The Morning Update

The US$ is steady, oil prices fall, equity markets are up, and US yields rise on stimulus hopes. The USD remains sidelined while equity markets snap a 6-day losing streak amid expectations of further Chinese stimulus and improving optimism that a looming economic downturn could prove to be less severe than initially feared. European equities gave back some opening gains after ECB Lagarde maintained her hawkish tone, dashing hopes of an end to the interest-rate hiking cycle. There are also positive signs of improving Sino/US relationship from a report that the US Treasury Secretary Yellen plans a trip to visit Beijing in July for talks with her new Chinese counterpart. Today US Durable Goods Orders, Housing Price Index, Consumer Confidence, and CAD key Consumer Price Index will help provide intraday direction to currency markets.

‍

In other news. Markets are pricing in rate cuts too soon, IMF's Gopinath says. Putin slams rebels as criminals; Zelensky lauds military advances 'in all directions'-CNBC. Russia drops uprising charges and says Wagner will hand over weapons - FT. Ford conducts engineering layoffs in US and Canada. At the ECB Forum Lagarde says inflation is still too in the euro area, and cannot declare victory yet in her opening comments. Toronto elects Chow as Mayor on affordable housing pledge. Canada wildfire smoke crossed the Atlantic to cover parts of Europe. Germany plans 'permanent' force in Lithuania to strengthen NATO's easter flank, as Baltic states say turmoil in Russia heightens need to boost security.

‍

In currency news. The USD holds steady ahead of US durable goods & housing data. EUR rises on hawkish ECB Lagarde comments. CNY firms as state banks steps in raising their daily fixing rate stronger. Thai central bank to further relax forex rules to raise the limit on free fund outflows to $200k from $50k. ZAR gains as Russia mutiny may prompt Putin to skip BRICS Summit in August. CNY firms 0.25%, While Asian currencies are up 0.15% on average vs US$. Trading currencies are mixed with JPY & NOK are down 0.2%, while CHF, NZD & SEK are up 0.1%, MXN firms 0.2%, AUD gains 0.3%, and ZAR rallies 1% vs US$.

‍

Oil prices fall over 1% on continuing hawkish central bank comments and heading into US data inflation-sensitive data and the American Petroleum Institute Industry group today. CAD holds steady at 9-month highs finding support from China stimulus news which helped boost metals pricing and improved risk-on sentiment. Key to the loonie today will be the Consumer Price Index y/y May which is expected to drop to 3.4% vs 4.4% & BoC CPI y/y May which is expected to ease to 3.9% vs 4.1%. If we see a print on either side of the expectations this would increase C$ volatility. Alongside the CAD CPI, the US Durable Goods Orders & US Housing  Price Index will also be a key drivers to the loonie today.

‍

EURCAD strengthens in early trading after ECB President Lagarde's hawkish comments in her opening remarks at the ECB summit.

‍

EUR retests 1.0950 vs USD on hawkish ECB comments. Euro strengthened in early trading following President Lagarde's hawkish rhetoric in her opening remarks at the ECB forum. Euro also got a boost from improving risk-on sentiment on increasing optimism of further stimulus in China. Heading into the US opening, May Durable Goods Orders and US Housing Index will be seen as a barometer of the Fed's impact on inflation, and strong data could set the stage for further US Fed interest rate hikes. Today comments from the ECB Summit and US data will help provide intraday direction to markets.

‍

GBPEUR slips in early trading as the gains on the hawkish ECB comments.

‍

GBP stalls below 1.2750 ahead of US data and economic outlook. The pound failed to expand gains on China stimulus optimism and expectations of investors shifting to the pound for its higher interest rates. BoE Dhingra said that 'wages are responding to inflation with a lag' and went on to say "There are some promising signals that UK CPI should ease based on big fall in PPI. The adaptation of new fiscal measures such as cutting wages of public sector employees by the government is losing its impact. The government also asked companies to bring down profit margins to tame sticky inflation, which might help trim fears of a bleak economic outlook. The intraday focus will be on the ECB forum & US data releases to help provide direction to the pound today.

‍