Rise and shine everyone.

US Equity Futures are trading higher after a long weekend. This week brings us the PCE Inflation Data on Friday but also the second estimate for the US Q1 GDP on Thursday. Not to mention, we have a whole host of Fed speakers, yet again. Apple is higher on news of iPhone shipments to China +52% y/y v -19% y/y during Q1.

Asian markets are lower across the board, despite further measures being introduced by the Chinese government for property. It looks like the market is having a tough time believing that these measures will be enough to turn things around.

Over in Japan, we saw the USD/JPY closing in on 157 again, before hotter than expected services PPI came out (highest since 2015). This drove yields higher and the Nikkei pulled back. BoJ Governor Ueda’s comments over the weekend were about fighting inflation, while large Japanese companies report that FX volatility will hurt operating profits by $1.7B in FY24.

European markets gave up their early momentum despite ECB members confirming the rate cut next week. ECB Member Villeroy even discussed a back-to-back cut in June and July. Among lagging sectors are consumer discretionary and telecom; oil & gas subsector supported following two days of gains in Brent.

Speaking of Brent, oil is trading higher after reports of further escalation in the Middle East with an Egyptian soldier killed at the Rafah border. Further news points towards Saudi Arabia is preparing to sell around $10 billion worth of shares in state oil giant Aramco next month as part of its economic reform efforts. With the start of the US driving season as well, we see oil remaining bid. The next OPEC meeting takes place on Sunday, 02 Jun.

Remember, we’re heading into month-end and flows are generally supportive during this time.

One-day Settlement for US Markets

Starting today the US market moves to a T+1 settlement system, instead of the T+2. This means trades should settle faster but, it also means that systems and processes need to adapt and there’s less time to fix errors. The T+1 system was changed almost a hundred years ago because of the sheer volume of trades and overseas dealings.

With this, Wednesday will see double settlements as trades from Friday’s T+2 get settled, alongside trades from Tuesday. In the bigger scheme of things, however, it also means overseas investors will have to source USD faster to settle their trades and banks will likely have to adjust their operating hours. There will be a period of lower liquidity as the backoffice adjust to this new system.

China’s $47.5B Semiconductor Fund

China's third semiconductor fund, the National Integrated Circuit Industry Investment Fund Phase III (Big Fund Phase III), was established on May 24 with a total registered capital of RMB 344 billion (US$ 47.5 billion), surpassing the combined capital of the first two phases. With a 15-year operating term, Phase III indicates long-term support for China's semiconductor industry. Unlike Phase II, which focused on manufacturing investments, particularly memory chips, Phase III is expected to prioritize long-term projects such as foundry, memory, advanced packaging, key equipment, materials, cutting-edge chip design (e.g., AI), and software (EDA/IP). The fund has attracted more state-owned bank equity funding, with institutions like ICBC, ABC, CCB, BOC, BoComm, and PSBC representing a third of the equity stakes. Notable investments include Will Semiconductor, Hwatsing Tech, and Montage.

Chart of the Day

Recession fears have certainly subsided. We still do get the occasional mention from a market analyst here and there but, by & large, the consensus is that the US has avoided a recession following this aggressive tightening cycle.

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)