The Morning Update

The USD slips from its highs, oil prices weaken, equity markets are down, and US yields rise as weak China data sours risk sentiment. The USD slipped from a monthly high, while equity and bond markets declined as concern grew that China's faltering recovery and debt problems are likely to spread to the global economy. Chinese data underscored the economic slide, with consumer spending, industrial production, and unemployment picking which saw Beijing suspend youth jobless data after record-high readings. China cut its interest rates amid a raft of weak economic data, alongside the devaluation in the Argentine Peso and the 3.5% interest rate hike in Russia today combined in depressing the global risk sentiment. Today US Retails Sales, CAD CPI & NZ Interest Rate decision will help provide intraday direction to markets.

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In other news. UK basic wage growth hits record, while UK food inflation falls sharply to 12.7%. US, South Korea, and Japan to launch new defense steps at Camp David. Maui search at 25% complete as the death toll from wildfires grows to 99. China suspends youth jobless data after record high readings. Russian air strikes target western Ukraine, and three were killed. Typhoon Lan makes landfall in Japan, thousands told to seek safety. Taiwan sees no Chinese military response to VP's US trip. Home Depot's quarterly sales drop small than expected. South Africa's jobless rate falls to its lowest level in two years.

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In currency news. China's yuan falls to 9-month lows on weak July economic data and the PBOC interest rate cut. Russian drops below 100 supported by 350 bp emergency rate hike. GBP strengthens after high UK wage data increases the prospect of higher BoE rate hikes. NZD steadies ahead of the central bank's interest rate decision today. CNY weakens 0.4%, while Asian currencies are down 0.2% on average vs USD. Trading currencies are mixed with SEK falling 0.6%, ZAR & MXN weakening 0.45%, AUD & NZD are down 0.1%, while JPY is flat, NOK firms 0.1%, CHF strengthening 0.3% vs USD.

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Oil prices continue to slide as demand concerns increase as weak China data sours risk sentiment. CAD retests August lows as global risk sentiment sours, commodity prices ease and investors continue to favor the safe-haven USD. The focus will be on today's Canadian inflation report with economists expecting the BoC CPI core to ease to 2.8% from 3.2% which could help the BoC pause rates at its next meeting. If the CAD CPI prints within expectations we anticipate CAD has room to weaken further as investors continue to favor the safe haven USD amid souring risk sentiment.

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EURCAD rallies in early trading, strengthening near 2% in August as weakening Chinese economic data continues to pressure the commodity-sensitive CAD.

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EUR stalls below 1.0950 ahead of the US Retail Sales data. European markets are relatively quiet with the Assumption Day holiday, as the Euro struggles below 1.0950 as risk sentiment sours after more weak Chinese data and its surprise interest rate cut. Euro dropped below 1.0900 for the first time since July on Monday as investors fear contagion from China's weakening economy. Intraday US Retail Sales will be the primary driver for currency markets. A break below 1.0880 opens up the prospect of a weaker Euro towards 1.0720 vs USD.

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GBPEUR steadies above 1.1600 as markets await US Retail Sales data.

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GBP holds above 1.2700 after UK jobs data and ahead of US Retail Sales. The pound firmed modestly amid strong wage inflation data. UK Wage inflation rose to 7.8% vs 7.5% in May, and average earnings including bonuses jumped more than expected to 8.2% vs 7.3% which puts pressure on the BoE to hike again at its September meeting. The UK unemployment rate climbed to 4.2%, vs 4% in May, and came in worse than expected. Focus shifts to the US Retail Sales data to help provide intraday direction. Look for the pound to find support on any dips towards 1.2650 on continuing hawkish BoE heading into the September BoE rate decision.

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