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Zero Hedge
ZeroHedge
15 May 2023


NextImg:Futures Rise Amid Debt Ceiling Optimism

US equity futures rose to start the week as investors monitored a subtle optimistic shift in debt-ceiling talks. Both S&P 500 and Nasdaq 100 contracts added 0.4% at 7:30 a.m. ET, following similar increases in the Estoxx50 over the early London session. A subdued market reaction to the US fiscal standoff suggests that investors expect politicians to negotiate a solution after President Joe Biden voiced optimism over the weekend that a deal could be reached. Still, Treasury Secretary Janet Yellen has warned that the the world’s biggest economy risks a catastrophic default as soon as June 1 if the debt limit isn’t suspended or raised. Treasury yields ticked higher while the Bloomberg dollar index dropped to session lows; oil prices are flat, doing little to rebound from the past four weeks of losses. Gold is edging higher this morning, while iron ore and copper also gain.

In premarket trading, Meta shares rose 1.1% as Loop Capital upgraded the social media giant’s stock to buy from hold saying that the company’s revenue picture looks increasingly positive. Meanwhile, Alphabet fell 0.9% as Loop cut the tech giant’s stock to hold from buy, saying concerns surrounding the company’s ability to maintain its dominant position through the ongoing artificial intelligence transformation will weigh on its valuation. Analyst Rob Sanderson says “consider search competition from Microsoft a lesser threat than risk of displacement from behavioral change as users interact more with AI assistants to find information." Here are some other notable premarket movers:

After a quiet weekend on the news front, attention remained glued to debt ceiling negotiations, especially since there are now just two weeks until the earliest possible X-date. “It could be argued that the risks appear somewhat overstated, given how regularly we’ve seen this scenario play out over the last few years,” said Michael Hewson, chief analyst at CMC Markets in London. “Nonetheless, the uncertainty being generated by events in Washington is prompting a more defensive bias.”

House Speaker Kevin McCarthy and other congressional leaders are planning to hold further talks on Tuesday. They were previously scheduled to meet on Friday, but postponed it as staff level discussions continued throughout the weekend. “When you look from afar in Europe at American politics right now it is difficult to see how they get to common ground, but the alternative is so bad maybe it forces that ground to be found,” said Luke Hickmore, investment director at Abrdn. “The risks are still there for sure.”

The showdown in Washington is just one of many risks keeping investors sidelined, from recession to cracks in the banking system to disappointed hopes for a turn to easier monetary policy. The S&P 500’s decline of 0.3% last week marked the sixth straight week without a 1% move — the longest stretch of inertia since late 2019.

“There’s quite a fair bit of ongoing risk in the market,” Audrey Goh, senior cross asset strategist at Standard Chartered Wealth Management Group, said in an interview on Bloomberg Television. “The debt-ceiling talks are still in the making, at the same time we’ve also got inflation still quite elevated. There could be further downside from here where equity markets are concerned.”

The VIX held near the lowest since 2021, even as Morgan Stanley’s Michael Wilson said he expects the debate around raising the US government’s $31.4 trillion borrowing limit to trigger some sharp swings in equity markets.

European stocks rose tracking US equity futures: the Stoxx 600 is up 0.3% with miners, consumer products and utilities the strongest performing sectors. Here are the biggest movers Monday:

In other markets, the Turkish lira weakened as the country’s presidential election looked set for a runoff vote in two weeks. Losses were cushioned by state banks that earlier intervened to support the exchange rate, according to people familiar with the matter. The Thai baht rallied after pro-democracy parties emerged as the biggest winners in Sunday’s election.

Earlier in the session, Asian equities gained, with a late rally in Chinese stocks putting the regional benchmark on track for its first advance in five days. The MSCI Asia Pacific Index rose as much as 0.7%, led by financials and communication services shares. Thailand’s benchmark was the worst performer in Asia following elections on Sunday, owing to uncertainty over talks between opposition parties to form a coalition government. China’s benchmark CSI 300 Index jumped the most since Feb. 20. Financials rallied following a state media reported that the Shanghai stock exchange will host a seminar to discuss topics including boosting the sector’s valuation. Gauges in Hong Kong also climbed, with Tencent being a key contributor ahead of its earnings scheduled for Wednesday. Market watchers will be keenly watching the latest China figures on industrial output, retail sales and fixed-asset investment Tuesday to gauge the momentum of the nation’s economic recovery.

