The Morning Update

Tuesday June 6th, 2023

Written by:
Paul Harrison

The US$ is steady, oil prices weaken, equity markets are down, while US yields are mixed as risk sentiment stalls. Investor concern is growing as global inflationary pressures remain high, economic growth globally continues under pressure, and employment pressures are increasing. The RBA surprised markets by raising interest rates overnight, the EBC president Lagarde commented that global price pressures remain strong increasing expectations of a 25bps hike next week, while in the US the services sector barely grew in May as new orders slowed allowing the possibility of a Fed pause in June. Today sees a light economic docket with low-tier US Redbook Index, CAD mid-tier Ivey Purchasing Managers Index.

In other news. Ukraine blames Russia for dam blast as war intensifies. Iran presents its first hypersonic ballistic missile, state media reports. Eurozone retail sales flat in April, with weaker food & food sales. Crypto exchange Binance sued by SEC, and its US affiliate is hit by net outflows of $790 mln in last 24 hours, data shows. 50% of big multinationals plan to cut office space in next three years. US prepared to address 'aggressiveness' of Chinese military-FT. Serbia backs ammunition shipments to Ukraine in westward pivot.

In currency markets. AUD rallies after the RBA raises interest rates. CNY lead Asian currencies weaker as China's economic growth continues to stall. The US$ edges higher as markets focus on June 14th Fed rate decision. CNY slips 0.25% while Asian currencies are down 0.1% on average vs US$. Trading currencies are mixed with NOK weakens 0.6%, CHF slips 0.15%, while SEK & NZD flat, JPY, ZAR & MXN are up 0.1%, AUD strengthens 0.55% vs US$.

Oil prices come under selling pressure as increasing economic fears overshadow the Saudi's pledge to deepen output cuts. C$ holds steady despite weakening commodity prices as investors remain focused on the BoC interest rate decision on Wednesday. The BoC was the 1st major global central bank to pause it rate-hiking policy, but the stronger than expected economy is putting pressure BoC to keep rates on hold. Markets are almost split with 45% expecting a rate hike on Wednesday. Today the Ivey PMI is an important indicator of business conditions, the expectation of 57.2 in May is seen as another bullish sign for Canada and could have an impact on the BoC rate decision.

EURCAD weakens to a fresh 4-month low as C$ remains supported heading into Wednesday's interest rate decision.

EUR slips below 1.0700 again amid mixed Eurozone data. Euro came under renewed selling pressure after mixed Eurozone retail sales data for April and easing risk sentiment. The Euro is expected to remain under pressure with an increasing cautious market mood, disappointing German Factory and increasing recession concerns. ECB President Lagarde at the EU Parliament on Monday stated that underlying inflationary pressures in the Euro area remain high. The ongoing ECB hawkish suggesting an interest rate hike at the ECB meeting next week should provide an underlying support for the Euro on dips. Today expect markets to be somewhat range bound with the lack of US economic data to drive intraday direction.

GBPEUR is flat with the pound holding near 2023 highs as the currency pair is sidelined with the quiet economic docket.

GBP retests 1.2400 as the US$ rebounds as safe-haven buying returns to markets on slowing economic growth. The pound met renewed selling pressure as markets experience a negative shift seen in risk-mood sees the US$ regaining favor. Over the next week we expect the US data and Fed rate speculation to drive the GBP/US$ direction, vs the pound driving intraday direction. Today with the light US economic docket, we expect the pound to be somewhat range bound this week ahead of the ECB, BoE & FED interest rate decision next week.