The Morning Update

Friday June 2nd, 2023

Written by:
Paul Harrison

The US$ steadies, oil prices strengthen, equity markets rally, and US yields ease as risk-on sentiment returns. Currency, commodities and equity markets all post gains after the US Senate on Thursday passed bipartisan legislation back by President Biden to lift the governments $31.4 trillion debt ceiling, averting what would have been a first-ever default. Focus shifts to today's key US Nonfarm payrolls forecast which is expected to have increased to 190k in May and the unemployment rate expected to rise to 3.5% from 3.4%. Markets are speculating that the monthly US jobs will show enough moderation in the pace of hiring to encourage the Fed to pause its tightening cycle, which is expected to put the US$ under further selling pressure.

In other news. China envoy says neither Ukraine nor Russia have shut the door to talks. Japan demographic woes deepen as birth rate hits record low. Asia security summit kicks off amid Sino-US tensions. Southern China swelters, power grids struggle under 'relentless' heatwaves.Canada sends military to help battle blazes in Nova Scotia. Exxon CEO says technology advances could double its shale output. Russia's state Gazprom has recruited and paid militias to fight in Ukraine. Investor favorite Mehmet Simsek set to return as Turkish Finance minister.

In currency news.The slips near 1% in June on the prospect of a Fed ease and the Senate approval to raise the debt ceiling. CNY bounces off 6-month lows, the GBP has its biggest weekly gain in 2023 and commodity currencies strengthen on a risk sentiment comeback. CNY rallies 0.5%, while Asian currencies gain 0.2% on average vs US$. Trading currencies improve with JPY & CHF are flat, MXN firms 0.2%,NZD strengthens 0.5% ZAR is up 0.7%, SEK & NOK gain 0.8%, and AUD rallies 1% vs US$.

Oil prices extend gains on Friday after the US averted a default and attention shifts to the OPEC+ meeting this weekend where markets anticipate further output cuts are unlikely. C$ extends gains as oil prices strengthen near 5% in June, the US debt ceiling bill passes the Senate and increasing speculation that the Fed will pause hikes in June combined to help the loonie strengthen to fresh two-week highs. Intraday the US Nonfarm payroll data is the key data release, a print outside of expectations would likely increase intraday market volatility.

EURCAD continues to weaken testing fresh 12-week lows after falling eurozone inflation levels increases speculation the ECB may ease its hawkish tones.

EUR advances above 1.0750 as risk-on sentiment puts selling pressure on the US$. Positive risk sentiment on the approval of the US debt ceiling bill and expectations of the Fed pausing rate hikes in June exerted bearish pressure on the US$. The US Bureau of labor stats revised the increase in unit labor costs in Q1 to 4.2% down from 6.3%. Additionally Fed Harker reiterated that he believes it is time for the central bank to 'hit the stop button' for at least one meeting. Today focus shifts to the key NFP data, a print outside of expectations could increase intraday market volatility.

GBPEUR holds steady near 2023 highs as both currency pairs benefit from the risk-on sentiment comeback.

GBP steadies above 1.2500 amid US$ weakness, ahead of key US jobs data. The pound is set for its biggest weekly rally in six months as US interest rates looked increasingly likely to stall, while UK rates are expected to continue to rise into Q3/23. Domestically the covid inquiry puts spot light back on to the conservative party as it looks set to withhold 'sensitive' documents. Brexit woes continue as Brussels urges UK to join trade pact to ease risk of post-brexit car tariffs, while trade experts warn membership of the pan-euro-mediterranean convention is not 'immediate fix'. Today all focus will be on the NFP to provide intraday direction to the pound.