Focus will also be on US debt-ceiling talks as President Joe Biden, House Speaker Kevin McCarthy and other congressional leaders plan to meet to discuss budget negotiations to avoid a default.

In Japan, the key Topix gauge inched closer to reaching its highest level since 1990, with the nation’s biggest banks predicting their highest profits in years. Goldman Sachs is predicting more upside for Japanese stocks, which extended their recent outperformance versus global peers amid strong earnings and renewed weakness in the yen. “We note the solid fundamentals compared with stocks on overseas markets, and we also think that expectations for structural changes/reforms could push Japanese equities up even further,” Goldman strategists Kazunori Tatebe and Bruce Kirk wrote in a note.

Indian stocks advanced to trade near their all-time highs as falling wholesale prices helped makers of consumer goods amid hopes of a recovery in demand.  The S&P BSE Sensex rose 0.5% to 62,345.71 in Mumbai, while the NSE Nifty 50 Index advanced by a similar measures. Both are less than 2% away from their record levels set in early December. They have increased about 8% since March. The stock market reacted after data showed India’s wholesale prices contracted for the first time in almost three years, tracking softening global commodity prices. Companies, especially consumer goods and staples firms, which have struggled to report volume growth on weak demand, could find support. The broader market gains also countered worries over ruling Bharatiya Janata Party’s election defeat in southern Karnataka state, where opposition Congress party secured a majority last week. “While the election results may introduce some ‘political risk’ to markets and rejuvenate the opposition, we note that Mr Modi enjoys very high approval rating on the national level,” Kotak Institutional Equities analysts led by Sajeev Prasad wrote in a note, referring to Prime Minister Narendra Modi. Shares of billionaire Gautam Adani’s group declined amid concerns over potential equity dilution after boards of two firms approved proposals to raise as much as $2.6 billion

In FX, the Bloomberg Dollar Spot Index is down 0.1%. The Australian dollar is the strongest of the G-10 currencies, rising 0.5% against the greenback. The Japanese yen is the weakest while the Turkish lira has also dropped as the presidential election appears to be heading for a runoff vote.

In rates, treasuries fall with the US 10-year yield rising 2bps to 3.48%. Bunds are also in the red with German 10-year borrowing costs rising 3bps to 2.31%. Italian 10-year yields have dropped 1bps after Fitch affirmed their BBB rating on Friday. Treasuries were cheaper across the curve, following wider losses in bunds, amid contained risk-on sentiment. Treasury yields are cheaper by 1bp to 2bps across the curve with 10-year yields around 3.48%, trading ~0.5bp richer vs. bunds. IG issuance slate includes five deals already with a weekly total of around $30b expected — the majority of issuance is expected to be front loaded, according to dealers.  US auctions this week include $15b 20-year bond sale Wednesday and 10-year TIPS Thursday

In commodities, Crude futures advance with WTI rising 0.4% to trade near $70.30. Spot gold adds 0.3% to around $2,017. Bitcoin rises 1.6%.

Finally, after a tumultuous week at one of the largest crypto exchanges which had temporarily paused withdrawals mid-week, Bitcoin fell back -10.5% on the week (and -5.18% on Friday itself). Ethereum likewise fell back -3.82% on Friday to bring the weekly loss to -10.16% as the impact of its major Shapella update continues to be felt.

Market Snapshot

Top Overnight News from Bloomberg

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mixed following the subdued performance last Friday on Wall St where risk sentiment was hampered by a disappointing University of Michigan Survey and US debt ceiling concerns, while participants in the region brace for this week’s key economic releases including the latest Chinese activity data due tomorrow. ASX 200 was rangebound amid losses in the top-weighted financial sector and weakness in tech although the downside in the index was cushioned by resilience in mining stocks and several M&A-related headlines. Nikkei 225 outperformed with many of the biggest gainers in the index driven by earnings results. Hang Seng and Shanghai Comp. were mixed with Hong Kong choppy and the mainland pressured after reports that G7 Leaders will discuss shared principles on China’s economic coercion and with the US to look at how outbound investment assessment can complement export controls to prevent the transfer of sensitive technologies to China.

