US equity futures drift drift lower for the second day following a deluge of bad news across global markets driving European stocks to their biggest drop in two months, pushing copper below $8,000 and snuffing out this year’s gains in China equities. As of 730am ET, S&P futures were down 0.4% to 4,143  following Tuesday’s 1.1% drop with Nasdaq futures sliding the same amount. Treasury yields are flat trading around 3.67%, the USD is slightly stronger, and bitcoin got the usual Asian session trapdoor as gold rose. Commodities are mixed: energy rallied (WTI + 2.1%) while metals are falling on concerns about China's fading recovery. Yesterday, we saw de-risking in crowding stocks with Momentum Winners and MegaCap Tech being the biggest laggards. On debt ceiling negotiation, two parties have not come to an agreement. Today, we will receive the FOMC Minutes at 2pm ET; AI-leader Nviidia reports after the close.

(Click on image to enlarge)

In premarket trading, megacap tech was mixed with MSFT and AMZN recovering, while the rest are lower. Nvidia Corp., a stock at the center of the artificial intelligence frenzy, lost almost 1%.  Regional banks are mostly higher as Pacwest continues to sell more assets to meet liquidity needs (why this is positive remains unclear) while large-cap banks lagging. Here are the most notable premarket movers:

• Palo Alto Networks rose as much as 4.6% in premarket trading, after the network security company reported third- quarter results that beat expectations on key metrics. It also raised the low end of its full-year revenue forecast.
• Agilent shares sink 8.8% in premarket trading after the life sciences company cut its adjusted earnings per share guidance for the year to a level below the average analyst estimate.
• US- listed stocks of Shopify fell as much as 2.1% in premarket trading, after BNP Paribas Exane cut its recommendation on the Canadian e-commerce company to underperform from neutral. It said there are “better opportunities elsewhere,” given the company’s valuation relative to expected sales growth.
• Urban Outfitters gains as much as 12% in US premarket trading after the retailer reported better-than-expected fiscal first-quarter net sales. The results prompted analysts to raise their price targets on the stock as strength at Anthropologie and Free People offset soft sales for its namesake brand.
• PacWest shares rose as much as 9.8% in premarket trading on Wednesday, poised to extend gains for a third session in a row, after the troubled US regional lender agreed to sell its Civic Financial Services unit to real estate lending firm Roc360 as part of efforts to bolster liquidity.
• View shares jumped 15% in postmarket trading after CEO Rao Mulpuri disclosed the purchase of 47,468 shares.
• Intuit shares dropped 5% in extended trading before rebounding in premarket trade after the tax-preparation software company reported third-quarter revenue that was weaker than expected.

There were plenty of reasons for investors to be pessimistic according to Bloomberg: in the US, there was little progress in debt-ceiling talks and investors are increasingly worried about a default. Yields on securities maturing June 6 topped 6% Tuesday, compared with bills maturing May 30 that are yielding about 2%. China’s sputtering economy and worsening geopolitical ties also hurt sentiment, and UK inflation came in higher than all economist predictions setting the stage for painful encounter with stagflation. Meanwhile, as discussed earlier, Europe's luxury bubble indeed appears to be bursting as Luxury stocks, one of this year’s most popular trades, extended losses, with LVMH and Gucci owner Kering SA sliding about 2%. European real estate and carmakers slumped on concern that UK interest rates are heading higher. 

World’s richest man sees $11 billion in wealth wiped out after stock rout in European luxury goods https://t.co/KSWmJT927b

— Jennifer Ablan (@jennablan) May 24, 2023

“Right now we’re defensively positioned,” said Janet Mui, head of market analysis at RBC Brewin Dolphin, in an interview on Bloomberg TV. “We expect a US recession. We have pushed back the date of that recession to 2024 but we think it’s inevitable. Interest rates will stay high in the US, contrary to what the market is currently pricing, so I think that is negative for the economy and corporate profits. This will drive equity markets lower.”

