Headlines

* UK average weekly earnings 6.7% vs 6.8% expected, jobless rate ticks up  

* China’s economic recovery worries mount as data disappoints

* RBA says more rate increases may be required, dependent on economy

* Asian stocks steady despite China data miss, weaker USD helping

FX: USD fell on 0.27% after gaining 1.4% last week and a strong two-day rally. The DXY is currently trading right on its 50-day SMA at 102.41. Softer US data and worries over the debt ceiling pervade. The 2-year yield held steady just below 4%. The 10-year yield fell to 3.47% and below its 50-day SMA at 3.5%.

EUR printed an “inside day” and consolidated near its recent lows at 1.0844/47. The world’s most popular currency pair sold off aggressively late last week. We get preliminary GDP data and the German ZEW survey today. The latter was considered relatively negative last month. ECB President Lagarde is set to speak this afternoon. GBP bounced off long-term support at 1.2447 to close above 1.25. Just released wage growth figures suggest there is little respite from inflationary pressures for the BoE. But the growth rate has slowed again. USD/JPY advanced for a third day and is close to 136. The 200-day SMA sits at 137.02. High beta currencies are lower today on disappointing Chinese data. AUD is back below its 50-day SMA at 0.6682. It had regained most of Friday’s loss yesterday. USD/CAD sits on the 200- day SMA at 1.3464.

Stocks: US equities closed higher with the benchmark S&P 500 adding 0.30%. The Dow closed higher by 0.14%. The Nasdaq 100 gained 0.55%. The tech-laden index again closed at a fresh cycle high, last seen in August last year. A short squeeze in US regional banks led the bid in risk assets. But upside was capped by soft manufacturing survey data and debt ceiling concerns.

Asian stocks traded mixed as investors digested weaker-than-expected Chinese activity data. The PMI’s had pointed to softness and retail sales missed estimates. The annual number was lifted by favourable base effects from the plunge a year ago during lockdowns. Industrial production also disappointed. The Nikkei 225 strengthened after the Topix climbed to a fresh 33-year high. The Hang Seng was helped by tech strength with the “Big Short” investor boosting bullish bets on JD.com and Alibaba.

US equity futures are in the red.  European equity futures are pointing to a very quiet open. The cash markets closed flat yesterday.

Gold traded sideways printing an “inside day”. Selling this morning is seeing the psychological $2000 level come into view.

Day Ahead – Fedspeak and debt ceiling talks

Markets are very quiet and generally rangebound. The dollar is trying to hold onto its gains from late last week. Stocks are choppy and messy, awaiting a catalyst for direction. A US default gets ever closer as the standoff between Democrats and Republicans continues. All eyes will be on President Biden’s meeting with congressional leaders later today. He expressed confidence a deal could be done before June 1. But the Republican speaker McCarthy said the two sides were still far apart. Expect this brinkmanship to go right to the wire as is usually the case in debt ceiling talks. That tension should help haven assets and currencies like JPY and hurt risk sentiment.

We get a host of Fed officials on the wires including Mester, Williams, Barr and Bostic later today. The latter already said yesterday he does not see rate cuts until well into 2024. He pointed out that inflation measures are still two times where the Fed’s target is. His bias is for rates going higher, not lower. This all contrasts with market expectations of around 65bps of rate cuts this year. More talk like this underpins support for the dollar.

Chart of the Day – Gold testing lower part of channel

Amid the debt ceiling talks, US retail sales data will be released this afternoon. Credit card figures point to very modest growth after the decline in the previous report. This will be a key test of the US consumer who is battling with elevated inflation and rising interest rates.

Gold remains above the $2000 mark and should act as initial support after seeing buying there already in May. The lower part of the ascending channel comes in around $2000 as well. The 50-day SMA is below here at $1978. This tallies with late April support.  A backup in Treasury yields is holding traders back from attacking $2048.