GLOBAL CAPITAL MARKETS OVERVIEW, ANALYSIS & FORECASTS:

Author: Dr. Alexander APOSTOLOV (researcher at Economic Research Institute at BAS)

As investors cautiously awaited the latest news on U.S. debt-ceiling negotiations on Tuesday, Treasury Secretary Janet Yellen reiterated that the U.S. could default on its debt by June 1. In addition, investors anticipated May data on manufacturing and services sector activity in the euro zone, as well as the most recent current account report assessing the region's economic health. Tuesday had no significant earnings reports. In pre-market trading, DAX, STOXX 600, and FTSE 100 futures were all flat to marginally negative. Monday's closure of 27,311 was a 0.8% decline from Friday's close of 26,674, underperforming regional peers. Concerns about the state of U.S. debt and the future direction of interest rates kept investors wary. As the time remaining to avoid a U.S. default dwindles, President Joe Biden and Republican House Speaker Kevin McCarthy are scheduled to meet again today in an effort to break the impasse in negotiations. As was widely anticipated, Moody's maintained Italy's rating and prognosis at Baa1, one notch above junk, with a negative outlook. Among individual equities, China Overseas (-1.4%), Iveco Group (-1.1%), Italia (-1%), and Pressman (-0.8%) were the worst performers.

The FTSE 100 increased 0.2% to 7,771 on Monday, extending gains for a third consecutive session. Financial institutions, including British institutions such as Standard Chartered (+1%), contributed to the increase. Aside from this, shares of NatWest Group climbed 1.2% after the bank agreed to buy back government shares, signaling progress in reducing government ownership and moving closer to private ownership. Following positive earnings from Ryanair Holdings, the travel and leisure sector also boosted the overall market. In contrast, shares of Dechra Pharmaceuticals declined by 11% after the company lowered its annual operating profit forecast. Concerns about the impasse surrounding the U.S. debt ceiling left markets somewhat vulnerable.

Monday's market action lacked direction as investors awaited a breakthrough in debt-ceiling negotiations. The Dow decreased by approximately 100 points, while the S&P and Nasdaq rose by over 0.1% and 0.5%, respectively. After a fruitless meeting on Friday, President Biden and House Speaker Kevin McCarthy are scheduled to continue debt ceiling negotiations today at 5:30 p.m. Treasury Secretary Janet Yellen stated on Sunday that it is unlikely that the Treasury Department will pay all U.S. debts by June 15. Meanwhile, investors continued to fixate on the remarks of Fed officials: Kashkari of the Federal Reserve stated that a rate cut or increase in June was a close call, and Bullard, president of the Federal Reserve Bank of St. Louis, stated that the Fed may still need to raise rates by a half percentage point this year. China's prohibition on the use of Micron Technology's chips by Chinese technology companies led to a near 4% decline in Micron Technology shares. Following Loop Capital's downgrade of the stock from buy to hold, Apple shares declined by roughly 1 percent.

The ruble-based MOEX Russia index inched higher on Monday as tech equities soared 4% in response to wealthy Russians approaching Yandex to purchase assets that the company plans to sell domestically. These assets have a total value of approximately $14 billion. The financial sector has increased by more than 34% thus far in 2018. Oil producers, specifically Transneft and Surgut, provided additional assistance. Despite this, shares of gold producer Polymetal International PLC decreased by more than 3 percent after the company announced that it would work on resettlement. In addition, shares of Ashinsky MZ fell after news of a potential delisting. This week, investors anticipate key corporations such as Rosneft and Gazprom to declare dividends.

In Tuesday morning trading, Hong Kong shares fell 40 points, or 0.2%, to 19,638 as two Fed hawks see the need for additional rate increases this year, days after Chairman Powell signaled a pause in June. As two other officials expressed support for forbearance, traders were cautious. Reuters reported that the U.S. Department of Energy canceled a $200 million grant to lithium battery company Microvast on Monday after lawmakers raised concerns about the company's alleged connections to the Chinese government. President Joe Biden and House Speaker Kevin McCarthy remained without an agreement on the U.S. debt ceiling on Monday, despite describing their discussions as productive and pledging to continue negotiating to avoid a default. Locally, Hong Kong's annual headline CPI increased to 2.1% in April after remaining unchanged at 1.7% for the prior two months. Other early decliners included Power Asset Holdings (-3.6%), CK Infrastructure Holdings (-2.1%), and Semiconductor Manufacturing International (-1.7%).

On Tuesday, the Shanghai Composite Index declined 0.2% to close below 3,290 points, while the Shenzhen Composite Index declined 0.2% to 11,100 points, erasing a portion of the previous session's gains. Almost every sector participated in the decline. The People's Bank of China maintained its key lending rate unchanged for the ninth consecutive month in a May revision to maintain economic support, despite continuing pressure to reduce the reserve requirement ratio. TRS Information (-4%), 37 Interactive (-4.9%), Inspur Electronics (-2.5%), Shenzhen Kaiflux (-5.2%), and Zhejiang Jinke (-4.5%) lead the decline among technology stocks. Other stalwarts such as China Shipbuilding Holdings (-25%), CSSC Technology (-8%), and Shanxi Xingmaocun (-2.9%) also declined.