In Europe stocks are firmly in the red as investors contemplate the prospect of additional monetary policy tightening. The Stoxx 600 Index lost 1.7%, the biggest intraday loss since March 24 as gilts slid, lifting the yield on the 10-year note was up five basis points at 4.21% following a blazing hot UK CPI print; travel, autos and consumer products the worst-performing sectors. Here are the most notable European movers:

• Marks & Spencer rise as much as 12% after the UK retailer reported FY23 earnings and said it plans to reinstate its dividend. The results “positively smashed” expectations, according to Shore Capital
• Sinch gains as much as 6.7% after JPMorgan raised the cloud communications firm to overweight, saying the group now sits at an attractive re-entry point following its selloff since January highs
• Mediobanca jumps as much as 3.6%, making it the best performer on the Stoxx 600 Financial Services Index, after the investment bank unveiled new profitability and remuneration targets
• SSE shares climb as much as 2.7% to the highest in a year, after the utility’s raised guidance exceeded expectations, according to Morgan Stanley
• Deliveroo shares rise as much as 6%, the most in almost 11 weeks, after Morgan Stanley upgraded the firm to overweight, saying it remains “fundamentally bullish” on the food-delivery sector
• Intertek rises as much as 2.9% after the testing and inspection company gave a trading update. The company is the top performer on the Stoxx 600 industrials index, which is down 1.9% on Wednesday
• Embracer shares plunge as much as 44% as the Swedish video-game maker slashed its full-year profit target after a planned partnership worth more than $2 billion in revenue fell through
• LondonMetric shares drop as much as 10% after the UK REIT’s update was not enough to offset broader declines among housebuilders on Wednesday as inflation remained stronger than expected
• UK homebuilders fall on Wednesday, with their shares among the worst performers in the FTSE 100 and FTSE 250, as Britain’s inflation rate remained much stronger than expected

“Inflation continues to dominate - from boardrooms to shop floors - especially after stickier than expected UK inflation cemented bets of more BoE rate hikes ahead,” said Angeline Ong, a financial analyst at IG Group.

Asian stocks were mostly lower following the negative lead from Wall St where sentiment was weighed on by the ongoing debt limit impasse with just 9 days left to the X-date and amid US-China frictions after the US House China Select Committee Chair called for retaliation against China’s ban on Micron.

• Hang Seng and Shanghai Comp. were lower amid US-China frictions after the White House spoke out against the Micron ban, while a lawmaker called for the Commerce Department to add Changxin Memory Technologies to the entity list and ensure no US export licenses are granted to firms operating in China which are used to backfill Micron.
• Nikkei 225 was pressured after its recent pullback to beneath the 31,000 level despite reports that the government is to consider childcare handouts for those up to 18 years old, while the first positive reading this year in the monthly Reuters Tankan manufacturing survey did little to spur risk appetite.
• NZX 50 was underpinned after a dovish RBNZ rate hike which signalled the end of its rate increases.
• ASX 200 declined with the resilience in the commodity-related sectors offset by weakness across the broader market and after the Westpac Leading Index remained depressed.
• India's S&P BSE Sensex fell 0.3% to 61,773.78 as of 03:45 p.m. in Mumbai, while the NSE Nifty 50 Index declined by a similar measure. The retreat was their biggest since May 17. All but three of the 10 Adani Group stocks ended with losses on Wednesday with the flagship unit Adani Enterprises falling the most since March 28 on profit taking following recent sharp rally.  HDFC Bank contributed the most to the index’s decline, falling 1.3%. Out of 30 shares in the Sensex index, 16 rose, while 14 fell.

In FX, the Bloomberg dollar index is unchanged erasing an earlier spike. Sterling extends gains in the immediate aftermath after UK CPI came in hotter than the highest estimate, but has since turned lower versus the greenback.  The New Zealand dollar dropped as much as 1.3% after the central bank unexpectedly signaled that no further policy tightening will be needed. Policymakers hiked interest rates to 5.5%, in line with projections. 

