The Morning Update

The USD edges higher, oil prices firm, and equity markets are mixed, while US yields rise in cautious markets. Currency and equity markets are struggling for direction amid Russian attacks on Ukraine grain, next week's central bank's interest rate decisions, and corporate earnings releases. The Bloomberg Commodity Index is set for its 3rd weekly gain, following a surge in wheat prices after the escalation of tensions in the Black Sea. The downbeat corporate earnings contrast with signs of resilience in the US, Japan, & UK economies that are raising doubts over whether central banks can claim victory on inflation and wind down rate-hiking cycles. Central bank's interest rate decisions will be the primary focus for investors with the Fed, ECB & BOJ  decisions next week and the BoE's rate decision the following week. Today sees no key economic releases in the US, while in CAD Retail Sales will be in focus.

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In other news. Japan's inflation outpaces US price rises for the first time in 8 years. US stock futures are higher after the DOW registers the longest winning streak since 2017. Indian ban on rice exports stokes fear of global food inflation. UK conservatives lose two seats after big by-election swings to Labour and Lib Dems. UK retail sales jumps 0.7% in June, while consumer morale falls for the first time since January. OpenAI, Google & others pledge to watermark AI content for safety-White House. The Federal Reserve officially launches the new FedNow instant-payments service.

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In currency markets. The Japanese Yen weakens after sources say BOJ leaning toward holding key rates unchanged. GBP heads for its biggest weekly fall since February as inflation cools. NZD & AUD fall on expectations of rate hikes from the Fed & ECB. China's Yuan stalls as investors look for Beijing stimulus. South African Rand weakens after the central bank decided to pause interest rate hikes, its first pause since Nov 2021. CNY is flat, while Asian currencies slip 0.2% on average vs USD. Trading currencies are under pressure with CHF flat, NOK easing 0.3%, AUD & SEK falling 0.4%, NZD, MXN & ZAR weakening 0.75%, while JPY tumbled 1.1% vs US$.

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Oil prices strengthen as markets like Chinese stimulus and gained further support from falling US inventories. The CAD opens flat, outperforming its peers as stronger commodity prices outweighed increasing risk-off sentiment helping the loonie hold steady vs the USD in early trading. The focus will be on CAD Retail Sales today which is expected to slip to 0.5% (m/m May) vs 1.1% in April. If we see CAD Retail Sales print within expectations we anticipate the CAD to continue to hold steady as investors are likely to be sidelined heading into next week's Fed interest rate decision.

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EURCAD holds steady at weekly lows as stronger commodity prices are supporting CAD and offsetting the prospect of an interest rate hike by the ECB next week.

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EUR remains on the defensive as it battles to hold above 1.1100 as risk-off sentiment returns. Euro continues under selling pressure after falling over 100 bps overnight as the USD extends gains on weakening EU growth sentiment and the prospect that the ECB could pause rate hikes beyond July as domestic inflation levels ease. Intraday with no key US economic releases, we expect the Euro to stall as investors focus on next week's central bank's interest rate decisions.

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GBPEUR holds steady as investors are sidelined with no key economic releases and ahead of the interest rate decisions next week.

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GBP slips in early trading despite strong domestic data. The pound is set for its biggest weekly fall vs USD in 5 months after the UK's CPI dropped more than expected in June with its core inflation falling from the 31-year high it recorded in May. Today, we saw UK retail sales jumped 0.7% in June, while consumer morale falls for the first time since January. Expectations that the BoE will hike interest rates by 25bps on August 3rd, lower than originally expected at 50bps after inflation levels showed signs of cooling for the first time in 2 years. Today we anticipate the pound will steady within current ranges as investors await the Fed & ECB's rate decisions next week.

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