Nikkei 225 climbed 0.8% to close above 31,300, while Topix rose 0.5% to 2,186. Both benchmarks reached their highest levels since 1990 as investors reacted favorably to the robust domestic data. Japan's manufacturing sector returned to growth in May for the first time since October, the latest data showed, while service sector activity hit a record high. Japanese shares also tracked U.S. futures higher, amid growing optimism that the U.S. government will reach a deal to raise the debt ceiling and avoid default. Almost all sectors participated in the rally, with index heavyweights such as Mitsubishi UFJ (0.9%), Advantest (1.9%), Recruit Holdings (4.3%), Mitsubishi Corporation (1.6%), and Toyota Motor (1.1%) rising sharply.

The S&P/ASX 200 rose 0.1% to around 7,270, recouping some earlier losses, with energy and mining stocks leading gains amid firmer commodity prices. Australian shares also tracked U.S. futures higher, amid growing optimism that the U.S. government will reach a deal to raise the debt ceiling and avoid default. Domestically, investors digested data showing that manufacturing activity in Australia continued to contract in May, while service sector activity slowed. The energy and mining sectors led the gains, with Woodside energy (0.8%) and Santos (0.8%).
In early trade on Tuesday, the India BSE Sensex gained 244.6 points, or 0.4%, to a more than one-week high of 62,208.3, rising for a third straight session, tracking gains in U.S. stock futures amid hopes of a deal to boost U.S. A potential agreement on the debt ceiling. Investors continued to brace for more quarterly earnings later today. Almost every major industry is trading green, driven by metals, pharmaceuticals, tech and autos. Adani shares rose for a third straight session, with Adani Enterprises up 12.6 percent, Adani Wilma up 9.7 percent and Adani Porter up 2.3 percent, spurred by an Indian court panel report that found no U.S. sell-offs. Hard evidence of stock price manipulation alleged by the short-seller Hindenburg Institute. Companies such as JSW Energy, Ashok Leyland, Bajaj Electricals, Eixon Technologies, Biocon, Schneider Electric Infrastructure and Thyrocare Technologies will report quarterly results later today.

 

REVIEWING THE LAST ECONOMIC DATA:

Reviewing the latest economic  news, the most critical data is:

- JP: Flash data showed that Japan's banking services PMI rose to a record high of 56.3 in May 2023 from 55.4 a month earlier. It was also the ninth straight month of growth in the services sector, as both domestic and international tourism resumed and COVID-19-related disruptions dissipated further. Growth in new orders and unfilled business was the largest on record, and export sales and employment both rose at a faster pace. On inflation, service providers continued to note strong input price increases during the most recent survey period, with input price inflation reaching its highest level in three months. This contributes to the continued steady growth of output costs. Finally, despite the softening in April data, market sentiment remains positive.

- JP: Flash data showed that the Bank of Japan's manufacturing PMI rose to an eight-month high of 50.8 in May 2023 from 49.5 the previous month. It was the first expansion in factory activity since October, as the post-COVID-19 recovery gained momentum, with new orders and production picking up for the first time since last June and the fastest pace in 11 months. Meanwhile, supplier lead times shortened for the first time since January 2020, albeit only slightly. Job growth slowed, and the backlog of work increased at a slower pace. On the pricing front, input cost inflation slowed to its weakest since February 2021, while output cost inflation fell to a four-month low. Finally, business sentiment remains positive despite an easing from April as the bets mount that inflationary pressures will peak soon and ease over the rest of the year as COVID-19-related disruptions recede

- AU: Flash estimates show the Judo Bank Australia Services PMI at 51.8 in May 2023, down from 53.7 in the previous month. The services sector in Australia saw growth for the second month in a row, with new businesses growing more quickly. The increase in activity in the services sector has prompted companies to expand their hiring activities. Employment growth has declined due to difficulties in obtaining labor. On the price front, input inflation eased, while faster demand growth led to higher selling price inflation.

- AU: Preliminary data showed that in May 2023, the Judo Bank Australia Manufacturing PMI came in at 48, unchanged from the previous month. Business conditions in the manufacturing sector deteriorated for the third straight month as new orders and output continued to decline, the report said. Foreign demand remained subdued, slowing for the sixth straight month. Output shrank for the sixth straight month, the fastest pace of contraction in 21 months. Meanwhile, input prices remain well below 2022 levels. Companies are continuing to hire, albeit at a slower pace, despite lower output levels. Business confidence in manufacturing improved, although confidence levels remained below long-term averages due to market uncertainty.

- AU: Preliminary estimates show that the Judo Bank-Australia Composite Purchasing Managers Index rose to 51.2 in May 2023 from 53 in the previous month. It marked the second consecutive month of growth in the private sector, albeit at a slower rate, thanks to expansion in the services sector. New orders rose at a faster rate, and the increase in activity led to an expansion in employment levels. Input cost inflation moderated across the private sector, while output prices rose. Meanwhile, manufacturing held steady as new orders continued to decline, marking the third straight month of contraction in business conditions. Foreign demand also remained subdued, slowing at a steady pace for the sixth straight month.

- SK: In May 2023, the Composite Consumer Sentiment Index (CCSI) was 98 points, up from 95.1 points in the previous month. That was the highest figure since May 2022, as easing inflation expectations led to improvements in living conditions. Consumer sentiment on current living standards rose to 88 (from 87 in April), and confidence in future living standards rose to 92 (up 90 points from April). Consumer sentiment related to future household income rose to 97 (vs. 96), and consumer confidence related to future household spending rose to 111 (vs. 110). Consumer confidence in the current domestic economic situation also rose to 65 points (compared to 58 points), and confidence in the future domestic economic situation rose to 74 points (compared to 68 points). Expected inflation for the year ahead fell to 3.5% from 3.7% in the previous month.