• GBP/USD was up by as much as 0.5% to 1.2470, after hitting a one-month low Tuesday, before reversing gains.
• NZD/USD fell as much as 1.9% to 0.6131 after theReserve Bank of New Zealand said it sees rate cuts starting in the third quarter of next year after lifting the policy rate to 5.5% as expected.
• EUR/SEK jumped as much as 0.5% to 11.4966, the highest since March 2009, as global stocks extended an earlier sell off.

In rates, Treasuries were slightly richer across the curve after unwinding early losses that were spurred by selloff in gilts following upside surprise by UK inflation data. Subsequently 2-year UK yields remained higher by around 20bp into early US session, sharply underperforming among core European rates.  US 10-year yields around 3.675%, richer by ~2bps vs Tuesday close and outperforming gilts by 7bp in the sector; long-end slightly outperforms, flattening 5s30s spread by ~1.5bp ahead of belly supply at 1pm New York time. The 10-year UK bond yield jumped as much as 21 basis points to 4.37%, the highest since October, after data showed the UK inflation rate at 8.7% in April, higher than any of the 36 estimates from economists or the 8.4% forecast by the central bank. UK money markets priced in a peak BOE rate of as high as 5.5%, compared with around 5.1% on Tuesday. Back in the US, there is a $43bn 5-year note auction follows strong demand for Tuesday’s 2-year sale, which stopped 1.5bp through the WI level. WI 5-year around 3.702% is ~20bp cheaper than April’ stop- out, which. US session highlights include 5-year note auction and FOMC minutes release.  

In commodities, metals were broadly lower. A new wave of Covid is threatening to set back the country’s economy, and investors have been rattled by Beijing’s move to ban purchases of Micron Technology Inc.’s products. Crude futures meanwhile extended their recent advance with WTI rising 2% to trade near $74.40. Spot gold is little changed around $1,975.

Bitcoin fell 1.6%, back under $27K, under pressure as the risk tone remains downbeat as the clock ticks down to the US X-date.

Looking to the day ahead now, and we’ll get the release of the Fed’s minutes from their last meeting in May. Other central bank speakers will include ECB President Lagarde, BoE Governor Bailey and the Fed’s Waller. Data releases include the UK CPI reading for April and Germany’s Ifo business climate indicator for May.

Market Snapshot

• S&P 500 futures down 0.2% to 4,149.25
• MXAP down 0.7% to 160.95
• MXAPJ down 0.9% to 509.11
• Nikkei down 0.9% to 30,682.68
• Topix down 0.4% to 2,152.40
• Hang Seng Index down 1.6% to 19,115.93
• Shanghai Composite down 1.3% to 3,204.75
• Sensex down 0.2% to 61,841.41
• Australia S&P/ASX 200 down 0.6% to 7,213.80
• Kospi little changed at 2,567.45
• STOXX Europe 600 down 1.5% to 459.11
• German 10Y yield little changed at 2.47%
• Euro up 0.1% to $1.0782
• Brent Futures up 1.1% to $77.68/bbl
• Gold spot down 0.0% to $1,974.48
• U.S. Dollar Index little changed at 103.51

