The Morning Update

Monday June 10th, 2024

Written by:
Paul Harrison

The USD strengthens, oil prices edge higher, equity markets are down, and US yields rise on a hawkish Fed and EU election fallout. The USD extends gains ahead of Wednesday's US Fed interest rate decision following Friday's spike in US employment levels. In Europe, the euro weakened to its weakest level in a month vs USD and to its lowest level in two years against the GBP. Meanwhile, European equities are all down following the gains of the French far-right in the European elections, and President Macron called a snap election after the defeat in the EU vote. Currency markets will remain on edge ahead of Wednesday's Federal Reserve's Interest Rate decision and the Fed's Monetary Policy Statement, which investors feel that the Fed will maintain their hawkish stance following the strengthening in Friday's NFP report. Elsewhere, Bitcoin weakens below $70k, oil prices ease, while Silver & Copper prices strengthen.

In focus this week: Monday, No key economic releases. Tuesday, Japan GDP, UK employment data, ECB's Lane & Elderson's speech. Wednesday, China CPI, German Inflation report, UK Industrial & Manufacturing production, US CPI, Fed Interest Rate Decision, Fed Monetary Policy Statement, FOMC Press Conference, BoC's Governor Macklem Speech. Thursday, US PPI, Initial Jobless Claims, BOJ Interest Rate Decision. Friday France CPI, UK CPI, UK Consumer inflation expectation, US Michigan Consumer Sentiment index, Fed monetary Policy Report, ECP President Lagarde Speech.

In other news. Markets hit as Macron calls snap French election after Le Pen's EU vote victory, and German Sholz's party suffers heavy losses to far-right gains. Gantz resigns from Israel's government over Gaza. Boeing woes weigh on credit rating as the specter of junk status looms. European nations compete for Chinese EV factories and jobs even as the EU weighs tariffs. South Korea and the US are holding a new round of nuclear planning talks in Seoul. Egypt's inflation decreases to 28.1% in May. Mexico's ruling party wins lower house super-majority but falls short in the Senate. Japan's service sector mood hit a nearly two-year low in May. CN rail & union are still far apart as both sides reject offers to smooth labor talks.

In currency markets. Euro weakens against the USD & its G7 peers after Macron calls snap French elections. Investors are expected to be sidelined ahead of Wednesday's Fed Interest Rate decision and the US Inflation report. CNY is flat, while Asian currencies slipped by 0.2% on average against the USD. Trading currencies remain mixed, with MXN, NOK & SEK weakened by 0.25%, JPY & NZD down 0.1%, CHF Flat, AUD firmed by 0.1%, and ZAR rallying by 0.7% vs USD.

In commodity markets. Oil & Soybean prices firm by 0.2%, Natural Gas prices rally by 2.95%, Gold & Wheat prices weaken by 0.5%, Silver prices strengthened by 1.3%, and copper prices gained by 0.7%.

CAD edges lower in early trading, testing a fresh five-week low as markets remain cautious heading into Wednesday's US CPI & the Fed's interest rate decision following Friday's stronger-than-expected US NFP and the prospect of a hawkish Fed. With no key economic releases from CAD Or the US until Wednesday, we expect the Loonie to remain on the back foot with increasing expectations of an increasing interest divergence between the US & Canada in 2024. Today, a break of 1.3785 opens up a potential test of 1.3845, last seen on April 16th.

EURCAD weakens towards June's low of 1.4767 following the substantial gains of the German & French far-right parties in the EU elections and the announcement of the French snap election. Technically, a break of 1.4767 June 3rd lows opens up the potential of further Euro weakness towards 1.4696, last seen May 10th.

EUR drops below 1.0750 and remains under pressure following the EU election results. The EU elections results saw Far-right gains in the EU election dealt crushing defeats to France's Macron and Germany's Scholz political parties. Analysts expect it could be weeks before political alliances are shaped, but many expect a centralist "super coalition" remains the most likely scenario. The political uncertainty in France & Germany and the prospect of a Hawkish Fed on Wednesday is expected to keep pressure on the Euro with room for further weakness towards 1.0648, last seen May 1st.

GBPEUR tests a 20-month high on increasing political uncertainty in Europe following the results of the EU elections. A break of 1.1850 could open up further strengthening to 1.1987, last seen on August 2nd, 2022.

GBP eases in early trading on the back of a stronger USD heading into Wednesday's Fed decision & US inflation report. The pound eases on general USD strengthening following the surprise strengthening in Friday's US NFP report. Domestically, investors will focus on Tuesday's UK critical unemployment data with the Claimant Count Change to rise to 10.2K and the ILO Unemployment Rate to hold at 4.3%. If we see no surprises from Tuesday's UK employment data, we anticipate the pound has room to ease towards 1.2950 ahead of Friday's critical US inflation and Fed interest rate decision.