- EU: Preliminary estimates show that Eurozone consumer confidence edged up by 0.1 point to -17.4 in May 2023, the highest level since February 2022, compared to market expectations of -16.8. European consumer confidence is gradually recovering from its September 2022 low of -28.7, but the rebound has slowed. Inflation levels, particularly core inflation, remain near record levels, prompting the European Central Bank (ECB) to remain committed to fighting high inflation. The markets are pricing in at least two more rate hikes. On the positive side, the severe phase of the energy crisis appears to have receded, with natural gas prices stabilizing at 2021 levels. Across the EU, consumer sentiment rose 0.6 percentage points to -18.1. Still, confidence remains well below long-term averages.

- HK: Hong Kong's annual inflation rate accelerated to 2.1% in April 2023 after stabilizing at 1.7% in the previous two months, almost in line with market forecasts of 2%. The main upward pressure came from food (2.6% vs. 1.6% in March), housing (0.5% vs. -0.2%) and apparel and footwear (6.4% vs. 6.3%). On the other hand, prices for Transportation (2.2% vs. 2.8%) and Electricity & Utilities (17.8% vs. 19.9%) slowed down significantly. Meanwhile, underlying inflation rose 1.8% year-on-year, slightly up from 1.7% in March. On a monthly basis, consumer prices rose 0.2%, the same pace as in the previous period.

 

LOOKING AHEAD:

Today, investors should watch out for the following important data:

- EUR: French Flash Manufacturing PMI, French Flash Services PMI, German Flash Manufacturing PMI, German Flash Services PMI, Flash Manufacturing PMI, Flash Services PMI, Current Account, and German Buba President Nagel Speaks.

- GBP: Public Sector Net Borrowing, Flash Manufacturing PMI, Flash Services PMI, Monetary Policy Report Hearings, and MPC Member Haskel Speaks.

- USD: FOMC Member Logan Speaks, Flash Manufacturing PMI, Flash Services PMI, New Home Sales, and Richmond Manufacturing Index.

- JPY: Flash Manufacturing PMI, and BOJ Core CPI y/y.

- AUD: Flash Manufacturing PMI, and Flash Services PMI.

- CAD: IPPI m/m, and RMPI m/m.

 

KEY EQUITY & BOND MARKET DRIVERS:

Кey factors in the stock and bond market are currently:

- US: U.S. stock futures climbed on Tuesday, with U.S. President Joe Biden and House Speaker Kevin McCarthy expressing cautious optimism that they will reach a deal to raise the debt ceiling after a meeting later on Monday. Futures contracts linked to all three major indexes rose nearly 0.3%. In regular trading on Monday, the Dow Jones fell 0.42%, while the S&P 500 and Nasdaq Composite rose 0.02% and 0.5%, respectively. Technology, real estate and financials outperformed the market, while consumer staples, materials and energy were the biggest losers. The moves come as investors eye the latest developments in debt-ceiling talks, with Treasury Secretary Janet Yellen reiterating that the U.S. could be at risk of default by June 1. On the policy front, the Fed's Kashkari said a pause or hike in June was a close call, and St. Louis Fed President Bullard said the Fed may still need to raise rates by half a percentage point this year.

- US: U.S. 10-year Treasury yields bounced back from early losses to trade just above 3.7%, the highest level since mid-March, as traders assessed the outlook for U.S. monetary policy and the debt-ceiling impasse. Louis Fed President James Bullard said the Fed may still need to raise interest rates by 0.5 percentage points this year. On Friday, Fed Chairman Jerome Powell mentioned that further rate hikes may not be necessary to curb inflation due to stress in the banking sector. The chances of a pause in the rate-hike cycle have been fluctuating, but currently, traders see a 78 percent chance the Fed will hold rates steady in June. Meanwhile, President Biden is scheduled to meet with House Speaker Kevin McCarthy on Monday to continue negotiations on the debt ceiling. It followed an unsuccessful meeting of key negotiators on Friday.

- FR: French 10-year OAT yields continue to hover around the notable level of 3.0%, the highest since March 9, with signals from the European Central Bank pointing to possible rate hikes ahead. ECB board member Isabel Schnabel stressed the importance of the central bank's firm fight against inflation, and ECB President Christine Lagarde said policymakers stood ready to take the necessary steps to counter price pressures. Elsewhere, ECB policymaker Joachim Nagel also said the rate hike implemented in May was not final.

- IT: Italian 10-year bond yields remained above the 4.2% level, hovering near a three-week high of 4.355% reached on May 19, buoyed by expectations of further rate hikes from the European Central Bank. Recent statements by key figures at the ECB have reinforced the stance against inflation. ECB board member Isabel Schnabel emphasized the need for the central bank to remain steadfast in its fight against inflation, while ECB President Christine Lagarde reiterated policymakers' commitment to take the necessary steps to counter price pressures. Additionally, ECB policymaker Joachim Nagel confirmed that the hike implemented in May would not be the last. Finally, as widely expected, rating agency Moody's maintained Italy's rating at Baa1 with a negative outlook. The rating is one notch above junk, indicating relatively stable credit conditions in Italy.

