The USD edges higher, oil prices are steady, equity markets are up, and US yields rise on the last day of H1/2023. The USD remains firm on hawkish Fed comments and robust US economic growth and jobs data that continues to fuel expectations of two more Fed hikes in H2/2023. Eurozone inflation fell more than expected in June, but the core rate ticks higher, supporting the prospect of further ECB rate hikes. In China, factory activity declined for a third straight month and weakness in other sectors continues to deepen, adding pressure on authorities to increase domestic stimulus. Today's key focus will be on the US Core Personal Consumption Expenditures-price index, also on the economic docket US Personal Income & Spending, Michigan Consumer Sentiment Index, Chicago PMI, and CAD GDP, combined will help provide intraday direction to markets.
In other news. Eurozone inflation falls to 5.5% for June. Wagner mercenaries are still in Ukraine, the Pentagon says; EU leaders pledge more security commitments. Nike posts first earnings miss in three years as lower margins hit sports apparel giant. Chinese travel group offers staff cash to have babies as the birth rate falls. More than 600 were arrested in France after a third night of violence. Google joined Meta in preparing to block access to Canadian news for anyone living in Canada. Argentina battling an acute shortage of USD is to use $2.7bln in CNY to pay the IMF this week. Pakistan secures a last-minute $3bln IMF deal, as domestic inflation levels run at 38%.
In currency markets. The USD Index firms into today's key US PCE numbers. JPY briefly tested 145.00 vs USD despite intervention fears. The Malaysian ringgit is the top loser among Asian currencies in H1-23 down nearly 6% vs USD. Currency markets are somewhat sidelined heading into key US PCE data. CNY slips 0.15%, while Asian currencies are flat on average vs USD. Trading currencies are mixed with ZAR tumbling 1.25%, CHF & SEK falling 0.2%, while JPY is flat, AUD is up 0.1%, NZD & MXN firm 0.2% and NOK strengthens 0.35%
Oil prices trade higher in early trading, but are heading into their 4th straight quarterly decline as China's stalling economic growth continues to impact demand. The CAD opens up steadily, off yesterday's 2-week lows of 1.3285. Investors shift their focus to the Canadian GDP which is expected to show the economy grew by 0.2%, as well as the Bank of Canada outlook survey. The BoC surprised markets by hiking interest rates in June after a 5-month pause signaling the need to tame stubbornly high inflation and increasing expectations that the Bank has room for one or two potentially more hikes in 2023. 1.3333 (75 Cents) remains a key resistance level for the CAD.
EURCAD weakens in early trading after EU inflation fell below expectations which may ease some pressure on the ECB.
EUR slips below 1.0850 after Eurozone inflation data. Eurozone inflation showed the annual HICP inflation declined to 5.5% in June vs 6.1% in May. The Euro weakened on the inflation data, but in June remains up nearly 1.5% vs USD on anticipation that the ECB will maintain its interest hiking policy in Q3/23. Today investors have shifted their focus to the US Personal Consumption Expenditures Price Index, which is a preferred gauge of inflation for the Federal Reserve. Intraday month-end, quarter-end, and half-year-end may impact currency markets as markets adjust their trading books.
GBPEUR strengthens on the back of Euro weakness after the Eurozone inflation data.
GBP holds steady above 1.2600 as markets consolidate ahead of key US PCE data. Ongoing hawkish Bank of England comments continue to provide underlying support to the pound. Heading into Q3/23 we anticipate further pound strength is likely to be capped as continuing BoE rate hikes are expected to significantly impact growth, driving the UK economy into recession. Intraday the flurry of US economic data releases driven by the US PCE is expected to drive intraday direction to the pound.