The Morning Update

The US$ weakens, oil prices rebound, equity markets are up, while US yields slip ahead of the key US May inflation report. The risk-on tone has helped drive equity markets and commodity prices higher, while the US$ index and US yields are down as confidence is mounting that todays US CPI will show pressures have cooled enough to allow the Fed to put their tightening campaign on pause Wednesday. In China, investors are speculating that Beijing will cut its longer-term policy rates after the central bank unexpectedly lowered its 7-day reverse repurchase rate. Today The US Consumer Price Index is expected to fall from 4.9% to 4.1% y/y in May, barring a significant upside surprise, we anticipate the Fed will forgo a rate hike on Wednesday after 10 consecutive moves in the key rate since March 2022.

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In other news. China cuts short-term borrowing costs to support recovery. Russian missile strike kills civilians as Ukraine claims counteroffensive gains. France, Germany & Poland vow long-term support for Ukraine. As climate change hits, China weighs new water mega-projects. Germany overtakes China as second most attractive country for renewables investment. Governments shunting 'dirty work' on inflation to the Bank of Canada, CIBC says. Former Twitter CEO Jack Dorsey alleged that India threatened to shut Twitter and raid employees. UK 2-year gilt yields rises to highest levels since 2008 at 4.766%, exceeding 2022 mini-budget peak.

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In currency news. The US$ weakens head of the US inflation data, while the CNY remains weak, hitting fresh 6-mont lows on China rate cut expectations. GBP rallies on UK wage growth increases expectations of further BoE rate hikes on June 22nd. Commodity currencies edge higher supported by improving risk sentiment. CNY eases 0.15%, while Asian currencies are up 0.2% on average vs US$. Trading currencies are mixed with ZAR weakening 0.25%, MXN slips 0.2%, NOK down 0.1%, while JPY up 0.1%, NZD, SEK & CHF firm 0.3%, and AUD strengthens 0.4% vs US$.

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Oil prices strengthen over 1% in early trading as apparent 'bargain hunting' helped oil prices rebound from Monday's lows. Markets remain cautious ahead of the Fed decision Wednesday and ongoing weak economic data out of China. The C$ holds steady, firming slightly as oil prices rebound but remains somewhat sidelined with the lack of Canadian data as markets await the US inflation data to provide intraday direction.

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EURCAD firms in early trading, bouncing off 6-month lows as investors focus on the anticipated ECB rate hike on Thursday.

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EUR advances to monthly highs ahead of US inflation report. Euro gained ground, retesting 1.0800 after Germany's economic sentiment unexpectedly improved to -8.5 in June. Focus remains on the US inflation report which is expected to have cooled, setting the stage for the Fed to pause its interest rate hiking policy on Wednesday. The improving risk-sentiment, alongside expectations that the ECB will hike interest rates on Thursday is providing an underlying short-term support for the Euro. Today all eyes will be on the US inflation report to help provide intraday direction to markets.

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GBPEUR strengthens in early trading after UK wage growth beat expectations and increases the expectations that the BoE will continue to hike interest rates at its June 22nd meeting.

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GBP rebounds through 1.2550 after stronger than expected jobs data. The data from the UK showed that wage inflation continues to run hot in May which has provided a boost to the pound as it increases expectations the BoE will hike at its June 22nd meeting. Wage inflation as measured by average earnings excluding bonus climbed to 7.2% y/y in April vs 6.85% in March. UK 2-year gilt yields spiked to their highest levels since 2008 and exceeded the 2022 mini-budget peak. This week the focus will be on today's US CPI, Wednesday's US Fed Rate decision and Thursday's ECB rate decision which will provide short term direction to the pound.

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