- US: U.S. 10-year Treasury yields fell about 5 basis points to 3.64% on Monday, reflecting growing uncertainty over the impasse over the U.S. debt ceiling. President Biden is scheduled to meet with House Speaker Kevin McCarthy today to try to seal a deal after a meeting of top debt-ceiling negotiators failed on Friday night. The chances of paying all U.S. bills by June 15 are slim, according to Treasury Secretary Janet Yellen, who expressed concern on Sunday. Additionally, traders are closely watching for any signs of future Fed action. On Friday, Federal Reserve Chairman Jerome Powell said rate hikes may not be necessary to curb inflation due to stress in the banking sector. As a result, the chances of a pause in the rate hike cycle have increased, with traders now pricing in an 86% chance that the Fed will hold rates steady in June.

- UK: U.K. 10-year government bond yields held near 4%, the highest level since October 2022, driven by expectations of further tightening by the Bank of England. Governor Andrew Bailey recently acknowledged that further tightening of monetary policy may be necessary if inflationary pressures persist. However, he also highlighted some signs of a slight easing in the labor market. The Bank of England raised its key interest rate by 25 basis points to 4.5% in May, the highest borrowing costs since 2008. In addition, the bank raised its growth and inflation forecasts, reflecting changing economic conditions and the need to address inflationary pressures. On the economic data front, U.K. consumer confidence rose for a fourth straight month in May, reaching its highest level since Russia invaded Ukraine, marking a notable upturn in consumer sentiment and optimism for the U.K. economy.

- GE: German 10-year government bond yields remained above 2.4%, the highest since April 27, largely on expectations that the European Central Bank will continue its efforts to tighten monetary policy in response to concerns over inflation, despite fears A series of rapid rate hikes could have an impact on the financial system. In addition, the outlook for strong GDP growth in the euro zone further supports the view of future rate hikes. Earlier this month, the European Commission revised its economic forecasts, predicting higher growth rates this year and into 2024. Forecasts show growth of 1.1 percent this year and 1.6 percent in 2024. In addition, the committee forecasts that inflation will rise by 5.8 percent in 2023 and by 2.8 percent in 2024. Investors expect the ECB to take a gradual approach to raising the deposit facility rate, which could peak at around 3.7 percent in September.

 

LEADING MARKET SECTORS:

- Strong sectors: Communication Services, Real Estate, Health Care, Information Technology.

- Weak sectors: Consumer Staples.

 

TOP CURRENCY & COMMODITIES MARKET DRIVERS: 

Кey factors in the currency and commodities market are currently:

- NZD: The New Zealand Dollar 50 Index fell 48.89 points, or 0.41%, to 11,944.20 on Tuesday, falling for a second straight session, as traders continued to take a cautious stance ahead of the Reserve Bank of New Zealand's interest rate decision on Wednesday. The central bank is widely expected to raise the cash rate by 25 basis points to 5.5% for the 12th consecutive time and could leave the door open for further tightening. The cash rate is expected to peak at 5.75% in July, according to Bloomberg News. Meanwhile, inflation fell to 6.7% in the first quarter of 2023, but remains far short of the board's 1-3% target. Separately, concerns about a U.S. debt default persisted as talks between President Biden and House Speaker McCarthy failed to make any progress. Consumer durables, healthcare and manufacturing dragged down Gentrack Group Ltd. (-4.4%), Hallenstein Glasson (-3.2%), Scales Corp. (-2.7%), Fisher & Paykel Healthcare (-2.4%) and Mercury NZ Ltd. (-1.7%) fell sharply.

- JPY: The yen traded at 138 per dollar, still at its weakest level since late November amid divergences in U.S. and Japanese monetary policies. The Bank of Japan kept its key short-term interest rate at -0.1% despite high inflationary pressures. While Japan's headline inflation was forecast to slow further to 2.5 percent in April, it unexpectedly accelerated to 3.5 percent, while core inflation rose to a three-month high of 3.4 percent. On the other hand, traders have been slow to price out expectations for a near-term rate cut by the Federal Reserve as U.S. inflation data remains weak, retail sales have been upbeat, and the labor market has shown no signs of easing. Meanwhile, investors are keeping a close eye on U.S. debt ceiling talks as no progress has been made before the June 1 deadline.

- GLD: Gold eased to $1,960 an ounce on Tuesday, extending losses from the previous session, weighed down by a stronger dollar amid hopes the U.S. will avoid a default and hawkish remarks from Federal Reserve officials. President Joe Biden and House Speaker Kevin McCarthy have expressed cautious optimism that a deal will be reached to raise the debt ceiling, with Treasury Secretary Janet Yellen confirming the US could be at risk of default by June 1. On the monetary policy front, the Fed's Bullard suggested the possibility of raising interest rates by another half point this year, while the Fed's Kashkari described a decision to pause or raise interest rates in June as a close call.Markets have cut bets on a rate cut in the US this year, with rates holding steady at around 4.7% until December.

 

CHART OF THE DAY:

As investors cautiously awaited the latest news on U.S. debt-ceiling negotiations on Tuesday, Treasury Secretary Janet Yellen reiterated that the U.S. could default on its debt by June 1. In addition, investors anticipated May data on manufacturing and services sector activity in the euro zone, as well as the most recent current account report assessing the region's economic health. Tuesday had no significant earnings reports. In pre-market trading, DAX, STOXX 600, and FTSE 100 futures were all flat to marginally negative.

 

 

 

 

 

Long-term Channels Trading Strategy for: (German DAX index).Time frame (D1). The primary resistance is around (16751). The primary support is around (15706 ). Therefore, the next most probable price movement is a (up/consolidation) trend. (*see all other details on the chart).

