The Morning Update

The USD holds steady, oil prices slip, equity markets are mixed, and US yields rise ahead of the US Payrolls report. Currency markets are sidelined, and European equity markets open off their record highs heading into the US Nonfarm Payroll report for future Fed rate policy guidance. The US NFP report is expected to confirm that a steady slowdown in the US is underway, with anticipated payrolls to rise 180k in May. Investors are mixed with their opinion on a rate cut, with some anticipating the Fed will hold any rate cuts during the US election, while swap markets are starting price in a Fed rate cut by November. Elsewhere, oil prices slipped despite waning expectations that OPEC+ would allow the market to be oversupplied. Gold, copper, and silver are under selling pressure, while Bitcoin extends gains to $71k. Today's focus will be on the US NFP, Average Hourly Earnings, US Unemployment rate, ECB President Lagarde's speech, CAD Unemployment Rate, CAD Net Change in Employment, and CAD average Hourly wages, which will all help provide intraday direction to currency markets.

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In other news. China's exports rise solidly, but slower imports temper the outlook. India's central bank holds rates and raises the growth outlook. Saudi Arabia is set to raise $11.2 billion in Aramco's share offering, which is priced at the lower end of the range. Israeli forces batter central and south Gaza with a renewed truce bid at an impasse. Samsung Electronics Union in South Korea stages first walkout. Ukraine ready for EU membership talks, Brussels says. South African opposition group claims Russia is funding Jacob Zuma's party. France plans to send Mirage fighter jets to Ukraine. TD money-laundering finds may reach US$4 billion, Jefferies says.

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In currency markets. The USD stalls near two-month lows ahead of the US payroll data. Japan's Finance Minister says forex intervention in the JPY should be done in a restrained manner. Currency markets, on average, remain sidelined heading into the US jobs report. CNY is flat, while Asian currencies edge up by 0.1% on average against the USD. Trading currencies are mixed, with AUD, NOK & NZD down 0.1%, CHF flat, JPY up 0.1%, SEK gains 0.2%, ZAR strengthens by 0.5%, and MXN rallies by 0.65% against the USD.

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In commodity markets. Oil prices slipped by 0.1%, Natural Gas prices firmed by 0.2%, Gold prices weakened by 1.45%, Silver, Wheat & Copper prices tumbled by over 2%, and soybean prices fell by 0.65%.

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CAD holds steady below 1.3700 despite tumbling metals prices, weakening oil prices, and the prospect of further BoC interest rate cuts. Investors are sidelined, awaiting the US and Canadian critical jobs reports. Domestically, CAD net change in employment in May is expected at 22.5k, which is significantly lower than April at 90.4%. The unemployment rate is expected to rise to 6.2% vs 6.1% in April. Weakening employment levels will help support the Bank of Canada's dovish comments for further rate cuts in 2024. If we see a stronger-than-expected US jobs print, we expect CAD to come under renewed selling pressure towards 1.3750.

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EURCAD continues to strengthen, testing its highest levels since late November on the prospect of diverging interest rates between the BoC & ECB in 2024.

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EUR holds on to gains following the ECB rate cut as investors shift their focus to the US NFP & ECB President Lagarde's speech. Euro remains within a tight 1.0850/1.0950 trading range following softness in US jobs data earlier in the week and on hawkish comments by the ECB Lagarde following the 25 bps rate cut on Thursday. Domestically, German Industrial production year over year improved to -3.9% vs -4.3%, and the EUR GDP y/y held steady at 0.4%. Intraday, the US NFP & ECB President Lagarde's speech will help drive direction for the single currency.

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GBPEUR holds above 1.1700 following the ECB interest rate cut, but the pound appears capped for further short-term gains on the ECB's hawkish statement.

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GBP is capped at 1.2800 heading into the US jobs report. The pound holds near two-week highs, but without fresh UK economic data, investors are sidelined ahead of the US Nonfarm payroll support. The NFP is forecast to rise to 180k following April's 175k weaker-than-expected increase. If we see a print of 150k or lower, markets will increasingly expect a Fed rate cut in Q4, which could benefit the pound, potentially seeing a test of 1.2900. Intraday, the US NFP will provide direction for the pound.