The Morning Update

The USD eases, oil prices weaken, equity markets are down, and US yields ease amid increasing risk-aversion. The USD index eases in early trading, but it is still on track for its biggest weekly gain since early April, while US yields slipped off three-week highs as markets expect higher US rates for longer. On Wednesday, the Fed May minutes showed policymakers are not ready to cut interest rates, with some policymakers even seeing a need for a more restrictive policy. European equities are on track for their first weekly retreat in three, with tech & financial stocks leading the declines. Faergemann, a portfolio manager at Pinebridge Investments, said, "The bigger picture is one of a US economy that is stronger than we would have expected at this juncture with the current level of interest rates." Elsewhere, oil prices sink to their lowest levels in nearly three months, gold prices steady, and Bitcoin slips to $67k. In focus today, CAD Retail Sales, US Durable Goods Orders, Nondefense Capital Goods Orders, Michigan Consumer Sentiment Index, UoM 5-year Consumer Inflation Expectations, and Fed's Waller speech will help provide intraday direction to currency markets.

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In other news. Yellen says many Americans are still struggling with inflation. Alibaba raises $5bn for share buybacks as it warns of AI challenges. Copper price to rocket to $40k a tonne, says top trader Andurand. The UK urges Canada to ratify its entry into the Pacific trade pact. The SEC approves rules to allow the creation of Ether EFTs. China stages mock missile strikes on Taiwan, jets with live missiles used in drills. Hundreds feared dead after landslide hits remote Papua New Guinea village. G7 finance summit kicks off seeking unity on Ukraine and China. The World Court to rule on request to halt Israel's Rafa offensive. Low expectations for a rare summit between China, Japan, and South Korea.

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In currency markets. GBP holds near two-month highs after a volatile week. CAD remains under pressure, sitting near two-week lows. Russian Rouble firms are heading towards near four-month highs compared to USD. CNY weakens on Taiwan tensions and a continuing strong USD. CNY slips by 0.1%, while Asian currencies firm by 0.1% on average vs. USD. Trading currencies are mixed, with JPY & CHF down 0.1%, IDR is flat, MXN, AUD & NZD firm by 0.1%, SEK gaining 0.25%, and ZAR & NOK strengthening by 0.4%

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In commodity markets. Oil prices weaken by 0.8%, Natural Gas Prices rally by 1.35%, Gold & Copper prices are up 0.1%, Silver prices strengthened by 0.9%, while Wheat & Soybean prices are flat.

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CAD remains under pressure as oil prices continue to weaken, coupled with the expectation that US rates will stay higher for longer, which saw the loonie test a two-week low on Thursday. Domestically, the focus will be on CAD Retail Sales today, which is expected to improve slightly to flat, vs. -0.1% in February. If we see a weaker print following Tuesday's CAD CPI, which dropped to its lowest levels in three years, it will increase pressure on the BoC to cut interest rates at its next meeting on June 5th. Alongside the CAD Retail Sales, the US Durable Goods report will help provide direction to the loonie today.

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EURCAD continues to edge higher, up 1.1% in May as the loonie remains under pressure on weaker oil prices, and prospects that the BoC could cut interest rates its domestic interest rates as early as June.

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EUR bounces off 1.0800 as the USD consolidates ahead of the US long weekend. The single currency has had a volatile week following the strength of the USD on strong PMI and hawkish Fed expectations. Euro has managed to hold above 1.0800 following Thursday's stronger ECB's Negotiated Wage Growth, which increased the prospect that the ECB may pause rate easing into the latter part of Q2. Domestically, German GDP q/q Q1 came out as expected at 0.2%, so the focus shifts to US Durable Goods to provide intraday direction to the euro.

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GBPEUR slips after the UK's Retail Sales tumbled to -2.3%, well below expectations of -0.4% for April, significantly below -0.2% in March.

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GBP holds on to gains despite downbeat UK Retail Sales. The pound initially weakened below 1.2700 following the weaker-than-expected Retail Sales data but found support on USD profit-taking ahead of the US long weekend. We expect the pound to be capped at 1.2750 with the announcement of the UK election, ongoing US economic strength, and the prospect of interest divergence between the US and UK heading into Q3. Intraday, the US data will drive direction to currency markets.