Watch For:

U.K. monthly retail sales figures; Consumer confidence survey for France, Italy; Italy business confidence survey; no major corporate trading updates

Opening Call:

Cautious opening for stock in Europe on Friday as investors tracks progress in the U.S. debt-ceiling negotiations. In Asia, stock benchmarks were broadly higher; Treasury yields were little moved; the dollar weakened; oil fell and gold advanced.


European stocks could be little moved amid cautious sentiment, as the looming U.S. debt-ceiling deadline continues to cause worry among investors.

Top House Republicans and the White House on Thursday sounded upbeat on Washington's debt-ceiling talks with President Biden saying negotiations were "making progress." But policy makers and analysts are warning of a market calamity should the limit not be raised in time.

Marko Papic, chief strategist at the Clocktower Group, said markets are trading in line with how negotiations have unfolded.

"I'm pleasantly surprised with how well negotiations have gone, and how well the market has taken it," he said. "But I'm still cautious."

"People are nervous and a bit concerned about if the government is going to miss an interest payment," said Robert Pavlik, senior portfolio manager at Dakota Wealth Management, adding that his expectation was for talks to go past the June 1 deadline, rattling markets, but then for a resolution to be found.

Meanwhile, a slate of economic data showed U.S. economic growth and inflation remain hot, adding to fears of persistently tight monetary policy from the Federal Reserve.

Gross domestic product, personal consumption, and Core PCE-the Fed's preferred inflation gauge-all came in hotter than expected for the first quarter. Jobless claims increased slightly last week, but remained at historic lows.

Recent remarks by senior Fed officials show there's little consensus on what to do in June. Several say interest rates need to go higher this year while most others have taken a wait-and-see approach.

The president of the Boston Federal Reserve Thursday said signs of waning inflation suggest the central bank may be "at, or near, the point" where it can stop raising interest rates.

"While inflation is still way too high, there are some promising signs of moderation," said Susan Collins, president of the Boston Fed.

Collins said she would base her judgment on upcoming reports on inflation, employment and economic growth before the Fed's next big meeting on June 13-14.


The dollar weakened as investors track Fed officials' commentary and Treasury yields.

There are core tailwinds supporting USD's investment case, said Chris Weston, head of research at Pepperstone.

There's a cyclical element where U.S. economic data has recently been better than expected, Weston said.

There are also U.S. mega-cap tech companies that attract international capital, Weston adds, noting this has led to USD becoming the "best house in the street."

"While broader market attention is highly focused on debt ceiling negotiations...the dollar's rise has occurred amidst ongoing resilience in US economic data, softer data abroad, and ever-evolving Fed expectations," Bank of America's Alex Cohen said.

Recent remarks from Fed officials also "suggest that the Fed may not be at terminal after all," Cohen said.

Navellier & Co. chairman Louis Navellier pointed to the jobless claims that came in lower-than-expected which he said "led to forecasts for Fed cuts to be pushed into early 2024 and the likelihood for another Fed increase by July to 60%, with a pause in June increasingly being heard in Fed-speak."


Treasury yields were little changed as traders priced in a greater chance of further interest-rate hikes by the Federal Reserve through July.

Debt-ceiling concerns and Federal Reserve policy continued to impact different parts of the market for U.S. government paper.

Fed funds futures traders saw a growing likelihood that the central bank will hike interest rates again in June, following Wednesday's release of the Fed's May meeting minutes.

Markets are pricing in a 52.8% probability that the Fed will hike by another 25 basis points, to 5.25%-5.5%, on June 14, according to the CME FedWatch Tool.

Traders also see a 24.9% chance of another hike of that size in July, assuming the June move takes place.


Oil futures are lower in Asia on possible position adjustment.

The downside for oil prices should be supported in the longer term due to OPEC+ production cuts and a more-resilient-than-expected U.S. economy, says Fawad Razaqzada, market analyst at City Index and;!!F0Stn7g!BewTTUy3F6rmqr6ydjDkUYWRFxgA4zGu48XxYMJ-YN4Z3Ln1D4qUUTGtqP2sNKfv4WM5X9KcSZrZllaCHwHUVZgJ3wuoXzqgb47pinhncMk$ , in an email.

The more time that transpires, the tighter the oil market will become, as the OPEC+ cuts filter through, Razaqzada added.

"The debt ceiling talks debacle that have gone into overtime is raising concerns of a default," said Phil Flynn, senior market analyst at The Price Futures Group.

"These concerns have misdirected the oil market focus from the lurking supply shortage that may end up doing more damage to the economy than a default by the United States."