Top Overnight News

• New Zealand's central bank on Wednesday signaled it was done tightening after raising rates by 25 basis points to the highest in more than 14 years at 5.5%, ending its most aggressive hiking cycle since 1999. RTRS
• US and China will attempt to stabilize relations with a dinner scheduled for Thurs between Commerce Sec Gina Raimondo and her Chinese counterpart. WSJ
• China downplays the Micron ban with the gov’t signaling it’s an isolated incident and not part of a broader crackdown on foreign companies. However, a senior Republican member of the House called on the Commerce Dept. to add Chinese memory maker Changxin Memory to the US blacklist in retaliation for the Micron ban announced Sunday. SCMP / RTRS
• The chief executive of Nvidia, the world’s most valuable semiconductor company, has warned that the US tech industry is at risk of “enormous damage” from the escalating battle over chips between Washington and Beijing. FT
• UK’s inflation overshoots the Street consensus, with headline CPI coming in at +8.7% (down from +10.1% in March, but above the Street’s +8.2% forecast) and core CPI coming in at +6.8% (up from +6.2% in March and above the Street’s +6.2% forecast). RTRS
• Mexico’s President Andrés Manuel López Obrador said his administration is considering buying Citigroup’s local retail-banking unit, Banamex, which the U.S. financial giant put up for sale last year. WSJ
• Speaker Kevin McCarthy left the US Capitol late Tuesday afternoon saying the two parties had yet to reach a deal to avert a first-ever US default, and a top lieutenant said there are no more meetings planned. Republican Representative Garret Graves, one of McCarthy’s chief negotiators, suggested just hours after a two-hour meeting in the Capitol with his White House counterparts that the two sides were at a standoff. BBG
• The Cayman Islands Monetary Authority has engaged lawyers to assess its legal options after deposits at Silicon Valley Bank’s branch in the territory were seized by the Federal Deposit Insurance Corp., a government official told affected depositors. WSJ
• US regional banks are rushing to exploit rules that allow depositors to hold tens of millions of dollars in insured accounts, offering security far exceeding government-backed insurance to soothe clients unnerved by the recent banking turmoil. FT
• US economic surprise index collapsing over the last 3 months... (measures eco data surprises relative to market expectations...positive reading means data releases have been stronger than expected and vice versa)

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mostly lower following the negative lead from Wall St where sentiment was weighed on by the ongoing debt limit impasse with just 9 days left to the X-date and amid US-China frictions after the US House China Select Committee Chair called for retaliation against China’s ban on Micron. ASX 200 declined with the resilience in the commodity-related sectors offset by weakness across the broader  market and after the Westpac Leading Index remained depressed. NZX 50 was underpinned after a dovish RBNZ rate hike which signalled the end of its rate increases. Nikkei 225 was pressured after its recent pullback to beneath the 31,000 level despite reports that the government is to consider childcare handouts for those up to 18 years old, while the first positive reading this year in the monthly Reuters Tankan manufacturing survey did little to spur risk appetite. Hang Seng and Shanghai Comp. were lower amid US-China frictions after the White House spoke out against the Micron ban, while a lawmaker called for the Commerce Department to add Changxin Memory Technologies to the entity list and ensure no US export licenses are granted to firms operating in China which are used to backfill Micron.

Top Asian News

• China’s new ambassador to the US Xie said US-China relations face serious difficulties and hopes the US will get back on the right track, while he added that they will seek to enhance China-US exchanges and cooperation.
• RBNZ hiked the OCR by 25bps to 5.50% as expected, while it maintained the peak rate forecast at 5.50% and noted that the OCR is set to remain restrictive for the foreseeable future. RBNZ said the level of interest rates is constraining spending and inflation and it forecasts negative GDP growth in Q2 and Q3. Furthermore, the rate decision was made by a majority of five votes to two and the Committee discussed the suitability of a pause or a 25bps hike.
• RBNZ Governor Orr said during the press conference that the newest data is satisfactory after a long battle and noted it was the first time the Monetary Policy Committee voted on the decision, while he added that they have seen inflation, core inflation and inflation expectations come down, but as a cautious central bank, they are foreshadowing keeping restrictive monetary policy for some time.
• RBA Official Jacobs says the balance sheet is starting to unwind pandemic bond purchases, around AUD 20bln of purchased bonds have matured, pace will increase to circa. AUD 35-45bln/year. Click here for more detail.

