The USD strengthens, oil prices weaken, equity markets are down, and US yields ease in a rush to safety. Investors scurry to the safe haven USD and lift bonds after China exports fall for a third straight month, Italy hits banks with a 40% windfall tax, and Moody's downgrades 10 US banks, warns of possible cuts to others. China reports a double-digit fall in July exports and imports and points to the falling demand overseas and in Asia. Italy approved a one-off 40% on profits banks reap from higher interest rates and plans to use the proceeds to help mortgage holds, while the move sent Italy's banking index plunging 6%. The downgrading by Moody's will renew focus on the banking sector, already dented by the latest comments from Fed officials that pointed to more rate hikes to tame inflation. Today's economic docket is quite light with just low-tier releases, so the focus will be on Fed's Harker & Barkin speeches to help provide intraday direction to markets.
In other news. India bars makers of military drones from using Chinese parts. Chinese exports suffer the worst fall since the start of the pandemic-FT. UPS cuts revenue view on lower e-commerce demand and the new labor contract. The hotel used by journalists is struck by a Russian attack on Donetsk town. European stocks dip as Italian banks hit by windfall tax. After attacking Ukraine's wheat exports, Russia faces its own shipping challenges-Reuters. Major US health systems expect to offer Alzheimer's drug Leqembi in a few months. China's car sales fall for 2nd month in July a price war continues. Poland says it fixes the leak in Druzhba oil pipeline.
In currency news. The USD strengthens as investors shift to 'safety' greenback. Chinese Yuan on continuing weak data. GBP weakens as UK consumer spending slows. AUD & NZ are under pressure after China trade data comes out weaker than expected. CNY weakens 0.3%, while Asian currencies fall 0.4% on average vs USD. Trading currencies come under renewed pressure with JPY, MXN & CHF down 0.35%, ZAR weakening 0.6%, while AUD, SEK & NZD dropped 0.9% and NOK tumbled 1.25% vs USD.
Oil prices tumble over 1.5% as the weak Chinese data offsets tightening supply concerns. CAD weakens in early trading from the combination of weakening oil prices and the shift from risk to the safe haven USD. Today sees low-tier economic releases for CAD Export, Import & International Merchandise Trade data, which is not expected to impact the loonie. The Market's main focus this week will be the US CPI to help provide future interest rate direction. A break of 1.3475 could see another spike higher towards 1.3600 (May 31st) next.
EURCAD gains in early trading as the weaker-than-expected Chinese export data puts greater pressure on the "commodity" based CAD.
EUR retreats towards 1.0950 on a firmer USD as investor caution heightens ahead of this week's Eurozone & US inflation reports. The Euro continues under pressure as investors stay cautious ahead of Wednesday & Thursday's flurry of Eurozone & US inflation reports. Domestically, data on Monday from Germany showed weak June Industrial product data, Eurozone Sentix Investors' Confidence improved slightly, and today German Inflation data came in as expected. The ECB Monthly Survey on Consumer Expectations showed inflation declined to 3.4% in June from 3.9%. We anticipate the Euro will remain on the back foot until we get guidance from the US CPI on Thursday.
GBPEUR holds steady as both currencies come under pressure as investor shift towards the safe haven USD.
GBP drops towards 1.2700 on a strengthening USD. The pound weakens on a combination of continuing downbeat UK consumer spending data, while the USD strengthens on an increasing risk-off mood on poor Chinese data and the downgrading of US banks by Moody's. The British Retail Consortium said retail sales values rose by 1.5% in July, less than half of the 12-month average growth rate of 3.9% and down from the year's peak of 5.2% in February. BoE Pill said on Monday that food inflation, which has been more severe than that for other items, is likely to fall to around 10% later this year, from 17.3% right now. We expect the pound to remain under pressure heading into Thursday's US inflation report.
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