The Morning Update

The US$ is steady, oil prices firm, equity markets are down, while US yields rise on increasing growth concerns. China cuts two more key lending rates for the first time in 10-months to prop up growth as its economy continues to stall and increasingly appears on the brink of deflation as reopening optimism fades. Top investment banks, including Goldman Sachs and JPMorgan, recently cut their full-year GDP for estimates for China and warned of more economic headwinds to come. The direction of US monetary policy is also a primary concern for investors, the Fed Chair Powell semi-annual report Wednesday/Thursday will be a primary focus for markets this week. Today sees a light economic docket with Fed's Bullard, Barr & Williams speeches, US Building Permits, Housing Strats & ECB De Guindos Speech to help provide direction to markets today.

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In other news. German industrial goods prices rise at its slowest rate in two-years. Qatar set to strike second big LNG supply deal with China. UK grocery inflation eases for third-month, showing supermarket sales eased 16.2%, suggesting rate may have peaked. Canada's Alpha Auto to buy UK dealership Lookers for GBP465mm. Alibaba CEO and Chairman Zhang to step down to focus on cloud business. Russia attacks Ukrainian cities in overnight air strikes. China plans a new military training facility in Cuba-WSJ. Indian PM Modi heads to US to deepen ties, says no doubting India's position on Ukraine.

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In currency news. CNY falls after China cuts its lending benchmarks. AUD weakens on the back China growth concerns. JPY edges higher ahead of BOJ Monetary Policy Meeting Minutes. GBP drops from 10-month highs as inflation levels eases. CNY & Asian currencies ease 0.2% on average vs US$. Trading currencies mostly under pressure with AUD tumbling 1%, NZD falls 0.4%, MXN & SEK weaken 0.35%, CHF & NOK slip 0.2%, while ZAR is flat and JPY firms 0.25% vs US$.

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Oil prices edge higher in early trading despite China's rate cuts. C$ eases as markets shift their focus to tomorrows Fed Chair's Powell testimony to US congress where Powell is expected give guidance on the Fed's next steps on further interest hikes in 2023. Domestically no Canadian data releases today, so focus will be on Wednesday key CAD Retail Sales & BoC releases its minutes for its policy decision two weeks ago when it hiked for the first time since January. Today sees some US mid-tier economic releases but we expect markets to remain sidelined waiting for the Fed Chair's comments Wednesday.

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EURCAD edges higher in early trading as China growth concerns adds pressure to commodity based currencies like the C$.

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EUR holds steady between 1.0910-1.0960 as markets are sidelined ahead of US Fed Chair's testimony Wednesday. The Euro is holding steady in thin trading as investors remain on the sideline lines ahead of this weeks key Fed Chair's testimony before Congress. Domestically German producer prices rose at their slowest pace in more than two-years in May, in a further sign inflation in Europes largest economy is easing. Today the US mid-tier data releases are likely to have a minimal impact on currency markets.

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GBPEUR weakens, slipping off 10-month highs as data suggests UK inflation levels are easing.

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GBP fails to hold 1.2800 as a cautious mood returns to currency markets. Slowing China growth prospects, continuing UK political pressure and the prospect of further Fed hikes increased risk-aversion. The prospect of a another BoE rate on Thursday continues to provide an underlying support to the pound, but signs of easing inflation levels could see increasing pressure on the pound into Q3. Domestically the UK grocery inflation eased for third-month, showing supermarket sales eased 16.2%, suggesting rate may have peaked. We expect the pound to hold within its current range ahead of the Fed Chairs testimony and the BoE's rate decision this week.

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