European bourses are pressured as headwinds mount, Euro Stoxx 50 -1.6%; attention on debt talks, UK CPI, poor Ifo, US-China tensions and continued luxury sector downside. Sectors are pressured across the board with Real Estate lagging on hawkish BoE pricing while Luxury names continue to slip with analysts citing an MS luxury conference pointing to relatively more subdued performance in the US. US futures are softer but much more contained as we await more concrete developments on the debt ceiling, ES -0.2%, with updates this morning via multiple journalists skewed to the downside overall on a near-term agreement.

Top European News

• ECB President Lagarde reiterates the ECB will bring rates to sufficiently restrictive levels and keep them at those levels for as long as necessary.
• BoE Governor Bailey says banks are exposed to climate related hazards.
• EU banks are reportedly to sail through early rounds of stress tests, according to Bloomberg.
• German economy is expected to grow modestly on Q2 as a rebound in industry offset stagnating household consumptions, according to the Bundesbank monthly report.

FX

• DXY is firmer and towards highs after spending much of the morning trading on either side of the psychological 103.50 level ahead of the FOMC minutes.
• NZD experienced a significant drop after the RBNZ signalled an end to its tightening cycle in what was a dovish hike.
• AUD slipped and remains soft in tandem with the broader risk tone and losses across base metals.
• GBP was briefly lifted following the hotter-than-expected UK inflation data which solidified the case for a June BoE hike.
• PBoC set USD/CNY mid-point at 7.0560 vs exp. 7.0556 (prev. 7.0326)

Fixed Income

• Gilts gapped lower to sub-95.00 following hotter-than-expected UK CPI, with market pricing now implying 75bp of further tightening.
• Given this, EGBs/USTs spent the morning underwater but have since made their way back into positive territory as attention returns to the US debt ceiling, with USTs and Bunds now incrementally firmer.
• For reference, the morning's dual-tranche German supply was well received overall, particularly when taking into account that the morning's marked concession had largely evaporated by the time the auction commenced.

Commodities

• WTI and Brent July futures are firmer intraday with the complex seemingly underpinned following commentary from the Saudi Energy Minister yesterday.
• Spot gold resides around USD 1,975/oz in a near-USD 10/oz range in the run-up to the FOMC.
• Base metals are softer across the board amid the demand implications from a weaker-than-expected Chinese rebound coupled with the state-side jitters on the debt ceiling front.
• US Energy Inventory Data (bbls): Crude -6.8mln (exp. +0.8mln), Cushing +1.7mln, Gasoline -6.4mln (exp. -1.1mln), Distillate -1.7mln (exp. +0.4mln).
• Russian watchdog says it is prepared to support restrictions on petrol exports, via Ifx. Subsequently, Russian Energy Minister says we are considering restriction on gasoline exports and not a ban.

Debt Ceiling headlines

• White House said invoking the 14th Amendment to work around the debt ceiling won't "fix the current problem" but wouldn't shut the door entirely on pursuing the strategy if they can't reach a deal, according to USA Today.
• US GOP Rep. Graves said they don't have additional meetings set up and noted there are some areas where they are very close although there are still substantial gaps including over the debt limit duration.
• Fox's Pergram tweets "Unclear where debt ceiling talks stand today. Talks have continued. But there has yet to be a breakthrough".
• US Democrats have reportedly criticised Republican negotiators for seeking an increase in military spending in debt ceiling discussions, via WSJ citing sources; some in the admin. reportedly struggling to see a path forward in the discussions
• Punchbowl News, on the US debt ceiling talks, says "with no deal imminent, McCarthy has signalled that he’d likely send lawmakers home Thursday evening, anticipating that negotiations will drag into next week."
• White House and Republicans are expected to resume debt talks today, according to Reuters sources.

Geopolitics

• Russian PM Mishustin, in Beijing, says relations between Russia and China are at an unprecedented high level. Adding, Xi's Russia visit in March was another confirmation of the "special" nature of bilateral relations. Subsequently echoed by Chinese President Xi.
• Russian Foreign Minister Lavrov (according to a translated tweet) says that increasing Western involvement in Ukraine will lead to nuclear war.
• Russia's Deputy Foreign Minister says F-16s will be a "legitimate target" for Russia if supplied to Ukraine, according to RIA.

