The Morning Update

The USD strengthens, oil prices rally, equity markets are up, and US yields rise on China/US trade news. The USD index strengthens against its G10 peers, with the safe-haven JPY and CHF under the greatest pressure as risk sentiment rebounds after China and the US pledge to slash tariffs for 90 days in a significant trade breakthrough. Global equities surged following the joint US-China statement on Monday in Geneva, giving a sign of thawing of trade tensions between the world's two largest economies. In the US, Dow futures +2%, S&P futures +2.8%, and Nasdaq futures rally +3.8% as investors rush back into US assets. China and the US have agreed on a temporary pause in trade tariffs for 90 days, during which the combined US tariffs will be reduced to 30% on Chinese imports, while the 125% Chinese tariffs on American goods will decrease to 10%. Elsewhere, oil prices rallied on the US/China tariff agreement, while Bitcoin is flat, and gold and silver prices tumble as risk sentiment rebounds. In focus this week, Monday speeches from a flurry of BoE policy makers, and Fed's Kugler. Tuesday, UK Claimant Count Change & Employment Change, German & EU Zew survey. US CPI, & BoE Governor Speech. Wednesday, German Harmonized Index Consumer Price, & CAD Building Permits. Thursday, AUD Unemployment report. UK GBP report, EU GDP report, US PPI report, & Fed's Chair Powell's speech. Friday, US Michigan Consumer Sentiment Index, will help guide currency markets this week.

‍

In other news, Nissan's job cuts are blowing out to 20,000 in a massive overhaul, NHK says. President Trump vows US drug price cuts of up to 80% in industry blow. Dow futures jump over 800 points as the US and China agree to cut tariffs. Zelenskyy said he is ready to meet Putin for peace talks. Kurdish PKK disbands and ends a 40-year Turkish insurgency. Indian army says talks with Pakistan's military operations chief delayed. Poland to close Russian consulate in Krakow, citing arson attack. Trump defends the prospect of Qatar gifting him a plane to use as Air Force One.

‍

In currency markets. As risk-on sentiment rallied, the USD index strengthened to a fresh four-week high against global currencies. CNY is the outlier of the currency markets, gaining against the USD following the 90-day reprieve in tariffs between China and the US. CNY gains 0.3%, while Asian currencies are down 0.5% on average against the USD. Trading currencies come under pressure, with JPY tumbling 2%, CHF weakening 1.75%, SEK & DKK falling 1.3%. NOK dropping 0.8%. MXN & NZD easing 0.4%, and AUD down 0.15% against the USD.

‍

In commodity markets. Oil prices rallied 3%. Natural Gas prices firmed by 0.4%. Gold prices tumbled by 3.6%. Silver prices weakened by 1.9%. Copper and Wheat prices are flat, while Soybean prices strengthened by 1.5%.

‍

CAD moves toward 1.4000, weakening in early trading amid a strengthening USD triggered by the China/US 90-day trade tariff pause, which reduces their reciprocal tariffs by 115%. The loonie has found some support from surging oil prices, helping it outperform most G20 peers. Domestically, Friday saw Canada's unemployment rate jump to 6.9% in April, increasing expectations that the Bank of Canada will bolster its easing strategy with at least four additional 25-bps rate cuts in 2025. With the lack of high-tier Canadian economic releases this week, investors will be driven by US data and any updates on Canadian/US trade to provide direction to the loonie.

‍

EURCAD tumbles in early trading, dropping to a fresh four-week low, down 1.5% m/m, with CAD finding support from rallying oil prices.

‍

EUR declines sharply, falling below 1.1100 as the US and China agree to cut tariffs, as the US and China agree to cut tariffs. The euro dropped to its lowest level in a month following the US/China trade talks in Geneva this week and the announcement of a 90-day reduction of 115% in reciprocal tariffs. Without any trade progress between the EU and the US, the euro's outlook against the USD will remain under selling pressure. With the absence of any key US economic releases today, we expect investors to be focused on Tuesday's key US inflation report for direction.

‍

GBPEUR gained in early trading as last week's US/UK trade agreement helped provide underlying support from investors.

‍

GBP weakens amid unabated USD demand following the US-China agreement. The pound dropped to its weakest levels since mid-April, as investors flock back to the USD as the world's two strongest economies dial down trade tensions and agree to a 90-day tariff pause. Domestically, the Bank of England's Lombardelli says caution is still needed over the ongoing inflation risks in the UK. "Caution remains appropriate. I'll be more comfortable when I see material deceleration in the data over a longer period." Investors will be focused on Tuesday's UK key unemployment reports and the US inflation report to help provide guidance.

‍

‍