The US$ weakens, oil prices steady, equity markets rally, and US yields rise on debt ceiling optimism. The US debt ceiling bill passes the House and advances to the Senate days ahead of the June 5th default deadline. The House passed the debt ceiling bill yesterday and late Wednesday night Senate Majority Leader Schumer stood in a nearly empty Senate chamber to formally place the bill on the calendar for Thursday. European equity markets rebounded from 2-month lows boosted by debt ceiling optimism and softer inflation data out of Europe. Focus will be on US Jobs data today after Fed Jefferson said the Fed is inclined to keep interest rate steadies in June to asses the economic outlook. Fed Harker said, "I think we can take a bit of a skip for a meeting" suggesting the Fed may keep interest rates on hold at its next meeting. Today ECB monetary Policy Meeting Accounts, US ADP Employment Change, Initial Jobless Claims, S&P Global Manufacturing PMI, ISM Manufacturing PMI & CAD S&P Global Manufacturing PMI to help provide intraday direction to currency markets.
In other news. Eurozone inflation falls more than expected to 6.1% as core pressure ease, hitting its lowest level since Russia invaded Ukraine. US defense chief warns incidents with China's military could 'spiral out of control'-FT. China's factory activity surprised markets beating growth expectations in May. Zelensky joins EU leaders at summit in Moldova putting pressure on NATO over Ukraine's hopes of joining military alliance. UK house prices extend falls as mortgage repayment soar. Canadian household credit card debt rises for 3rd consecutive month according to stats Canada.
In currency markets. Euro steadies above 2-month lows as risk-sentiment improves on debt ceiling optimism. Chinese Yuan snapped 3-day losing streak after stronger factory growth data. South African Rand hits a new record low in early trading. Turkish lira weakens on Thursday continuing to set record lows vs US$. CNY inches up 0.05%, while Asian currencies are flat on average vs US$. Trading currencies are mixed as NOK tumbles 0.5%, JPY weakens 0.3%, ZAR falls 0.2%, NZD slips 0.1%, while SEK & MXN are flat, and AUD & CHF firm 0.25% vs US$.
Oil prices steady in early trading as markets balance debt ceiling optimism against higher inventories. C$ holds on to Wednesday's gains after Canada's GDP beat expectations at 3.1% vs expectations of 2.5%, boosting speculation to a 40% chance that the BoC may possibly hike rates in June for the first time since January. We anticipate the BoC will remain sidelined as commodity prices remain under pressure as China's longer term growth appears muted. Intraday we have a flurry of US data and key CAD manufacturing PMI to help provide intraday direction to the loonie today.
EURCAD holds steady near 2-month lows as falling EU inflation levels increases the prospect the ECB will tone done its hawkish stance on future interest rate hikes.
EUR bounces off May lows to retest 1.0700 on debt ceiling optimism. Euro edges higher, but longer term strength may be stalled as falling inflation levels takes pressure off the ECB to continue raising interest rates. This week we have seen softer inflation readings in Spain, France & Germany and today Eurozone inflation dropped further than expected to 6.1%, but ECB policymakers said core inflation is showing no signs of slowing. Markets are now split if the ECB hikes 25bps at its next meeting or if they decide to step aside and pause in June. China's weaker than expected economic rebound will also keep pressure on Euro to rally, but short term the prospect of a debt ceiling deal may help boost Euro as risk sentiment is helping currency markets rebound. Intraday the flurry of US data will be monitored closely.
GBPEUR holds steady sitting at near 6-month highs as falling EU inflation levels increases speculation that the ECB will stall future interest rate hikes.
GBP steadies near 1.2450 as risk flows increase on debt ceiling optimism. The pound firmed on a weaker US$ as optimism increases after the debt ceiling bill is set to go in front of the senate today, with expectations the President could sign the bill by the weekend. Investors appear content to continue to ignore UK challenges with ongoing strikes, soaring inflation levels and continued growth pressures. Today the US will continue to drive direction for the pound as investors await US data releases and debt ceiling updates to provide intraday direction.
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