Top Asian News

European bourses are firmer, Euro Stoxx 50 +0.3%, but with magnitudes modest amid limited specific newsflow. Sectors are predominantly in the green though Chemicals & Real Estate lag while for bourses the IBEX 35 -0.2% is the clear laggard given pressure in BBVA -4.6% after inconclusive Turkish election results. Stateside, futures are firmer with the ES +0.2% sitting just above the 4150 mark with Fed speak due today before the week's US data/retail earnings and debt ceiling negotiations.

Top European News

FX

Fixed Income

Commodities

Turkish Election

Geopolitics

US Event Calendar

Central Banks

DB's Jim Reid concludes the overnight wrap

As a British person and someone who has proudly worked at a German bank for nearly 19 years, I have to confess that I threw my sofa pillow across the room in disgust at just after midnight on Saturday. Yes the UK and Germany were the bottom two acts in the Eurovision Song Contest. How can two countries that combined have given the world The Beatles, The Rolling Stones, Elton John, David Bowie, Led Zepplin, Pink Floyd, oh and Nena scores so badly. It's an outrage. At least both got more than "Nul Points". Anyone who watched will know why the UK didn't do well. They had to follow Croatia who were one of the most extraordinary acts I have seen for many a year. I was in a state of shock after.

I've just about recovered but fortunately the week ahead doesn't have a whole calendar filled with big likely events. There are no blockbuster US data releases, but US retail sales (tomorrow) and a selection of US housing data will be the highlights. Elsewhere we see the monthly China economic activity data dump (tomorrow), GDP and CPI reports from Japan (Wednesday and Friday), along with labour market reports in the UK (tomorrow). In addition, there are a lot of central bank speakers, especially from the Fed. Fed Chair Powell and ECB President Lagarde both speak on Friday with the latter also up tomorrow.

Elsewhere the latest G7 summit starts on Friday in Hiroshima and earnings season still lingers with notable companies reporting being US retailers Walmart and Home Depot, along with China's tech giants Alibaba and Tencent.

In more detail now let's start with US retail sales tomorrow. Our economists expect the headline to print at +0.7% in April, up from -0.6% previously, or +0.5% vs -0.4% ex autos. Headline will likely be boosted by strong auto sales in the month. The gain in ex-autos sales is likely to be gas price related and our economists expect a flat reading on retail control (unch. vs. -0.3%), which is the direct input into GDP for goods spending. So consumption is likely grinding lower after a strong start to the year. Investors will get a read on the US consumer from US retailers which report earnings, including Walmart (Thursday), Target (Wednesday) and Home Depot (tomorrow).

Tomorrow's NAHB housing market index (DB at 44 vs. 46) starts the week for US housing data and will be followed by Wednesday's housing starts and permits and then Thursday's existing home sales.

Thursday's jobless claims will be more important than usual for a couple of reasons. Firstly it is the survey week for the next payrolls release and secondly we saw it confirmed on Friday that a decent slug of the recent rise in claims were likely due to fraudulent filings in Massachusetts. This state seems to have accounted for around half the +23% rise in the 4-week moving average claims number from the late January lows. The 4-week moving average for continuing claims is up around 10% this year so the labour market is easing but not quite as much as the raw claims numbers had suggested. Read more about this story here in our economists' debrief of this story.

Here in Europe, the UK labour market data tomorrow will be interesting following last week's twelfth consecutive BoE meeting hike. Whether the data shows persistent wage pressures, following the last hot print, will likely contribute to whether a pause is feasible at the next meeting on June 22, although another round of wages and inflation data will be due by then as well. The house view is that they will hike another 25bps in June which will be the last for the cycle but with the risks that there'll be more. See here for more on why as they review last week's hike.

