.a.

FX

• DXY inches further above 103.000 to 103.170 as Yuan extends to the downside through key chart levels (50% Fibs).
• Aussie also undermined by weaker than forecast jobs data as AUD/USD retreats towards sub-0.6650 midweek lows.
• Euro relying on option expiries to hold above 1.08000 and Yen on psychological support to keep afloat of 138.00.
• Pound on backfoot after just below 1.2500 as BoE members deliver QE testimony in Parliament.
• Kiwi retains 0.6200+ status after improved NZ budget balances and economic forecasts.
• PBoC set USD/CNY mid-point at 6.9967 vs exp. 6.9985 (prev. 6.9748)

Fixed Income

• Debt descending further on Ascension Day as props in futures and resistance in yields are breached.
• Bunds down to 134.58 from 135.44 and 10 year cash probing 2.40%, Gilts near base of 99.65-100.11 range and T-note closer to 114-13 than 114-24 ahead of US data, Fed speakers and 10 year TIPS auction.

Commodities

• WTI and Brent front-month futures are softer intraday following some overnight consolidation after yesterday’s risk-led rally.
• Spot gold bears the brunt of a firmer Dollar and broader risk appetite.
• Base metals are trading off a similar theme, with modest pressure emanating from the firmer Dollar.
• Qatar Energy set July Al-Shaheen crude term price at a premium of USD 1.03/bbl above Dubai quotes, according to traders.
• Russia’s Kremlin confirms the extension of the Black Sea grain deal by two months.

Geopolitics

• Air raid alerts were declared throughout Ukrainian territory. It was later reported that Kyiv’s mayor Klitschko noted explosions in the city and that a fire broke out in the east of the city from falling debris, while he added that an air attack was continuing on Kyiv, according to Reuters.
• China’s Foreign Ministry said China’s special envoy of Eurasian affairs visited Ukraine on May 16th-17th and met with Ukrainian President Zelensky. China’s Foreign Ministry said there is no panacea for resolving the crisis and all parties need to create conditions for peace to stop the war, while it added that China and Ukraine agreed should work together to continue mutual respect and sincere treatment, as well as keep mutually beneficial cooperation moving forward, according to Reuters.

US Event Calendar

• 08:30: May Initial Jobless Claims, est. 252,000, prior 264,000
• 08:30: May Continuing Claims, est. 1.82m, prior 1.81m
• 08:30: May Philadelphia Fed Business Outl, est. -20.0, prior -31.3
• 10:00: April Existing Home Sales MoM, est. -3.2%, prior -2.4%
• 10:00: April Leading Index, est. -0.6%, prior -1.2%

Central Bank Speakers

• 09:05: Fed’s Jefferson Gives Speech on Economic Outlook
• 09:30: Fed’s Barr Testifies Before Senate Banking Committee
• 10:00: Fed’s Logan Speaks at Texas Bankers Association Convention

DB’s Henry Allen concludes the overnight wrap

Risk appetite returned to markets over the last 24 hours as investors grew more optimistic that a resolution would be reached on the US debt ceiling. We didn’t actually get much in the way of concrete developments, but negotiations are continuing and the mood was lifted by the fact that all the major players reiterated they want to avoid a default, which helped to reassure market participants. In turn, that meant the S&P 500 (+1.19%) put in its best performance in nearly two weeks, whilst other risk assets like oil and HY credit outperformed as well.

In terms of the latest, President Biden gave a brief press conference yesterday, where he said “I’m confident that we’ll get the agreement on the budget and that America will not default”. Not long afterwards, Republican House Speaker McCarthy then added that reaching a deal this week was “doable”, so at least in principle, the main participants in the negotiation are indicating a deal can be reached. Biden is now travelling to the G7 leaders’ summit over the weekend in Japan, but he said that he’d stay in contact with the negotiators and Speaker McCarthy, and that he’d also hold a press conference on Sunday. He also noted that he did not expect a deal to be reached before his return. Biden has already cancelled his subsequent visits to Papua New Guinea and Australia to get back to the US early, which indicates how this is the main focus for the administration at the moment.

