The Morning Update

The USD rallies, oil prices drop, equity markets are down, and US yields are mixed as risk sentiment wanes. The USD continues to benefit from increased risk aversion, while global equity markets are headed for their biggest weekly decline in more than 3 months. Weak euro-area economic data heightened anxiety that hawkish global central bank policies will tip economies into recession. German PMI  data fell more than expected in June driven by a slowdown in services and sustained weakness in factories causing Euro to tumble on the data. Today focus shifts to the US PMI data alongside speeches from Fed Mester, Bolstic & ECB Panetta will help provide direction to currency markets.

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In other news. Central banks' battle with inflation enters a new phase of 'pain'.-FT. German house prices fall at a record rate. The EU plans to relax GMO restrictions to help farms to adapt to climate change. Indian PM Modi to meet CEOs as Washington visit concludes. Rich nations finalize $100bn climate aid at Paris summit. Ukraine says it advances in the south, and stops Russian attack in the east. Canada will require Google & Meta to pay media outlets for news under Bill set to become law.

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In currency news. The US$ rallies aggressively as risk-on sentiment wanes. EUR tumbles on weak German PMI data. Commodity currency comes under selling pressure as recession concerns growth. Turkish lira hits a fresh record low after a smaller-than-expected rate hike (6.5%) on Thursday. CNY is flat, while Asian currencies weaken 0.35% on average vs US$. Trading currencies are volatile with NOK tumbled 2%, AUD falling 1%, NZD, ZAR & SEK weakening 0.75%, CHF & MXN sliding 0.5%, while JPY is flat vs US$.

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Oil prices fall almost 2% in early trading on demand worries after the flurry of hawkish central bank comments and interest rate hikes. C$ retraces from a 9-month high of 1.3140, trading back above 1.3200 as increasing fears that higher global interest rates will drive many countries into recession. The weakening commodity prices, the prospect of further US interest rate hikes, slowing growth in China, and the prospect of recession across the EU are anticipated to renew selling pressure on the CAD. Today's speeches from Fed policymakers and US PMI data will help drive direction for the loonies today.

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EURCAD weakens, taking the EUR near June lows down 1.2% month-to-date after weaker-than-expected German PMI data.

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EUR tumbles from 1.1000 to retest 1.0850 after dismal EU PMI data. The single currency came under heavy selling pressure after disappointing PMI results from Germany, France & the Eurozone, at the same time the USD rallied on increasing risk-aversion. The data from Germany & Eurozone showed that the business activity in the manufacturing sector continues to contract at an increasing pace in early June. Thursday's flurry of interest rate hikes highlighted stubbornly high inflation levels and the increased prospect of the eurozone entering recession driven by hawkish central banks. Today US PMI data will help provide intraday direction to markets.

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GBPEUR rallies in early trading after the BoE surprised markets by hiking its interest rates by 1/2% on Thursday.

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GBP is under pressure, but manages to outperform its peers after the BoE interest rate hike and mixed UK data. UK retail sales came in slightly better than expected, while UK business PMIs fell just below expectations. Stubbornly high high-interest rates in the UK set the BoE to adopt a more hawkish tone on further interest rate hikes, with some expecting interest rates to rise towards +6% in 2023. Domestically fear is increasing that the UK economy heading for a recession after the BoE governor warned of further increases if inflation fails to show clear signs of slowing. US PMI data will be in focus today.

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