Macro Matters – Weekly review, w/c May 29

TradeDay Macro Matters

Macroeconomic/Geopolitical Developments

• US debt ceiling brinkmanship heightens market anxiety.

• Bond yields rise on expectations of another Fed rate hike.

The US Debt Ceiling Goes Down to the Wire

With no agreement yet to raise the $31.4 trillion US debt ceiling, concerns are mounting. The “X-date risk range” between June 1 and 13 could trigger market panic unless Congress acts swiftly. Fitch Ratings has placed the US on “negative watch,” echoing 2011 when a similar standoff led to a credit rating downgrade by S&P and a market sell-off. A US default would severely disrupt global financial systems, pushing bond yields higher and creating widespread asset repricing.

Bond Yields Move Higher

The easing US banking crisis has refocused market attention on persistent inflation, prompting central banks to hint at further tightening. Markets are now pricing in another 25bps Fed hike, with rate cuts delayed into 2024. Treasury yields have surged, with 2-year notes at 4.50% and 10-year notes at 3.80%, driving a USD rally and pressuring commodities. UK Gilt yields are also climbing amid stubborn inflation, while global equities face headwinds from rising yields.

United States

• Fed Minutes Fuel USD Gains: Hawkish FOMC minutes and comments from members like Bullard and Barkin suggest a split on future hikes. With inflation moderating slowly, further tightening may be required.

• Nvidia Boosts NASDAQ: A stellar earnings report has propelled Nvidia shares up 25%, driving NASDAQ 100 futures to 13-month highs. Key support lies at 13,566.

• What’s Next? Key data points ahead of the June FOMC include Nonfarm Payrolls and US CPI. A strong jobs report could bolster rate hike expectations, raising yields and pressuring equities and commodities.

Europe

• UK Inflation Challenges the BoE: UK inflation remains elevated, with core CPI rising due to services inflation. Markets expect at least two more rate hikes from the BoE, driving Gilt yields higher and sustaining GBP strength.

• ECB Stays Hawkish: The ECB signals further tightening, with potential for up to three more hikes. EUR/USD may test support at 1.0480/1.0600.

• What’s Next? Final PMIs on Thursday and Eurozone HICP inflation data will be closely watched. Core HICP is expected to show only a slight reduction, keeping ECB hawks in play.

Asia

• RBNZ Dovish Hike Pressures NZD: The Reserve Bank of New Zealand raised rates to 5.50% but signaled a peak, sending the NZD lower.

• JPY and Carry Trades: Low-yielding JPY continues to attract carry trade flows, supporting USD/JPY gains as US rates rise.

• What’s Next? Chinese PMIs will offer insights into the sluggish economic recovery, with any downside surprises likely impacting global risk sentiment.

Commodities

• Oil Futures Volatility: Mixed signals from OPEC+—Russia downplaying further cuts while Saudi Arabia warns short-sellers—keep oil prices in a choppy range. Key resistance lies at $73.90/$75.75.

• Gold Weakens: Rising US yields and a stronger USD have broken gold futures below $1950/$1970 support. Further downside toward $1900 is possible.

On the Calendar

• May 30: US Consumer Confidence, Dallas Fed Manufacturing Index.

• May 31: Japanese Retail Sales and Industrial Production, Chinese PMIs, German Inflation, Canadian GDP, US JOLTS job openings.

• June 1: Final Eurozone/UK PMIs, Eurozone Flash HICP, US ISM Manufacturing.

• June 2: US Nonfarm Payrolls.

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