Australia has seen a sharp rise in inflation. Chinese PMI data disappointed investors

The leading Republican in Congress, Kevin McCarthy, on Tuesday urged his party to support a bipartisan deal to raise the $31.4 trillion US debt ceiling and avert a catastrophic default ahead of a procedural vote. Both Democratic President Joe Biden and House Speaker McCarthy predicted that they would get enough votes to pass the legislation by June 5. Despite the progress, several Republicans said they would resist the deal.

The news of the debt ceiling agreement still leaves uncertainty about the prospects for US creditworthiness. Analysts believe that despite positive progress toward a deal, there is a high probability that Fitch Ratings will downgrade the US credit rating. During the previous debt ceiling crisis in 2011, Standard & Poor’s rating agency downgraded US’s highest “AAA” rating one notch days after the debt ceiling agreement, citing insufficient steps to fix the country’s financial situation.

The US consumer confidence fell to a six-month low in May. The Conference Board consumer confidence index this month fell to 102.3, its lowest level since last November, from an upwardly revised 103.7 in April. Consumers were less optimistic about the labour market, with the share of those who think jobs are “plentiful” falling to its lowest level since April 2021 and the share of those who think jobs are “hard to get” rising to a six-month-high.

Spain’s inflation rate declined from 4.1% to 3.2% yearly. France and Italy will release inflation data today, followed by the overall Eurozone figure tomorrow. Inflationary pressures in the region are expected to continue to ease.

Oil fell 4% yesterday due to concerns over Fed action on rates and OPEC’s production decision. Crude oil prices fell amid growing speculation that the Federal Reserve will raise rates in June. But before the Fed meeting, OPEC+ countries will meet on June 4. Tensions between Saudi Arabia and Russia are rising as Moscow continues to pump huge amounts of cheaper oil into the market, undermining Riyadh’s efforts to maintain energy prices.

Asian markets traded yesterday without a single dynamic. Japan’s Nikkei 225 (JP225) gained 0.30% on the day, China’s FTSE China A50 (CHA50) fell by 0.32%, Hong Kong’s Hang Seng (HK50) added 0.24% on Tuesday, India’s NIFTY 50 (IND50) increased by 0.19%, and Australia’s S&P/ASX 200 (AU200) was negative 0.11% on the day.

Activity in China’s manufacturing sector declined for the second month in a row in May, raising further questions about the country’s economic recovery. Weak demand and slowing capital investment put pressure on the country’s biggest economic engines. The manufacturing PMI fell to 48.8 from 51.4, a reading below 50 indicating contraction. The service sector remained above 50 but declined from 56.4 to 54.5 for the month. China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indices fell 1% and 0.6%, respectively, after the news, with the blue-chip index reaching its lowest level in six months. It should be noted that China is also struggling with a resurgence of COVID-19 cases, with some officials warning that the number of cases could peak by the end of June.

In Australia, consumer prices rose much more than expected in April, prompting markets to consider a greater chance of further rate hikes. On an annualized basis, the CPI rose from 6.3% to 6.8%. Governor Lowe said Wednesday that Australia’s Central Bank will do all it can to get inflation under control, warning households to prepare for trouble ahead while risks of higher inflation persist. The RBA predicts that overall inflation will return to the top of the bank’s 2-3% target by mid-2025, which will be slower than in many other countries.