Elsewhere in Europe, key indicators include the ZEW survey (tomorrow) and the PPI report (Friday) for Germany and Q1 GDP, trade balance for March (tomorrow) and industrial production (today) for the Eurozone.

This week will also be a busy one for the major Asian economies. Starting with Japan, Q1 GDP will be released on Wednesday, trade balance data on Thursday, and the CPI report on Friday.

In China, investors will be focused on the latest economic activity signals tomorrow, with the release of retail sales, industrial production and property investment data. Amid base effects, our economists expect +11% and +21% YoY growth in industrial production and retail sales, respectively (vs 3.9% and 10.6% in March). The industrial production print and its contrast with retail sales will be especially in focus given flailing momentum in the former. New home prices data are due on Wednesday.

China will also be in the spotlight for corporate earnings this week. Its tech giants, including Alibaba (Thursday), Tencent (Wednesday) and Baidu (Tuesday) will be among the most anticipated reports. The full day-by-day week ahead in at the end as usual.

This morning in Asia, equity markets are mostly softer following weak US markets on Friday due to concerns over the US debt ceiling and disappointing economic data. As I check my screens, the Shanghai Composite (-0.94%), the CSI (-0.30%) and the KOSPI (-0.34%) are lower while the Nikkei (+0.40%) and Hang Seng (+0.24%) are slightly higher. US stock futures are pretty flat with those on the S&P 500 (-0.02%) and NASDAQ 100 (-0.03%) marginally down.

Early this morning, the People's Bank of China (PBOC) offered to keep the rate on 125 billion yuan ($18 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions unchanged at 2.75% for a ninth month. The central bank’s operation added 25 billion yuan more than the amount maturing in May, to keep the economic recovery on track as credit growth slumped.

Now, looking back on last week. On Friday, we had the University of Michigan’s long-run inflation expectations come in with an upside surprise, rising to 3.2% from 3% (vs 2.9% expected), their highest since 2011. This number is often revised down so we'll see if that 12-yr high stays. One-year inflation expectations likewise beat expectations at 4.5% (vs 4.4% expected) but had receded from 4.6% in April. Consumer sentiment also fell back 9%, falling from 63.5 to 57.7 (vs 63 expected). Long-run expectations slipped from 60.5 to 53.4 (vs 60.8 expected) as consumers stated they were increasingly concerned that an economic downturn would not be short-lived.

After the inflation expectations number, fixed income sold off on both sides of the Atlantic. 10yr US Treasury yields climbed +7.8bps on Friday, to finishing slightly higher (+2.6bps) on the week. The more policy-sensitive 2yr yield rose +7.3bps week-on-week (and +8.8bps on Friday), approaching 4% again at 3.987%. In Europe, German bund yields finished the week slightly lower (-1.5bp) on a weekly basis despite the selloff on Friday (+5.1 bps).

With inflation concerns weighing on markets, the S&P 500 fell back -0.16% on Friday, and -0.29% week-on-week. The first back to back weekly declines since February. The NASDAQ relatively underperformed on Friday falling -0.36% but was up +0.40% in weekly terms after a rally mid-week. Whilst US stocks slipped, the STOXX 600 climbed +0.40% and was up by a modest +0.04% week-on-week.

In commodities, we closed off the fourth consecutive week of declines in oil as concerns over weak demand hang heavy following the US debt ceiling political standoff and Friday’s weak data. WTI crude fell back -1.82% to $70.04/bbl week-on-week (and -1.17% on Friday), Brent crude followed suit, falling -1.50% week-on-week to $74.17/bbl (and -1.08 % on Friday). Copper prices also fell -4.00% in weekly terms after soft Chinese import and export data earlier in the week, the largest down move since the first week of February.

Finally, after a tumultuous week at one of the largest crypto exchanges which had temporarily paused withdrawals mid-week, Bitcoin fell back -10.5% on the week (and -5.18% on Friday itself). Ethereum likewise fell back -3.82% on Friday to bring the weekly loss to -10.16% as the impact of its major Shapella update continues to be felt.