Gold gained early Friday amid focus on the U.S. debt ceiling.

"The debt ceiling drama is getting most of the attention, but a hawkish shift in tone by a list of [U.S. Federal Reserve] officials recently has holstered the dollar and sent policy-sensitive rates (beyond those durations reacting to the debt negotiations) higher," analysts at Sevens Report Research said.

"Bottom line for gold, if the dollar continues higher and yields extend their recent advance, the 2023 uptrend will likely break," the Sevens Report analysts said.

U.S. economic data such as personal income and spending due later today could be the next big catalyst for gold, in the absence of any shocking Fed commentary, Oanda said.


Copper prices rose in Asia, as some investors deemed the recent selloff as overdone.

"Sentiment was boosted by comments from major producers that good times are not far away," ANZ analysts said.

They cited BHP's positive view on China's property-market recovery and mining investor Robert Friedland's bullish view on the commodity.


Chinese iron-ore futures were lower amid weak demand from steel mills.

"[The] crude steel production cut policy began to ferment recently. Coupled with the off-season steel price pressure, it remains doubtful that the steel mills will resume production," Baocheng Futures analysts said.

Looking ahead, weak iron-ore demand will likely persist, and pressure on prices is set to remain, the analysts say.



Biden, McCarthy See Progress but No Deal on Debt Ceiling

WASHINGTON-The House of Representatives left for its Memorial Day weekend recess with some progress but no deal in place to raise the nation's debt ceiling, as the White House and top Republicans sought to agree on the central issue of government-spending levels.

Negotiators are narrowing in on a two-year spending deal that would raise the debt ceiling for the same amount of time, extending it past the 2024 election, people familiar with the discussions said, but noted nothing has been finalized.


U.S. Regulator Vows Tough Line on Problem Banks

Large U.S. banks found to have consistently poor risk management and other failings will face more heavy-handed government intervention, including demands to shore up capital or exit lines of business.

A policy unveiled Thursday creates a new set of guardrails targeting complex banks that fail to fix "persistent weaknesses," said Michael Hsu, head of one of the nation's top banking regulators, the Office of the Comptroller of the Currency.


Pressure Mounts for U.S. Response After China's Micron Ban

Commerce Secretary Gina Raimondo and her Chinese counterpart held a pivotal meeting on U.S.-China ties as pressure was building on the Biden administration to respond to Beijing's blacklisting of the U.S. semiconductor maker Micron Technology.

Any retaliation by the U.S. over Micron carries the risk of setting back a fragile rapprochement after months of bruising acrimony. Raimondo's dinnertime meeting Thursday with Chinese Commerce Minister Wang Wentao was the latest in a series of high-level talks intended to restart dialogue and the first one to take place in Washington.


Lufthansa Buys Minority Stake in ITA Airways

Germany's Deutsche Lufthansa said it had reached an agreement with the Italian Ministry of Economy and Finance to acquire a 41% stake in ITA Airways, the Italian carrier formerly known as Alitalia, building on its exposure to what Lufthansa called the third-largest airline market in Europe.

The German carrier group said Thursday that it would inject 325 million euros ($349.4 million) into ITA to buy the stake, with the Italian government pledging a further EUR250 million. The deal, which is subject to regulatory approvals, enables Lufthansa to increase its stake in the carrier or even acquire it outright, making ITA's purchase price dependent on the achievement of jointly agreed targets for net debt and earnings.


Tesla, Ford Team Up in EV Charging Deal

Tesla is opening some of its fast-charging network to Ford Motor customers in the U.S. and Canada, the companies' chief executives said in a joint appearance Thursday.

The deal would give Ford customers access to more than 12,000 fast-chargers, known as Superchargers, beginning in early 2024. The Detroit company also plans to adopt Tesla's charging port.


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Expected Major Events for Friday

06:00/UK: Apr UK monthly retail sales figures

06:00/SWE: Apr PPI

06:00/SWE: Apr Retail sales

06:00/NOR: Apr Retail Sales

06:30/HUN: Apr Employment & unemployment

06:45/FRA: May Consumer confidence survey

07:00/SVK: Apr PPI

08:00/ITA: May Consumer Confidence Survey

08:00/ITA: May Business Confidence Survey

08:00/AUT: May Austria Manufacturing PMI

08:00/ICE: May CPI

09:00/LUX: Mar Trade

All times in GMT. Powered by Onclusive and Dow Jones.

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This article is a text version of a Wall Street Journal newsletter published earlier today.


(END) Dow Jones Newswires

May 26, 2023 00:14 ET (04:14 GMT)

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