US Event Calendar

• 07:00: May MBA Mortgage Applications, prior -5.7%
• 14:00: May FOMC Meeting Minutes

Central bank speakers

• 12:10: Fed’s Waller Discusses the Economic Outlook
• 14:00: May FOMC Meeting Minutes

DB's Jim Reid concludes the overnight wrap

AI hasn’t yet been able to solve the debt ceiling problem and markets struggled yesterday, with front end bonds and equities selling off together as investors grew increasingly concerned about the debt ceiling. It’s true that both sides are still talking and the mood music sounds (mostly) positive, but we might only be days away from the deadline in early June, and any deal that’s reached is still going to need to be passed through both houses of Congress. So there are real concerns that this could go right down to the wire, and investors are slowly gearing up accordingly. There’s also been talk about whether a short-term extension might now be needed to get this over the line, but for the time being, Speaker McCarthy has continued to downplay the prospect that will happen. So investors continue to wait nervously with no signs of a deal emerging just yet.

When it came to the last 24 hours, it was reported by Punchbowl News that McCarthy had told Republicans in a closed-door meeting that “we are nowhere near a deal yet”. But later on, McCarthy told reporters that a deal could still be reached by June 1. By last night, GOP Representative Graves, who has been one of McCarthy’s lead negotiators, said some progress had been made but then added that “we’re going to have to see some movement or some fundamental change in what they’re doing,” and that there was not an additional meeting currently set up. House Majority Leader Scalise also questioned how the June 1st x-date was calculated, which prompted markets to believe the two sides were still some ways apart. Speaker McCarthy has said he would not waive a rule allowing Congress to review a bill for 3 days before a vote, if he holds that line it will further compress the timetable to get a deal done before early-June.

Those issues surrounding the debt ceiling have put serious pressure on US Treasuries over recent days. At the front end, yesterday a Treasury auction of a 21-day cash management T-bill yielded 6.2%, which is above what last week’s 4W bill received (5.84%). The bill is due June 15 and would fully capture Treasury Secretary Yellen’s projected x-date period of “early-June”, furthermore there is an expected influx of corporate tax revenue around that date and so the risk of default remains very much prior to that point. That said there is typically lower demand for the cash management bills than benchmark issues but the fact remains that we have not seen a 6-handle on US Treasury security since 2000 when 2, 10 and 30yrs traded at that level.

In terms of other benchmarks, the 1M and 3M US T-bills were flat after a late rally with the latter rising marginally (+0.2bps) to a fresh post-2001 high of 5.226% - eclipsing last Thursday’s close. And when it came to longer maturities, rising 10yr Treasury yields ran out of steam after having risen for 7 consecutive session as they fell back -2.3bp, taking them to 3.692%. They did hit 3.75% earlier in the session but risk-off seemed to provide a bid after Europe went home. Overnight, they are -1.2bps lower at 3.68% as I type.

Whilst investors might be worried about a US default, another factor behind those Treasury declines has been growing scepticism that the Fed are actually going to cut rates this year. Indeed, only yesterday we got some better-than-expected data from the US, since the flash composite PMI hit a 13-month high in May of 54.5 (vs. 53.0 expected). Then 15 minutes later, the data on new home sales for April came in 683k on an annualised basis (vs. 665k expected), which was also a 13-month high. So that added to the signs that the economy was proving resilient as we move deeper into Q2, and helped to push back fears of an imminent recession.

With that strong data in hand, investors dialled back their expectations for rate cuts from the Fed over the course of 2023. For instance, the rate priced in by the December meeting was up another +1.2bps to 4.71%, which is its highest level since SVB’s collapse in early March. Bear in mind that on March 15, when the market turmoil was at its height, the rate expected in December hit a closing low of 3.75%, so we’ve now recovered a full 100bps from that point, which shows how the market has increasingly put that turmoil behind it. And although fears about the debt ceiling are rising, the underlying base case for investors is still that a deal or an extension will be agreed as on previous occasions, allowing investors to look through this current crisis too.

