The Morning Update

The USD holds steady, oil prices firm, equity markets are down, and US yields are mixed as risk sentiment fades. Equity markets are under pressure from a combination of China's debt concerns, a hawkish Fed, and White House comments on China. San Francisco Reserve Bank President Mary Daly said the Fed still has "more work to do" to combat rising prices. In China, the government moved to manage local government debt, in an effort to ward off financial instability, as property developers are showing losses in H1/23. Biden calls China a 'ticking time bomb' over economic troubles. Today, the focus will be on the US Producer Price Index ex-food & energy y/y July and the Michigan Consumer Sentiment Index to help provide intraday direction to the currency markets.

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In other news. China sends finance experts to tackle regions' debt-FT. IEA sees slower 2024 oil demand, tightening markets in 2023. UK economy picks up pace in the second quarter. Italy signs preliminary deal with KKR to take up to 20% of TIM's grid. Maui wildfire death toll hits 55 and may rise, recovery to take years. Chinese tech giant Huawei reports tepid consumer revenue growth for the first half of 2023. Poland to vote in privatization referendum, likely alongside October election.

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In currency news. The USD is set for a fourth week of gains, it's longest streak since Feb. GBP strengthens on positive GDP growth. AUD & NZD remain under pressure on longer-term China growth concerns. Chinese Yuan tests 1-month lows weighed down by domestic property woes. CNY drops 0.25%, while Asian currencies slip 0.1% on average vs USD. Trading currencies are mixed with NOK tumbling 0.7%, NZD & SEK falling 0.3%, while CHF & ZAR are flat, JPY & AUD firming 0.1%, MXN strengthening 0.45% vs USD.

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Oil prices retest their highs amid optimistic demand forecasts from the OPEC producer group and the IEA. CAD holds steady straddling 1.3450 as investors prepare for another US inflation report after yesterday's CPI ex Food & energy costs rose 4.7% y/y. CAD remains under pressure after Fed Daly's hawkish comments and increasing risk-off sentiment continues to support the USD. Intraday US data releases will be the primary driver of currency markets, while stronger oil prices should help CAD's short-term weakness.

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EURCAD continues to edge higher testing a new August high, up nearly 2% month to date as China growth concerns continue to keep pressure on commodity currencies.

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EUR holds within a tight trading range ahead of another key US inflation report. Euro is holding close to 1.1000 and remains in positive territory vs USD as the markets consolidate heading into the US PPI & consumer sentiment data. Annual PPI is forecast to rise 0.7% in July vs 0.1% in June, if July's PPI comes in lower than expected we could the USD come under selling pressure. Going forward we see Euro is to remain capped towards 1.1100 as expectations grow that the ECB will end its interest-raising policy.

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GBPEUR strengthens on the back of better-than-expected UK growth data which increases the prospect of further BoE rate increases.

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GBP edges above 1.2700 after upbeat UK data. The pound crossed into positive territory vs its peers after the UK showed that the economy avoided stagnation. The UK Real Gross Domestic Product expanded at an annual rate of 0.4% in Q2/23, better than the expected 0.2% growth. UK Industrial Production & Manufacturing Production also increased by 1.8% & 2.4% respectively on a monthly basis in June. Intraday US inflation & Consumer data releases will help drive intraday direction.

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