Debt ceiling deal passes crucial next step

The US debt ceiling deal has passed the crucial next step on its journey as it was voted through the House of Representatives 314-117. The support of Democrats saw off the revolt by some Republican Party members as 71 voted against the deal. The bill now goes to the Senate where it is expected to pass without incident, coming in just in time before the June 5 deadline when Treasury Secretary Janet Yellen has said the government will run out of money if a deal is not agreed. Meanwhile, JOLTS job openings data showed a surprise rise to 10.1mn in April, up from an upwardly revised 9.8mn in March.

China’s Caixin manufacturing PMI surprised to the upside for May in data released this morning, coming in at 50.9. This was up from 49.5 the previous month and beat predictions for the same, in contrast to the official manufacturing survey released yesterday which disappointed and came in below the neutral 50.0 mark.

France’s CPI inflation rate fell to 6.0% y/y in May on the preliminary reading, down from 6.9% in April and beating expectations of a 6.4% gain. Prices were 0.1% lower than the previous month, compared with a predicted 0.3% gain. This marked the slowest pace of annual price growth since last May and followed on from a faster than expected fall in Spanish CPI inflation released the previous day. The trend was not universal in the Eurozone – Italy’s CPI inflation did also slow, from 8.7% down to 8.1%, but it was still above the projected 7.5%. Nevertheless, with German inflation also expected to slow markedly on the back of regional prints released yesterday, and the headline Eurozone figure expected to follow suit, the data eases pressure on the ECB and expectations of a further 50bps of hikes have been tempered.

UAE petrol prices for June have been announced by the fuel price committee. Petrol prices are down by around 6.5% compared to last month, while diesel has dropped by 11.6%.

Today’s Economic Data and Events

• 16:30 US initial jobless claims, week ending May 27. Forecast: 235
• 18:00 US ISM manufacturing survey, May. Forecast: 47.0

Fixed Income

• US Treasuries pulled stronger overnight, abetted by progress on the debt ceiling legislation as well as comments from several Fed officials who supported a pause at this month’s FOMC meeting. Fed governor Philip Jefferson echoed chair Jerome Powell’s view that the Fed could pause next month to assess data while Patrick Harker from the Philadelphia Fed seemed to support moving at every other meeting if needed. Yields on the 2yr UST fell 5bps to 4.4027% while the 10yr was down about 4bps to 3.6426%.

FX

• The dollar managed to gain ground against the Euro overnight as data from the US economy continued to come in hot. EURUSD fell 0.4% to 1.0689 though the drop wasn’t matched in other peers. GBPUSD added 0.2% to rally for a fourth day, closing at 1.2441 while USDJPY dropped by 0.3% to 139.34.
• Commodity currencies were split with USDCAD moving in favour of the loonie, down 0.2% at 1.3574 while AUDUSD weakened to 0.6503, down 0.2%, and NZDUSD fell about 0.4% to 0.6022.

Equities

• Weak data out of China and Japan yesterday morning weighed on East Asian equity markets throughout the session, with the major indices all closing lower. The Hang Seng flirted with falling into a bear market but in the end lost 1.9% on the day to close 19.6% its recent peak, while on the mainland, the Shanghai Composite dropped 0.6% as PMI data disappointed. In Japan, the Nikkei ended down 1.4% after weak retail sales and industrial production data.
• In the US, the Dow Jones dropped 0.4% while both the NASDAQ and the S&P 500 ended the day 0.6% lower.
• Locally, the ADX closed down 0.8% while the DFM added 0.3%. Reuters has reported that Dubai’s Road and Transport Authority is mulling a possible IPO for its taxi business: figures released earlier this week showed a record number of taxi journeys in Dubai in the first quarter of the year.

Commodities

• Oil prices fell a second day running with Brent down 1.2% at USD 72.66/b and WTI off by about 2% at USD 68.09/b. Data from the API showed a build in US crude stocks last week of 5m bbl along with increases in gasoline and distillate stockpiles.