The USD is steady, oil prices weaken, equity markets are down, and US yields rise on a hawkish Fed. Currency and equity markets retreat after the Fed Chair trims rate-cut projections for 2024. At a press conference, Fed Chair Powell said that officials welcomed the latest inflation figures, saying figures had helped build their confidence in the trajectory of inflation but not enough to warrant rate cuts at this time. Bloomberg's Markets Live Pulse client survey saw investors expect the S&P 500 will climb to new highs regardless of what the Fed does, and US Treasuries will also extend their rebound for a second straight annual gain. Elsewhere, Tesla stock rose in premarket trading after CEO Musk said shareholder resolutions to re-ratify his pay package & move the electric vehicle maker's legal home to Texas were passing by a "wide Margin." Oil, gold, silver, and Bitcoin all weaken in early trading. Today's focus is on US Initial Jobless Claims, PPI ex-food & energy, Fed's Williams & BoC Governor Macklem's speeches, which will help provide intraday direction to currency markets.
In other news. China urges the EU to reverse 'wrong practices' on EV tariffs. G7 leaders seek a deal to use the interest from Russian assets for Ukraine. Israeli forces thrust deeper into Rafah as diplomacy falters. Samsung offers a plan to speed up the delivery of AI chips. G7 struck a 'provisional' deal on a $50 billion loan to Ukraine. During Premier Li's visit, China and New Zealand deepen trade ties and discuss rights issues. Argentine Senate passed the Milei reform bill as protests raged outside. Tesla expects to raise Model 3 prices in Europe after higher EU tariffs on China EVs.
In currency markets. After a volatile Wednesday, with the USD initially weakening on softer-than-expected US inflation levels and then rebounding on hawkish Fed comments. China retreats from a 1-week high on corporate dollar demand, and Russian Rouble struggles after new US sanctions. CNY weakens by 0.2%, and Asian currencies slip by 0.1% on average against the USD. Trading currencies remain under pressure, with JPY & NOK weakening by 0.3%, SEK, AUD, MXN, CHF & NZD falling by 0.2%, and ZAR is flat against the USD.
In commodity markets. Oil & Gold prices weakened by 0.9%, Natural Gas prices are up 0.2%, Silver prices tumbled by 2.8%, Copper prices fell by 0.6%, Wheat prices gained by 0.6%, and Soybean prices slipped by 0.2%.
CAD retreated from the high of 1.3710 on Wednesday after the Fed kept its domestic rates on hold and signaled it expected only one interest rate cut in 2024. The focus will be on BoC Governor Macklem's comments today, with markets expecting up to three more rate cuts from the bank in 2024. With the increasing expectation of diverging interest rates between the US & Canada, our bias remains bearish on the Loonie into Q3. Intraday, US Initial Jobless Claims & PPI will help drive direction for the loonie today.
EURCAD continues to edge higher, trending towards June highs of 1.4880 as stubborn inflation levels across the EU are expected to see the ECB keep interest rates on hold through to Q4.
EUR holds steady in early trading at 1.0800 amid increasing risk-off sentiment. The Euro stabilized after a volatile Wednesday, which saw the Euro spike from 1.0750 to 1.0850 on the softer US inflation report, then weakened after hawkish Fed comments. Domestically, the German wholesale price index y/y improved to -.7% vs. -1.8% in April. Spanish inflation levels y/y held steady at 3.8%, and EU Industrial production was worse than expected m/m at -0.1% vs +0.5% in April. The focus will be on the US PPI & Initial Jobless Claims to help provide intraday direction for the single currency.
GBPEUR slips off 22-month highs as stubbornly high EU inflation levels raise speculation that the ECB could keep domestic interest rates on hold into Q4.
GBP is capped at 1.2800 as risk sentiment eases and the focus shifts to US PPI data. Wednesday's softer US inflation data saw the pound rally near 3-month highs to 1.2850 before retracing below 1.2800 on hawkish Fed comments. Without any BoE policymaker comments or domestic economic releases, the pound will remain focused on US data releases to provide intraday direction.
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