GLOBAL CAPITAL MARKETS OVERVIEW, ANALYSIS & FORECASTS: Author: Dr. Alexander APOSTOLOV (researcher at Economic Research Institute at BAS) As investors cautiously awaited the latest news on U.S. debt-ceiling negotiations on Tuesday, Treasury Secretary Janet Yellen reiterated that the U.S. could default on its debt by June 1. In addition, investors anticipated May data on manufacturing and services sector activity in the euro zone, as well as the most recent current account report assessing the region's economic health. Tuesday had no significant earnings reports. In pre-market trading, DAX, STOXX 600, and FTSE 100 futures were all flat to marginally negative. Monday's closure of 27,311 was a 0.8% decline from Friday's close of 26,674, underperforming regional peers. Concerns about the state of U.S. debt and the future direction of interest rates kept investors wary. As the time remaining to avoid a U.S. default dwindles, President Joe Biden and Republican House Speaker Kevin McCarthy are scheduled to meet again today in an effort to break the impasse in negotiations. As was widely anticipated, Moody's maintained Italy's rating and prognosis at Baa1, one notch above junk, with a negative outlook. Among individual equities, China Overseas (-1.4%), Iveco Group (-1.1%), Italia (-1%), and Pressman (-0.8%) were the worst performers. The FTSE 100 increased 0.2% to 7,771 on Monday, extending gains for a third consecutive session. Financial institutions, including British institutions such as Standard Chartered (+1%), contributed to the increase. Aside from this, shares of NatWest Group climbed 1.2% after the bank agreed to buy back government shares, signaling progress in reducing government ownership and moving closer to private ownership. Following positive earnings from Ryanair Holdings, the travel and leisure sector also boosted the overall market. In contrast, shares of Dechra Pharmaceuticals declined by 11% after the company lowered its annual operating profit forecast. Concerns about the impasse surrounding the U.S. debt ceiling left markets somewhat vulnerable. Monday's market action lacked direction as investors awaited a breakthrough in debt-ceiling negotiations. The Dow decreased by approximately 100 points, while the S&P and Nasdaq rose by over 0.1% and 0.5%, respectively. After a fruitless meeting on Friday, President Biden and House Speaker Kevin McCarthy are scheduled to continue debt ceiling negotiations today at 5:30 p.m. Treasury Secretary Janet Yellen stated on Sunday that it is unlikely that the Treasury Department will pay all U.S. debts by June 15. Meanwhile, investors continued to fixate on the remarks of Fed officials: Kashkari of the Federal Reserve stated that a rate cut or increase in June was a close call, and Bullard, president of the Federal Reserve Bank of St. Louis, stated that the Fed may still need to raise rates by a half percentage point this year. China's prohibition on the use of Micron Technology's chips by Chinese technology companies led to a near 4% decline in Micron Technology shares. Following Loop Capital's downgrade of the stock from buy to hold, Apple shares declined by roughly 1 percent. The ruble-based MOEX Russia index inched higher on Monday as tech equities soared 4% in response to wealthy Russians approaching Yandex to purchase assets that the company plans to sell domestically. These assets have a total value of approximately $14 billion. The financial sector has increased by more than 34% thus far in 2018. Oil producers, specifically Transneft and Surgut, provided additional assistance. Despite this, shares of gold producer Polymetal International PLC decreased by more than 3 percent after the company announced that it would work on resettlement. In addition, shares of Ashinsky MZ fell after news of a potential delisting. This week, investors anticipate key corporations such as Rosneft and Gazprom to declare dividends. In Tuesday morning trading, Hong Kong shares fell 40 points, or 0.2%, to 19,638 as two Fed hawks see the need for additional rate increases this year, days after Chairman Powell signaled a pause in June. As two other officials expressed support for forbearance, traders were cautious. Reuters reported that the U.S. Department of Energy canceled a $200 million grant to lithium battery company Microvast on Monday after lawmakers raised concerns about the company's alleged connections to the Chinese government. President Joe Biden and House Speaker Kevin McCarthy remained without an agreement on the U.S. debt ceiling on Monday, despite describing their discussions as productive and pledging to continue negotiating to avoid a default. Locally, Hong Kong's annual headline CPI increased to 2.1% in April after remaining unchanged at 1.7% for the prior two months. Other early decliners included Power Asset Holdings (-3.6%), CK Infrastructure Holdings (-2.1%), and Semiconductor Manufacturing International (-1.7%). On Tuesday, the Shanghai Composite Index declined 0.2% to close below 3,290 points, while the Shenzhen Composite Index declined 0.2% to 11,100 points, erasing a portion of the previous session's gains. Almost every sector participated in the decline. The People's Bank of China maintained its key lending rate unchanged for the ninth consecutive month in a May revision to maintain economic support, despite continuing pressure to reduce the reserve requirement ratio. TRS Information (-4%), 37 Interactive (-4.9%), Inspur Electronics (-2.5%), Shenzhen Kaiflux (-5.2%), and Zhejiang Jinke (-4.5%) lead the decline among technology stocks. Other stalwarts such as China Shipbuilding Holdings (-25%), CSSC Technology (-8%), and Shanxi Xingmaocun (-2.9%) also declined. Nikkei 225 climbed 0.8% to close above 31,300, while Topix rose 0.5% to 2,186. Both benchmarks reached their highest levels since 1990 as investors reacted favorably to the robust domestic data. Japan's manufacturing sector returned to growth in May for the first time since October, the latest data showed, while service sector activity hit a record