The Morning Update

The USD is flat, oil prices are steady, equity markets are down, and US yields ease as investors stay on the sidelines. Currency markets are sidelined, the USD is flat, and the Euro holds near one-month lows in early trading. European equity markets and US futures slip as investors ready for the Federal Reserve's policy meeting on Wednesday. Oil markets have held on to their biggest gains since March, ahead of an OPEC report, which is expected to give a snapshot of the market outlook. Markets are sidelined ahead of the pact day of economic releases on Wednesday, which includes the German inflation report, UK Manufacturing Production, the US Inflation report, and the critical Fed Interest Rate Decision. Elsewhere, Bitcoin remains under pressure, falling 3%, dropping to $67K. Gold prices are steady, while Silver and Copper prices remain under selling pressure. Today sees a light economic calendar, focusing on the OPEC Monthly Market Report, CAD Building Permits, and ECB Elderson's speech; later in the evening, China's inflation report will help provide some direction to currency markets today.

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In other news. Hamas accepts the UN ceasefire resolution and is ready to negotiate over details. Apple brings ChatGPT and more AI to devices. UK mortgages in arrears have risen to their highest level since 2016. Mexico's president-elect vows to press ahead with controversial judicial overall. Singapore Airlines offers $25k to seriously injured passengers on turbulent flight. In Canada, the Liberal government takes the first step toward changing the capital gains tax. The IMF warns the US about the ballooning fiscal burden, pushing for advanced economies to reduce their debt. Elon Musk warned that he would ban Apple devices if OpenAI were integrated at the operating system level.

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In currency markets. China's yuan has touched a seven-month low against the USD, as state banks have stepped in to support it. The deputy governor says that the Bank of Indonesia will use all monetary instruments to stabilize the Rupiah. The USD holds steady ahead of the Fed interest rate decision, while the Japanese Yen slips heading into the Bank of Japan meeting. CNY & Asian currencies slip 0.1% on average against the USD. Trading currencies come under pressure, with MXN tumbling 1.2%, NOK weakening 0.4%, AUD & SEK falling 0.25%, JPY & IDR down 0.1%, and NZD, ZAR & CHF flat against the USD.

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In commodity markets. Oil, wheat, and gold prices slip by 0.1%, Natural Gas prices rally by 5.1%, silver & copper prices tumble by 1.8%, and Soybean prices weaken by 0.25%.

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CAD holds at two-month lows, down 1% in June against the USD, with increasing expectations of diverging interest rates between the Fed and the Bank of Canada for the 2nd half of 2024. We expect markets to remain sidelined today as investors cautiously await the Fed's interest rate decision and the following monetary policy statement. Investors will also focus on BoC Governor Macklem's speech, where he is expected to follow on from his statement last week where he said the bank's monetary policy no longer needs to be as restrictive, " we've come a long way in the fight against inflation." We remain bearish on the loonie into Q3, with the risk of further weakness towards 1.4000.

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EURCAD holds steady as markets balance out the prospect of the ECB's expectation to keep interests on hold towards Q4 against increasing political uncertainty following the increase of the far-right success in the EU parliament election.

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EUR steadies near monthly lows heading into the Fed decision, dovish ECB, and EU political uncertainty. The Euro continues to struggle to hold at 1.0750 after the political dial shifted after the EU parliamentary election, which triggered a snap election in France. Adding further pressure to the Euro, ECB De Galhau said today that the bank has 'significant leeway' to lower rates before exiting the restrictive policy. We expect investors to be sidelined today, keeping their powder dry ahead of the US Inflation report and the Fed's interest rate decision. Technically, a break of 1.0750 opens up a move to 1.0670 next.

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GBPEUR continues to trade higher, up 1% in June, taking the pound to a fresh 22-month high against the euro. We expect the euro to remain under pressure in the short term following the ECB's dovish comments and the ongoing political uncertainty in Europe.

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GBP retraces to 1.2750 but is capped following the UK jobs data. The pound bounces off weekly lows as the USD steadies ahead of tomorrow's US rate decision and inflation report. Domestically, UK job data came in weaker than expected, with Clamant's growing to 50.4K vs 8.4K in April and ILO Unemployment rate increasing to 4.4%. Alongside the US & Euro data, investors will also be focused on the UK GDP and Industrial & Manufacturing production to help provide longer-term direction to the pound.