The Morning Update

The USD is flat, oil prices are steady, equity markets are mixed, while US yields rise as risk mood shifts. The last 24 hours have seen a negative shift in risk mood on disappointing corporate earnings, the escalating conflict over Ukrainian exports, and increasing Sino/US tensions. The increasing bombardments on Ukraine ports, and the threats to shipping triggered wheat prices to surge the most in a decade. Futures on the Nasdaq fell as investors digested disappointing Netflix & Tesla earnings and European shares came under pressure after TSMC's disappointing outlook cut. Today's focus will be on the US initial jobless claims, Philadelphia Fed Manufacturing Survey, Existing Home Sales & EU Consumer Confidence to help provide intraday direction to currency markets.

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In the news. Taiwan chipmaker TSMC forecast a 10% falling 2023 sales, after reporting a 23% fall in Q2 earnings. The Swedish embassy in Baghdad stormed, in protest over Koran-burning plans. Russia bombards Ukraine ports, threatens ships, jolting world grain markets. China warns of retaliation to US curbs on investment and chips-FT. Canadian dockworkers call off strike after 24 hours of drama. UK PM Sunak tries to rally weary Tories ahead of by-elections. China imports record volumes of Russian oil in the first half of 2023. India's Infosys cuts FY revenue growth outlook on challenging environment.

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In currency markets. China Yuan rallies after monetary authorities in Beijing relaxed rules that allow companies to raise funds overseas. AUD jumps after strong jobs data opens the door for more rate hikes from the RBA. South African Rand first ahead of its central bank's rate decision. CNY rallies 0.8%, while Asian currencies are flat on average vs USD. Trading currencies are mixed with MXN falling 0.35%, while CHF is Flat, JPY is up 0.1%, SEK gaining 0.3%, ZAR & NZD strengthened 0.45%, NOK firming 0.7%, and AUD rallied 0.85% vs USD.

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Oil prices hold steady as markets digest a weaker demand outlook and a lower-than-expected drop in US crude inventories. The CAD edges stronger as oil prices hold steady, the return to work by BC dockworkers, and wheat prices surge on threats to shipping by Russia. Today's focus will be on US data, ahead of tomorrow's CAD retail sales data.

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EURCAD weakens as increasing commodity prices help support the loonie in early trading.

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EUR struggles to hold on to 1.1200 ahead of EU & US data. The uptick in USD strength and improving US yields is putting pressure on the Euro as markets remain cautious ahead of next week's ECB & Fed interest rate decisions. Euro came under pressure after ECB governing council member Stournaras argued that the ECB could stop hiking rates after a potential 25bps increase in July. The focus will be on the US Initial Jobless Claims data, which is forecast to rise to 242k from 234k last week, and the EU Consumer Confidence Index which is expected to hold steady at -16.

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GBPEUR remains under selling pressure on anticipation that the BoE will adjust its rate increase to just 25bps at its August 3rd meeting.

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GBP continues under selling pressure as USD demand improves and risk-sentiment wanes. The pound continues its 4-day downtrend, down over 100bps, and tested a weekly low at 1.2868 on Wednesday. The UK's better-than-expected CPI lowered expectations of a BoE rate hike of 50bps to 25bps on August 3rd prompting heavy selling pressure. BoE Deputy Governor Ramsden acknowledged that inflation has begun to fall significantly in the UK but added that it was "much too high". Intraday US data releases will help provide direction to the pound.