high. Japanese shares also tracked U.S. futures higher, amid growing optimism that the U.S. government will reach a deal to raise the debt ceiling and avoid default. Almost all sectors participated in the rally, with index heavyweights such as Mitsubishi UFJ (0.9%), Advantest (1.9%), Recruit Holdings (4.3%), Mitsubishi Corporation (1.6%), and Toyota Motor (1.1%) rising sharply. The S&P/ASX 200 rose 0.1% to around 7,270, recouping some earlier losses, with energy and mining stocks leading gains amid firmer commodity prices. Australian shares also tracked U.S. futures higher, amid growing optimism that the U.S. government will reach a deal to raise the debt ceiling and avoid default. Domestically, investors digested data showing that manufacturing activity in Australia continued to contract in May, while service sector activity slowed. The energy and mining sectors led the gains, with Woodside energy (0.8%) and Santos (0.8%). In early trade on Tuesday, the India BSE Sensex gained 244.6 points, or 0.4%, to a more than one-week high of 62,208.3, rising for a third straight session, tracking gains in U.S. stock futures amid hopes of a deal to boost U.S. A potential agreement on the debt ceiling. Investors continued to brace for more quarterly earnings later today. Almost every major industry is trading green, driven by metals, pharmaceuticals, tech and autos. Adani shares rose for a third straight session, with Adani Enterprises up 12.6 percent, Adani Wilma up 9.7 percent and Adani Porter up 2.3 percent, spurred by an Indian court panel report that found no U.S. sell-offs. Hard evidence of stock price manipulation alleged by the short-seller Hindenburg Institute. Companies such as JSW Energy, Ashok Leyland, Bajaj Electricals, Eixon Technologies, Biocon, Schneider Electric Infrastructure and Thyrocare Technologies will report quarterly results later today.   REVIEWING THE LAST ECONOMIC DATA: Reviewing the latest economic  news, the most critical data is: - JP: Flash data showed that Japan's banking services PMI rose to a record high of 56.3 in May 2023 from 55.4 a month earlier. It was also the ninth straight month of growth in the services sector, as both domestic and international tourism resumed and COVID-19-related disruptions dissipated further. Growth in new orders and unfilled business was the largest on record, and export sales and employment both rose at a faster pace. On inflation, service providers continued to note strong input price increases during the most recent survey period, with input price inflation reaching its highest level in three months. This contributes to the continued steady growth of output costs. Finally, despite the softening in April data, market sentiment remains positive. - JP: Flash data showed that the Bank of Japan's manufacturing PMI rose to an eight-month high of 50.8 in May 2023 from 49.5 the previous month. It was the first expansion in factory activity since October, as the post-COVID-19 recovery gained momentum, with new orders and production picking up for the first time since last June and the fastest pace in 11 months. Meanwhile, supplier lead times shortened for the first time since January 2020, albeit only slightly. Job growth slowed, and the backlog of work increased at a slower pace. On the pricing front, input cost inflation slowed to its weakest since February 2021, while output cost inflation fell to a four-month low. Finally, business sentiment remains positive despite an easing from April as the bets mount that inflationary pressures will peak soon and ease over the rest of the year as COVID-19-related disruptions recede - AU: Flash estimates show the Judo Bank Australia Services PMI at 51.8 in May 2023, down from 53.7 in the previous month. The services sector in Australia saw growth for the second month in a row, with new businesses growing more quickly. The increase in activity in the services sector has prompted companies to expand their hiring activities. Employment growth has declined due to difficulties in obtaining labor. On the price front, input inflation eased, while faster demand growth led to higher selling price inflation. - AU: Preliminary data showed that in May 2023, the Judo Bank Australia Manufacturing PMI came in at 48, unchanged from the previous month. Business conditions in the manufacturing sector deteriorated for the third straight month as new orders and output continued to decline, the report said. Foreign demand remained subdued, slowing for the sixth straight month. Output shrank for the sixth straight month, the fastest pace of contraction in 21 months. Meanwhile, input prices remain well below 2022 levels. Companies are continuing to hire, albeit at a slower pace, despite lower output levels. Business confidence in manufacturing improved, although confidence levels remained below long-term averages due to market uncertainty. - AU: Preliminary estimates show that the Judo Bank-Australia Composite Purchasing Managers Index rose to 51.2 in May 2023 from 53 in the previous month. It marked the second consecutive month of growth in the private sector, albeit at a slower rate, thanks to expansion in the services sector. New orders rose at a faster rate, and the increase in activity led to an expansion in employment levels. Input cost inflation moderated across the private sector, while output prices rose. Meanwhile, manufacturing held steady as new orders continued to decline, marking the third straight month of contraction in business conditions. Foreign demand also remained subdued, slowing at a steady pace for the sixth straight month. - SK: In May 2023, the Composite Consumer Sentiment Index (CCSI) was 98 points, up from 95.1 points in the previous month. That was the highest figure since May 2022, as easing inflation expectations led to improvements in living conditions. Consumer sentiment on current living standards rose to 88 (from 87 in April), and confidence in future living standards rose to 92 (up 90 points from April). Consumer sentiment related to future household income