The Morning Update

The USD slips, oil prices edge higher, and equity markets are up, while US yields ease on ECB official less hawkish comments. Currency markets remain sidelined ahead of today's key US Retail Sales data, while equity markets and European bonds gained after a key ECB official raised hopes that the end of the rate-hiking cycle is in view. The ECB governing council member Knot said monetary tightening beyond next week is anything but guaranteed, while ECB Visco said inflation may come down more quickly as lower commodity prices start to trickle through the economy. The EU inflation report is due out of the Eurozone & UK tomorrow, after last week showed the US inflation level fell more than economists had forecast. Today in the US focus will be on Retail Sales & Industrial Production and CAD CPI will help provide intraday direction to currency markets.

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In other news. Goldman Sachs cuts the odds of a US recession in 2024. US special envoy for Climate Kerry Upholds US-China's Stability in Symbolic Beijing visit-CNBC BMO sees immigration to Canada boosting inflation in the short term. Russia strikes Ukraine grain port after pulling out of grain export deal. G20 meeting in India to end without communique as Ukraine war divides bloc. EU's McGuinness, the rest of the world must act to get grain out of Ukraine.

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In currency markets. The USD holds steady near 15-month lows, while the Euro stalls at 17-month highs ahead of today's US Retail sales and heads the next week's central banks' rate decisions. Chinese Yuan steadies on a firmer midpoint fixing rate. CNY is flat, while Asian currencies are up 0.1% on average vs USD. Trading currencies are mixed as NZD weakens by 0.45%, MXN slips 0.15%, while AUD & NOK are flat, CHF is up by 0.25%, JPY strengthens by 0.4%, SEK strengthens by 0.55% and ZAR rallies 0.65% vs US$.

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Oil prices edge higher as investors continue to digest slowing Chinese growth and focus shifts to US crude supplies. The CAD holds steady straddling 1.3200 as investors focus on the CAD inflation data which is expected to fall (y/y June) from 3.4% to 3% in June, with BoC CPI Core (y/y Jun) expected to fall from 3.7% to 3.5%. Alongside CAD CPI, the focus will also be on key US retail sales data which is expected to edge higher to 0.5% vs 0.3% in May. If we see CAD CPI comes in as expected, we anticipate CAD weakening to the higher 1.32's on the prospect of a BoC pause increase, coupled with a continuing weak Chinese economy which will keep pressure on commodity prices.

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EURCAD steadies at 3-month highs ahead of key US & CAD data.

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EUR remains steady, straddling 1.1250 ahead of US Retail Sales data. Euro holds steady at 1.1250 as investors are sidelined ahead of a week of key data releases culminating in the Fed & ECB interest rate decisions next week. Euro appears capped as the ECB tone turns less hawkish with comments that inflation levels have peaked and the impact of falling commodity prices are trickling into the economy. ECB Knot today said "It looks like core inflation has plateaued" and added he was optimistic to see inflation declining to 2% in 2024. Intraday US Retail Sales & Industrial Production will help provide intraday direction to the single currency.

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GBPEUR edges higher after ECB's less hawkish comments, while the BoE is expected to maintain its hawkish interest rate policy.

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GBP regains 1.3100, with the prospect of further strength on the increasing divergence between the BoE & the Fed & ECB. The softening tone from the ECB & the Fed as their respective inflation levels soften, suggests an increasing prospect of both central banks pausing interest rates beyond July. On a positive note the UK grocery price inflation dropped 1.6%, its steepest decline since the peak in March 2023. Today's US Retail Sales and Wednesday's UK inflation report will be key to help provide direction to the pound ahead of next week's Fed & ECB and August 3rd BoE interest rate decisions.

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