With the more encouraging news on the debt ceiling, the S&P 500 advanced by +1.19%, with the gains driven by the more cyclical sectors such as banks (+4.5%), autos (+4.0%), semiconductors (+2.4%), and Transports (+2.2%). Meanwhile the only subindustries that were lower on the day were defensives like utilities (-0.4%), household products (-0.3%), Pharma (-0.3%), and Food & Beverage (-0.2%). Similar to previous days, megacap tech stocks outperformed and the latest rise in the FANG+ index (+1.28%) takes its YTD gains up to +48.09% now. Looking at a longer horizon it’s striking how much equities have been in a holding pattern over the last couple of weeks. To put yesterday’s equity move in context, the S&P 500 had moved by less than 0.7% in either direction over each of the previous 7 sessions, and if yesterday had seen an 8th that would have been the longest run of such small moves since November 2021.

On the rates side, the more positive news of the last 24 hours meant that investors grew more sceptical that the Fed would be pivoting towards rate cuts this year. For instance, the rate priced in for the December meeting rose a further +5.4bps yesterday to 4.538%. And there’ve even been a few noises about another rate hike at the next meeting in June. We should stress this isn’t the consensus view, but at one point intraday, futures went as far as pricing in a 30% chance of a June hike, which is the highest since the Fed’s most recent decision a couple of weeks ago. By the end of the session that was back down to 20%, so it’ll be interesting to hear from various Fed speakers over the next couple of days to see what their views on the matter are.

These shifting expectations about rate hikes led to a selloff among US Treasuries, and several milestones were set across a range of maturities. At the very front-end, the 3-month T-bill yield (+7.7bps) closed at a post-2001 high of 5.22%. And looking further out, the 10yr yield was up +3.0bps on the day to 3.564%, whilst the 30yr yield (+1.2bps) even hit its highest level since the SVB collapse in early March, with an increase to 3.854%. Otherwise, sentiment was further bolstered by the latest data on US housing, with fresh signs that US housing starts were stabilising after their decline in 2022. For instance, they rose to an annualised rate of 1.401m in April (vs. 1.400m expected), which in turn prompted the Atlanta Fed to raise their GDPNow estimate for Q2 up to an annualised rate of +2.9%.

Back in Europe it was a much quieter day, and the STOXX 600 (-0.15%) ended the day slightly lower. For sovereign bonds there was a better performance however, and yields on 10yr bunds (-1.7bps), OATs (-1.8bps) and BTPs (-3.8bps) all moved lower. The main outlier were UK gilts, with 10yr yields up +2.1bps following a speech from BoE Governor Bailey in which he said that “the unwinding of second-round effects may take longer than it did for them to emerge”, and that the MPC would “adjust Bank Rate as necessary” to get inflation back to target.

Overnight in Asia, the main equity indices have followed the pattern from Wall Street as investors grow hopeful that a resolution on the debt ceiling will be reached. That’s supported a rally across the region, with gains for the Nikkei (+1.53%), the Hang Seng (+1.11%), the Shanghai Comp (+0.78%), the KOSPI (+0.59%) and the CSI 300 (+0.38%). For the Nikkei, that marks its 6th consecutive advance, and takes its YTD gains up to +17.07%. It also leaves the index less than half a per cent away from surpassing its recent closing peak in September 2021, which would take it up to its highest closing level since 1990. Looking forward however, that momentum doesn’t seem to be carrying over elsewhere, with futures on the S&P 500 posting a modest -0.06% decline.

Elsewhere overnight, we’ve also had some fairly soft employment data from Australia, where the economy shed -4.3k jobs in April (vs. +25.0k expected). That meant the unemployment rate ticked up to 3.7%, which has dampened expectations that the RBA will continue hiking at their next meeting. Separately, Japanese trade data showed that imports fell -2.3% on a year-on-year basis in April (vs. -0.6% expected), marking the first decline since January 2021. Export growth was also a bit weaker than consensus at +2.6% (vs. +3.0% expected).

To the day ahead now, and data releases from the US include the weekly initial jobless claims, existing home sales for April, the Conference Board’s leading index for April, and the Philadelphia Fed’s business outlook for May. Otherwise from central banks, we’ll hear from the Fed’s Jefferson, Barr and Logan, ECB Vice President de Guindos and the ECB’s Muller, along with BoE Governor Bailey and the BoE’s Broadbent, Ramsden and Pill. Finally, earnings releases include Walmart.