Risk Firmly Off

Stocks lower, yields holding near highs, dollar near its two-month high, copper down very hard to a fresh 6-month low...the dr speaks. Debt ceiling wrangling is –ve for risk whichever way you cut it...fact is market has been buoyed by a QT pause all year and we are about hit to play again...draining liquidity has to be –ve for risk.

Europe Peels Ahead

London, Paris and Frankfurt are all stealing the lead from Wall St, posting declines of more than 1% in early trade on Wednesday, following on from the S&P 500’s 1.12% decline yesterday led by tech (Nasdaq -1.26%)...taking it squarely back into its 4,100-4,150 range. Failure to smash 4,200 shows not just debt ceiling angst but lack of breadth – big tech exhausted, laggards are not appealing; only a third of stocks have beaten the index this year…momentum is very lacklustre. The FTSE 100 dipped to its lowest since early April, DAX under 16k again to a 1-week low after hitting a record last week. US futures are lower this morning with risk firmly offered.

Data and the Debt Ceiling

US House Majority leader Steve Scalise questioned Yellen's June 1st debt ceiling deadline...maybe signalling willingness to take it up to and maybe beyond the wire: "We’d like to see more transparency on how they come to that date".

UK headline inflation fell below 10% for the first time since August, dropping to 8.7% against 8.2% expected and down from 10.1% in March...all energy; however, food price inflation was steady at 19.1% from 19.2%...and core rose to 6.8% from 6.2%! This core reading is the highest since 1992 and shows how entrenched inflation is becoming – the BoE needed to be far more assertive but has failed. Markets pricing in an extra rate hike by the Bank of England...peak seen at 5.5% now...sterling spiked higher but pared gains, still firmer after yesterday’s two-month lows against the US dollar. 2yr gilt yields at the highest since the Sep/Oct mini-Budget melt-up….no stress today though! Even the IMF says Britain will grow better than expected this year…governor Bailey to speak later today.

MKS

Turnaround strategy yadda yadda…inflation is running at 10% - you should be growing revenue by 9.9%...but certainly there is some kind of positive perception about the company, the strategy and the management; and the stock is benefiting from this. LFL food sales +5.4% seems OK but not excessive…margins compressed, 3.4% in food vs 4% management target. Clothing and home margins +8.7%, above 2019/20 levels, but below the 10% target. Online margin down to 5% from 9.1% due to investment and cost pressures. Overall profits rose more than 20% and shares are +8% today, now +40% YTD – at this rate it will be back in the FTSE 100 before long – funnily enough just as Ocado is leaving (IMI likely entering in its place next week).

Elsewhere in the Markets...

Kiwi dollar fell sharply after the RBNZ raised rates 25bp to 5.5% as expected although minutes showed two of seven MPC members dissented and a pause was discussed...hints at end of rate hike cycle hitting NZDUSD, which plunged to a roughly two-month low against.

What recession? US business activity unexpectedly rose to a 13-month high, according to the S&P Global preliminary composite PMI. Ten-year Treasury note yields rose to 3.725% on Tuesday, the highest in well over two months.

 Oil firmer with Prince Abdulaziz bin Salman, Saudi Arabia’s energy minister, warning oil short sellers to “watch out”. He was speaking at a Bloomberg forum in Qatar  - market taking this as signal Opec+ could do more. API reported big draw of 6.8m barrels, EIA today.

GBPUSD – resistance at the 21-day EMA, so far holding around the 50-day SMA.