The Morning Update

The USD is steady, oil prices slip, and equity markets are mixed, while US yields rise as markets balance policy hawks and upbeat earnings. The Fed, ECB & BoE maintained their hawkish tone on Wednesday at the ECB forum, all suggesting that they have a ways to go in reining in stubbornly high inflation levels. Equity markets mostly edged higher for a 3rd day as investors looked past the policy hawks, and focused on robust company earnings. The consensus view is that the US economy is heading for recession, but now the expectation is the downturn will be less severe than initially feared. Today, the German Inflation report, US GDP, Jobs data, Personal Consumption Expenditures Prices & Pending Home Sales, as well as speeches from BOE Tenreyro, & Fed Bolstic will all help provide intraday direction to markets.

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In other news. The UK government's plan to deport migrants to Rwanda is unlawful, court rules. H&M shares jump 11% as summer collection boosts profit. The UK considers nationalization of the Thames Water, as it faces GBP 14bn of debt.  Spanish inflation drops to 1.9% below the ECB target. China passes foreign relations law to strengthen Xi's response to sanctions. The EU summit to offer 'security commitments' to Ukraine. Dockworkers in Western Canada plan to strike July 1st as pay talks fail.

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In currency news. Bearish bets increase on most Southeast Asian currencies as weak China growth weighs on the region. The US$ hits a 7-month high vs JPY on widening interest rate levels. The Russian Rouble hits a 15-month low past 87 vs USD on increasing political risk concerns. The CNY is flat, while Asian currencies slip 0.1% on average vs US$. Trading currencies mixed with SEK & ZAR are down 0.2%, while MXN, NOK & CHF are flat, NZD, CHF & JPY are up 0.1%, and AUD gains 0.25% vs US$.

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Oil prices remain under pressure on concerns of slowing fuel demand and ongoing weak China economic data. The CAD continues to weaken hitting 2-week lows as expectations increase that the BoC may pause rate hikes in July after we saw inflation levels drop to 2021 levels earlier in the week. The loonie at the same time came under pressure from the USD after the Fed Chair comments that he anticipates two more rate hikes in 2023 and hasn't ruled out an increase as soon as July. The combination of weak China economic data and the potential of widening interest rate differential with the US could see a next retest of the key 75 cents (1.3333).

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EURCAD continues to edge higher after the ECB's hawkish policy rhetoric allowing the Euro to regain all of its earlier losses for June.

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EUR holds 1.0900 ahead of the key German inflation data and the US GDP & Jobs data releases. Euro shifts to a weaker tone after Fed Chair Powell repeated his hawkish message in his speech at the ECB forum. Today's German inflation report will be monitored for fresh cues on the ECB's rate hike path after we saw the Spanish inflation drop to 1.9%, below the key 2% level. "we are not seeing enough tangible evidence of falling underlying inflation", ECB Lagarde noted Wednesday. If we see a stronger-than-expected increase in the German inflation data, we could see demand return to the Euro.

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GBPEUR holds steady in early trading, but month-to-date the pound has given up all of its gains on increasing domestic recession fears.

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GBP stalls at 1.2650 heading into the US data releases. The pound remains under pressure after Fed Chair Powell's hawkish remarks supported the USD. Investors will be focused on US Q1 GDP growth which is unlikely to impact markets unless the print is outside of expectations. Chairman Powell said that tight labor market conditions would allow the US to continue to tighten the policy, so if we see a noticeable decline in the Jobs data we could see support return to the pound. Intraday the US data will be the primary driver to markets today.