The Morning Update

The USD weakens, oil prices slip, equity markets are up, and US yields are mixed ahead of the US inflation report. The USD softens ahead of today's key US CPI report, which may provide clues on the Federal Reserve's next steps. Expectations are for headline inflation to pick up marginally to 3.3% y/y, while the core rate, which excludes food & energy segments, is also forecast to rise 0.2% in July for an annual gain of 4.8%. Equity markets rallied in early trading, led by travel and luxury companies after China lifts bans on group tours to more than 70 countries. In the US, Walt Disney Co. shares gained over 1% in premarket trading after saying capital spending and outlay for movies and TV shows are coming in lower than projected. Today's US CPI, Initial Jobless Claims, & speeches from Fed's Bostic & Harker are in focus.

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In other news. The White House unveils a ban on US investment in the Chinese tech sectors. Australian LNG Producers in talks to avert strike as energy prices climb. India passes landmark data protection bill. New York Strains to House asylum-seekers as migrant crisis moves north. European gas price jumps almost 40% over supply disruptions fears. India's Reserve Bank keeps interest rate on hold but signals tighter policy. Lloyd's of London leads insurers tightening Taiwan cover as conflict risk rise. The assassination of the presidential candidate shocks Ecuador's election.

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In currency news. The Argentine peso weakens to a record 600 vs USD. The Russian rouble firms after the central bank stepped in to stabilize the currency. The USD eases heading into the US inflation report. CNY is flat, while Asian currencies firm just 0.1% on average vs USD. Trading currencies are mixed with JPY down 0.1%, while MXN is flat, NZD, SEK & NOK firm 0.25%, CHF is up 0.4%, AUD strengthens 0.5%, and ZAR rallies 0.85% vs USD.

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Oil prices slip in early trading heading into the Key US inflation report today. CAD steadies near 1.34, off Wednesday's lows of 1.3454 as currency markets consolidate heading into the US inflation report. Canada has no data releases for the rest of the week so we expect that loonie to remain on the back foot and at the mercy of US data to drive intraday currency direction.

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EURCAD extends gains up nearly 2% in August as Euro extended gains on the news that China lifts the group tours ban which will benefit European travel destinations.

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Euro strengthens through 1.1000 on a combination of a weaker USD and optimism after the lifting of the China group tours ban. Euro advanced on a weaker USD as markets consolidate into the key US inflation report today. Adding a surprise boost to the Euro was the announcement that China had lifted its ban on Chinese group tours to over 70 locations globally. European equity markets rallied as Chinese tourists are expected to boost European luxury goods and tourism revenues. Meanwhile, the ECB noted in its monthly economic bulletin that the outlook for the eurozone economic growth and inflation remains highly uncertain. Today the US CPI report will be the primary driver for markets.

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GBPEUR slips to fresh monthly lows, down 1% as the Euro extends gains in quiet trading ahead of the US CPI report today and Friday's key UK GDP report.

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GBP holds above 1.2750 with the US CPI in focus. The pound advances on the back of a weaker USD as markets focus on today's US inflation report. GBP appears to have weathered the report that the UK plans to ban British investment in China tech companies. We anticipate the pound will remain within its current trading range as investors look beyond today's US CPI report to Friday's GDP which is expected to show zero growth in Q2 (q/q) and just 0.2% growth annually. Positively Manufacturing production is expected to rise fractionally to 0.3% y/y & 0.2% m/m for June.

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