The Morning Update

The US$ is flat, oil prices weaken while equity markets and US yields are down as China's weakness impacts risk. Global risk sentiment wanes after China's economy loses momentum in Q2 as GDP is reported at 6.3% vs 7.1% missing estimates by 0.8%, and tumbling below 2.2% growth in Q1. The unemployment rate among young people ages 16 to 24 extended by 21.3% in June, setting a new record high in youth unemployment. On the back of the weak GDP data, China's growth estimates have been revised lower by Citibank & Morgan Stanley to 5% for 2023 from 5.5%. This week, the Fed policy markers are in a blackout ahead of the FOMC on July 26th. Monday US NY State Manufacturing Index & G20 finance ministers & central bankers are meeting in India. Tuesday US Retail Sales, Industrial Production, CAD CPI. Wednesday, Eurozone & UK CPI. Thursday. China loan prime rates, US initial jobs claims, existing home sales. Friday, Japan CPI.

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In other news. Ukraine grain deal collapses as Russia refuses to extend it. South Korea flood death toll rises to 40. Canadian wildfires burn a record 25 million acres with no end in sight., with some 900 active fires reported and most still out of control. Taiwan election candidate risks China's anger with planned US trip. Tunisia agrees to a deal with the EU to tackle Mediterranean migrant routes. EU seeks to revive Latam America, Caribbean ties as it turns away from China & Russia.

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In currency news. The hols near 15-month lows as trades are sidelined ahead of the Fed interest rate decision. China's yuan weakens on weaker-than-expected GDP data. AUD & NZD weaken as growth in China stalls. CNY drops 0.45%, while Asian currencies are down 0.2% on average vs US$. Trading currencies are mixed with NZD weakening 0.6%, AUD falling 0.4%, MXN slipping 0.25%, NOK easing 0.1%, while SEK is flat, ZAR firming 0.25%, and JPY & CHF strengthening 0.4% vs US$.

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Oil prices dropped over 1% as disappointing Chinese GDP negatively impacts demand hopes. The CAD is holding steady above 1.3200 despite disappointing China growth data putting negative pressure on commodity prices as higher BoC interest rates continue to support the loonie. Today see's a light economic docket from the US, so we expect investors to focus on Tuesday's key US Retail Sales & Canada's Inflation report for direction to the CAD. Intraday we may see some CAD weakness towards 1.3270 as commodity prices remain under selling pressure.

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EURCAD extends gains by testing fresh 4-month highs as China's growth weakness puts pressure on commodity price-sensitive CAD.

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EUR continues to consolidate between 1.1200-1.1250 amid a cautious risk mood and pending Fed rate decision. The Euro enters a 3rd trading session within the tight trading range as investors are holding on the sidelines ahead of the Fed & ECB interest rate decisions next week. Weakening Chinese growth is impacting global risk sentiment as investors look to China to increase stimulus to boost sagging domestic growth. Today NY Fed's State Manufacturing Survey is not expected to impact markets, so we expect Euro to hold within its current levels ahead of the Key US Retail Sales data tomorrow.

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GBPEUR holds steady as investors look toward Tuesday's key US Retail Sales data.

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GBP slips below 1.3100 as investors appear sidelined and the US$ finds base support. The pound is trading around 1.3100 in Europe, as the USD stalls near 15-month lows as currency markets turn cautious after weaker-than-expected China growth. The pound continues to find underlying support on expected the BoE will hike 50bps at its August meeting. Today we expect the pound to hold within its current range ahead of Tuesday's US Retail Sales data.

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