The Morning Update

The USD remains firm, oil prices rally, equity markets are down, and US yields rise ahead of Trump-Xi summit. The USD held firm near two-month highs as markets continued to price further Federal Reserve tightening, with persistent inflation concerns and hawkish Fed commentary keeping U.S. yields elevated. Global equity markets moved lower as the bond selloff deepened, with the 30-year Treasury yield reaching its highest level since 2004 and higher borrowing costs weighing particularly on rate-sensitive growth and technology shares. The broader concern is that a renewed Fed hiking cycle could pressure equity valuations and tighten financial conditions further, while elevated sovereign yields are also weighing on risk appetite outside the U.S. Elsewhere, oil extended gains as there was little sign of meaningful progress in U.S.-Iran talks, keeping geopolitical risk and supply concerns elevated, while gold and bitcoin remained under selling pressure as higher yields and a firm dollar reduced demand for non-yielding and speculative assets. Today’s economic calendar includes Canadian retail sales, U.S. initial jobless claims and new home sales, alongside speeches from Fed officials Williams, Barkin, Hammack and Paulson, and the ECB’s Lane and Schnabel.

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News Headlines. 30-year Treasury yields hits highest level since 2004. New York Fed's Williams says it's 'reasonable' to expect another rate hike by year-end. China confirms first AI talks with the US have taken place, hinting at trade truce extension. Trump welcomes Xi to Washington looking for a trade win. China's rare earths dominance to overshadow Trump's talks with Xi. Global bond sell-off deepens as oil climbs back to $105. OpenAi 'agent' hacked an Australian health service website. TSX futures slide as bond yields surge ahead of retail sales data. The EU and Canada secure Eur 211 million for ocean observation activites.

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In currency markets. Against the USD, currency markets remain under pressure following Wednesday’s broad sell-off, with the dollar holding near two-month highs after stronger U.S. economic data and hawkish Fed commentary reinforced expectations for further rate hikes. A sharp rise in U.S. Treasury yields has added to dollar demand, leaving EUR, GBP, JPY and CAD all weaker this week, while markets now turn to U.S. jobless claims and further Fed commentary for direction.

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In commodity markets. WTI +1.20% | Nat Gas +1.22% | Gold -0.82% | Silver -1.66% | Copper -0.14% | Palladium -0.59% | Coffee -0.56% | Cocoa -0.38% | Soybeans +0.55% | Wheat +0.21%

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CAD continues under pressure, holding at multi-month lows as investors brace for a softer domestic growth outlook amid ongoing U.S. trade uncertainty. The Bank of Canada has warned that fourth-quarter growth could slow to below 1%, while wider Canada-U.S. yield differentials continue to weigh on the loonie despite firmer oil prices. Attention now turns to today’s July retail sales report, where Statistics Canada’s advance estimate pointed to a 0.8% monthly decline, a result that would reinforce concerns about weakening domestic demand and could further limit expectations for near-term BoC tightening.

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EURCAD held steady in early trading as markets awaited today’s Canadian retail sales. ECB Chief Economist Lane said the energy shock may keep inflation elevated, but broader second-round pressures remain limited. In the near term, EURCAD could remain under pressure if stronger oil prices continue to support CAD.

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EUR continues under pressure despite stronger-than-expected German IFO data, as hawkish Fed commentary and rising U.S. Treasury yields keep the dollar firmly supported. ECB Chief Economist Lane said the recent energy shock could keep inflation elevated for longer, but stressed that broader second-round wage and price pressures remain limited, reinforcing a cautious, data-dependent ECB stance. Attention now turns to today’s U.S. labour-market data, with another firm jobs reading likely to strengthen expectations for further Fed tightening.

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GBPEUR was broadly flat in early trading as stronger German IFO data and the ECB’s still-firm inflation stance offset increasingly hawkish signals from the Bank of England. ECB Chief Economist Lane said wage responses to the energy shock remain limited, while BoE Deputy Governor Lombardelli warned that rates may need to rise if elevated energy prices persist. With both central banks retaining a tightening bias, the cross has remained largely range-bound.

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GBP held broadly steady near multi-month lows, with the pound still weighed by weaker UK momentum, a softer labour market and a widening policy gap with the U.S. after the Fed’s latest hike. BoE member Dhingra struck a dovish tone, arguing that financial conditions have already delivered substantial tightening and that price pressures are no longer broad-based, while recent UK services activity has also slowed. Attention now turns to today’s U.S. jobless claims, where another firm labour-market reading could reinforce expectations for further Fed tightening and keep GBP under pressure.