rose to 97 (vs. 96), and consumer confidence related to future household spending rose to 111 (vs. 110). Consumer confidence in the current domestic economic situation also rose to 65 points (compared to 58 points), and confidence in the future domestic economic situation rose to 74 points (compared to 68 points). Expected inflation for the year ahead fell to 3.5% from 3.7% in the previous month. - EU: Preliminary estimates show that Eurozone consumer confidence edged up by 0.1 point to -17.4 in May 2023, the highest level since February 2022, compared to market expectations of -16.8. European consumer confidence is gradually recovering from its September 2022 low of -28.7, but the rebound has slowed. Inflation levels, particularly core inflation, remain near record levels, prompting the European Central Bank (ECB) to remain committed to fighting high inflation. The markets are pricing in at least two more rate hikes. On the positive side, the severe phase of the energy crisis appears to have receded, with natural gas prices stabilizing at 2021 levels. Across the EU, consumer sentiment rose 0.6 percentage points to -18.1. Still, confidence remains well below long-term averages. - HK: Hong Kong's annual inflation rate accelerated to 2.1% in April 2023 after stabilizing at 1.7% in the previous two months, almost in line with market forecasts of 2%. The main upward pressure came from food (2.6% vs. 1.6% in March), housing (0.5% vs. -0.2%) and apparel and footwear (6.4% vs. 6.3%). On the other hand, prices for Transportation (2.2% vs. 2.8%) and Electricity & Utilities (17.8% vs. 19.9%) slowed down significantly. Meanwhile, underlying inflation rose 1.8% year-on-year, slightly up from 1.7% in March. On a monthly basis, consumer prices rose 0.2%, the same pace as in the previous period.   LOOKING AHEAD: Today, investors should watch out for the following important data: - EUR: French Flash Manufacturing PMI, French Flash Services PMI, German Flash Manufacturing PMI, German Flash Services PMI, Flash Manufacturing PMI, Flash Services PMI, Current Account, and German Buba President Nagel Speaks. - GBP: Public Sector Net Borrowing, Flash Manufacturing PMI, Flash Services PMI, Monetary Policy Report Hearings, and MPC Member Haskel Speaks. - USD: FOMC Member Logan Speaks, Flash Manufacturing PMI, Flash Services PMI, New Home Sales, and Richmond Manufacturing Index. - JPY: Flash Manufacturing PMI, and BOJ Core CPI y/y. - AUD: Flash Manufacturing PMI, and Flash Services PMI. - CAD: IPPI m/m, and RMPI m/m.   KEY EQUITY & BOND MARKET DRIVERS: Кey factors in the stock and bond market are currently: - US: U.S. stock futures climbed on Tuesday, with U.S. President Joe Biden and House Speaker Kevin McCarthy expressing cautious optimism that they will reach a deal to raise the debt ceiling after a meeting later on Monday. Futures contracts linked to all three major indexes rose nearly 0.3%. In regular trading on Monday, the Dow Jones fell 0.42%, while the S&P 500 and Nasdaq Composite rose 0.02% and 0.5%, respectively. Technology, real estate and financials outperformed the market, while consumer staples, materials and energy were the biggest losers. The moves come as investors eye the latest developments in debt-ceiling talks, with Treasury Secretary Janet Yellen reiterating that the U.S. could be at risk of default by June 1. On the policy front, the Fed's Kashkari said a pause or hike in June was a close call, and St. Louis Fed President Bullard said the Fed may still need to raise rates by half a percentage point this year. - US: U.S. 10-year Treasury yields bounced back from early losses to trade just above 3.7%, the highest level since mid-March, as traders assessed the outlook for U.S. monetary policy and the debt-ceiling impasse. Louis Fed President James Bullard said the Fed may still need to raise interest rates by 0.5 percentage points this year. On Friday, Fed Chairman Jerome Powell mentioned that further rate hikes may not be necessary to curb inflation due to stress in the banking sector. The chances of a pause in the rate-hike cycle have been fluctuating, but currently, traders see a 78 percent chance the Fed will hold rates steady in June. Meanwhile, President Biden is scheduled to meet with House Speaker Kevin McCarthy on Monday to continue negotiations on the debt ceiling. It followed an unsuccessful meeting of key negotiators on Friday. - FR: French 10-year OAT yields continue to hover around the notable level of 3.0%, the highest since March 9, with signals from the European Central Bank pointing to possible rate hikes ahead. ECB board member Isabel Schnabel stressed the importance of the central bank's firm fight against inflation, and ECB President Christine Lagarde said policymakers stood ready to take the necessary steps to counter price pressures. Elsewhere, ECB policymaker Joachim Nagel also said the rate hike implemented in May was not final. - IT: Italian 10-year bond yields remained above the 4.2% level, hovering near a three-week high of 4.355% reached on May 19, buoyed by expectations of further rate hikes from the European Central Bank. Recent statements by key figures at the ECB have reinforced the stance against inflation. ECB board member Isabel Schnabel emphasized the need for the central bank to remain steadfast in its fight against inflation, while ECB President Christine Lagarde reiterated policymakers' commitment to take the necessary steps to counter price pressures. Additionally, ECB policymaker Joachim Nagel confirmed that the hike implemented in May would not be the last. Finally, as widely expected, rating agency Moody's maintained Italy's rating at Baa1 with a negative outlook. The rating is one notch above junk, indicating relatively stable credit conditions in Italy. - US: U.S. 10-year Treasury yields fell about 5 basis points to 3.64% on Monday, reflecting growing uncertainty over the impasse over the U.S. debt ceiling. President Biden is scheduled to meet with House Speaker Kevin McCarthy today to try to seal a deal after a meeting