The Morning Update

The USD strengthens, oil prices slip, equity markets are down, and US yields are mixed as risk sentiment wanes. Markets started August trading cautiously as investors responded to disappointing corporate earnings and ongoing weak data out of China. China's home sales plunged by the most y/y in July, while PMI figures showed factory activity contracted as well in July. The USD extended gains as risk-off sentiment increased, while the AUD tumbled after the Australian central bank kept interest rates on hold for a 2nd month. The European equity markets declined, while US futures edge lower after the S&P500 closed at a 16-month high for July and the Nasdaq 100 has its longest monthly winning streak in 3 years. In focus today, US ISM Manufacturing PMI, Jolts Jobs Opening & CAD Global Manufacturing PMI will help provide intraday direction to markets.

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In other news. BMW shares drop almost 7% after siting supply chain cost warnings. The US faces hurdles in ramping up munitions supplies for Ukraine war effort-FT. China's overseas investments in metals and mining set to hit record. BP boosts dividend even as profits slump 70% to $2.6 bln. Beijing, northern cities boost recovery efforts after typhoon Dosksuri. Pakistan's imports of Russian crude face port, refinery, and currency constraints-Reuters. Canada, Alberta oil output drops to 7-year lows amid maintenance at oil-sands mines and as Suncor Energy Inc.'s was partially excluded.

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In currency news. AUD is set for its sharpest drop in a month after the RBA pauses rate hikes. JPY weakens to 3-week lows after its central bank tweaked its yield curve control. China's Yuan fall on disappointing factory data, which in turn weakened Asian & ZAR currencies. CNY weakens 0.35%, while Asian currencies are down 0.25% on average vs USD. Trading currencies are under pressure with JPY down 0.25%, MXN & CHF sliding 0.35%, NOK & SEK falling 0.65%, NZD weakening 0.8%, ZAR dropping 1%, and the AUD tumbling 1.3% vs USD.

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Oil prices ease on a combination of month-end profit-taking and continuing disappointing China data. CAD's month-end gains vs USD quickly reversed in early trading as risk-off sentiment returned and commodity prices weakened. Today's focus will be on CAD Global Manufacturing PMI which is expected to hold steady m/m in July and US manufacturing PMI will help drive intraday direction. Key this week for the Loonie will be Friday's CAD job data which will help provide clues on the strength of the domestic economy. Technically 1.3333 (75 cents) remains a key support level for the CAD, a breach of this level, we could see CAD turn to a weakening trend.

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EURCAD strengthens as CAD weakens as commodity prices ease on the combination of profit-taking and increasing growth concerns after continuing weaker-than-expected China data.

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EUR weakens through 1.1000 amid increasing risk-off sentiment. Euro drops below 1.1000 as market sentiment sours amid disappointing earnings and weaker-than-expected China data. Domestically, German Unemployment & Euro Unemployment holds steady m/m. Manufacturing PMI across Europe was steady with only Spain manufacturing falling below expectations. Investors will now be shifting their focus to today's US Jolts Job data and the US Manufacturing PMI to help get further guidance.

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GBPEUR holds steady neat 2-week highs, maintaining its 3% gains in 2023.

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GBP is under pressure but holds on to 1.2800 vs USD. The reversal in risk sentiment has put the pound on the back foot as the USD extends to multi-week highs. Domestically UK housing prices hold steady, while UK manufacturing PMI data shows a slight increase vs expectations. Intraday markets will be focused on key US PMI & Jobs data to help provide direction.

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