For equities, the tone was downbeat yesterday as the S&P 500 finished near the lows of its daily trading range down -1.12%. The NASDAQ largely matched the broader index, falling -1.26% yesterday, with megacap tech stocks giving way in the US afternoon as the FANG+ index (-1.29%) saw its largest pullback in nearly a month. Look out for Nvidia’s (-1.57%) earnings after the bell today. The stock (up +110% in 2023) is the fifth largest in the S&P 500 and now has a market cap of $758.9bn, which for context is double the biggest company in the Stoxx 600 (Nestle – EUR 310bn) and nearly 5x larger than the biggest corporate in the DAX (SAP – EUR 151bn).

The tone was a bit better in Europe given the late selloff in the US, and the STOXX 600 fell -0.60%, whilst the CAC 40 (-1.33%) saw the biggest underperformance as luxury good stocks struggled. That came as the flash PMIs were broadly in line with consensus across the continent, with the composite Euro Area print at 53.3 (vs. 53.5 expected).

Sovereign bonds in Europe broadly followed the US, with yields on 10yr bunds (+1.0bps), OATs (+0.1bps) and BTPs (+0.7bps) rising on the day. The big underperformer were UK gilts however, where 10yr yields (+9.4bps) rose to their highest level since Liz Truss was PM last October, at 4.158%. That followed comments from BoE officials before MPs, including Governor Bailey who said that “there are risks of persistence” on inflation. Meanwhile Catherine Mann, the most hawkish member of the MPC, commented that “tightening and tight are not the same” and said “real rates are still below zero”. That prompted investors to dial up their expectations for rate hikes over the months ahead, with terminal now priced above 5%. Keep an eye out for the April CPI release shortly after this goes to press as well, where the headline reading is expected to come out of double-digits (8.2% expected vs. 10.1% last month) as last year’s spike in energy prices drops out of the annual comparison.

Speaking of inflation, there was some further good news from Europe as natural gas prices fell to their lowest level in nearly 2 years. That was thanks to a -1.97% decline yesterday, taking futures down to €29.13/MWh, which also leaves prices on track for their 8th consecutive weekly decline. It’s true that Brent crude oil prices (+2.17%) hit a 2-week high yesterday of $77.64/bbl. But more broadly the trend for commodities has been continuously lower over recent months, and Bloomberg’s Commodity Spot Index fell to its lowest level since December 2021.

Asian equity markets are tracking overnight losses on Wall Street with the Hang Seng (-1.10%) leading losses followed by the Nikkei (-1.08%), the CSI (-0.56%), the Shanghai Composite (-0.54%) and the KOSPI (-0.23%). In overnight trading, US equity futures are indicating a small rebound though with those tied to the S&P 500 (+0.11%) and NASDAQ 100 (+0.10%) printing mild gains.

In terms of monetary policy action, the Reserve Bank of New Zealand (RBNZ) raised its benchmark rate by 25bps to the highest in more than 14 years to 5.5%, in line with expectations, but signalled it may be done with tightening. Following the decision, the New Zealand dollar slumped more than -1%, to a three-week low of $0.617 as the central bank decided not to keep the door open for further policy tightening. Meanwhile, benchmark 2yr yields fell sharply (-32.1 bps) to 4.78%, dropping the most in 6 months with 10yr yields dropping (-15.3 bps) to 4.30% as we go to print.

To the day ahead now, and we’ll get the release of the Fed’s minutes from their last meeting in May. Other central bank speakers will include ECB President Lagarde, BoE Governor Bailey and the Fed’s Waller. Data releases include the UK CPI reading for April and Germany’s Ifo business climate indicator for May.

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