of top debt-ceiling negotiators failed on Friday night. The chances of paying all U.S. bills by June 15 are slim, according to Treasury Secretary Janet Yellen, who expressed concern on Sunday. Additionally, traders are closely watching for any signs of future Fed action. On Friday, Federal Reserve Chairman Jerome Powell said rate hikes may not be necessary to curb inflation due to stress in the banking sector. As a result, the chances of a pause in the rate hike cycle have increased, with traders now pricing in an 86% chance that the Fed will hold rates steady in June. - UK: U.K. 10-year government bond yields held near 4%, the highest level since October 2022, driven by expectations of further tightening by the Bank of England. Governor Andrew Bailey recently acknowledged that further tightening of monetary policy may be necessary if inflationary pressures persist. However, he also highlighted some signs of a slight easing in the labor market. The Bank of England raised its key interest rate by 25 basis points to 4.5% in May, the highest borrowing costs since 2008. In addition, the bank raised its growth and inflation forecasts, reflecting changing economic conditions and the need to address inflationary pressures. On the economic data front, U.K. consumer confidence rose for a fourth straight month in May, reaching its highest level since Russia invaded Ukraine, marking a notable upturn in consumer sentiment and optimism for the U.K. economy. - GE: German 10-year government bond yields remained above 2.4%, the highest since April 27, largely on expectations that the European Central Bank will continue its efforts to tighten monetary policy in response to concerns over inflation, despite fears A series of rapid rate hikes could have an impact on the financial system. In addition, the outlook for strong GDP growth in the euro zone further supports the view of future rate hikes. Earlier this month, the European Commission revised its economic forecasts, predicting higher growth rates this year and into 2024. Forecasts show growth of 1.1 percent this year and 1.6 percent in 2024. In addition, the committee forecasts that inflation will rise by 5.8 percent in 2023 and by 2.8 percent in 2024. Investors expect the ECB to take a gradual approach to raising the deposit facility rate, which could peak at around 3.7 percent in September.   LEADING MARKET SECTORS: - Strong sectors: Communication Services, Real Estate, Health Care, Information Technology. - Weak sectors: Consumer Staples.   TOP CURRENCY & COMMODITIES MARKET DRIVERS:  Кey factors in the currency and commodities market are currently: - NZD: The New Zealand Dollar 50 Index fell 48.89 points, or 0.41%, to 11,944.20 on Tuesday, falling for a second straight session, as traders continued to take a cautious stance ahead of the Reserve Bank of New Zealand's interest rate decision on Wednesday. The central bank is widely expected to raise the cash rate by 25 basis points to 5.5% for the 12th consecutive time and could leave the door open for further tightening. The cash rate is expected to peak at 5.75% in July, according to Bloomberg News. Meanwhile, inflation fell to 6.7% in the first quarter of 2023, but remains far short of the board's 1-3% target. Separately, concerns about a U.S. debt default persisted as talks between President Biden and House Speaker McCarthy failed to make any progress. Consumer durables, healthcare and manufacturing dragged down Gentrack Group Ltd. (-4.4%), Hallenstein Glasson (-3.2%), Scales Corp. (-2.7%), Fisher & Paykel Healthcare (-2.4%) and Mercury NZ Ltd. (-1.7%) fell sharply. - JPY: The yen traded at 138 per dollar, still at its weakest level since late November amid divergences in U.S. and Japanese monetary policies. The Bank of Japan kept its key short-term interest rate at -0.1% despite high inflationary pressures. While Japan's headline inflation was forecast to slow further to 2.5 percent in April, it unexpectedly accelerated to 3.5 percent, while core inflation rose to a three-month high of 3.4 percent. On the other hand, traders have been slow to price out expectations for a near-term rate cut by the Federal Reserve as U.S. inflation data remains weak, retail sales have been upbeat, and the labor market has shown no signs of easing. Meanwhile, investors are keeping a close eye on U.S. debt ceiling talks as no progress has been made before the June 1 deadline. - GLD: Gold eased to $1,960 an ounce on Tuesday, extending losses from the previous session, weighed down by a stronger dollar amid hopes the U.S. will avoid a default and hawkish remarks from Federal Reserve officials. President Joe Biden and House Speaker Kevin McCarthy have expressed cautious optimism that a deal will be reached to raise the debt ceiling, with Treasury Secretary Janet Yellen confirming the US could be at risk of default by June 1. On the monetary policy front, the Fed's Bullard suggested the possibility of raising interest rates by another half point this year, while the Fed's Kashkari described a decision to pause or raise interest rates in June as a close call.Markets have cut bets on a rate cut in the US this year, with rates holding steady at around 4.7% until December.   CHART OF THE DAY: As investors cautiously awaited the latest news on U.S. debt-ceiling negotiations on Tuesday, Treasury Secretary Janet Yellen reiterated that the U.S. could default on its debt by June 1. In addition, investors anticipated May data on manufacturing and services sector activity in the euro zone, as well as the most recent current account report assessing the region's economic health. Tuesday had no significant earnings reports. In pre-market trading, DAX, STOXX 600, and FTSE 100 futures were all flat to marginally negative.           Long-term Channels Trading Strategy for: (German DAX index).Time frame (D1). The primary resistance is around (16751). The primary support is around (15706 ). Therefore, the next most probable price movement is a (up/consolidation) trend. (*see all other details on the chart).