The US$ eases, oil prices fall, equity markets are mixed, while US yields ease as debt ceiling talks advance. Global markets are mixed as debt-limit agreement heads to Congress in a crucial final stretch with less than a week before a June 5th default deadline. President Biden and House Speak McCarthy have both been calling lawmakers to support the bill, with a vote expected by the House likely on Wednesday before it goes to the Senate. Markets anticipate the US$ to hold near current level even if a debt ceiling agreement signed this week, with increasing expectations the Fed could hike rates as soon as July and on growing concerns of continuing slowdown in China. Today alongside debt ceiling comments investors will be focused on US Housing Price Index, Consumer Confidence, Dallas Fed Manufacturing Business Index and CAD Current Account will help provide intraday to currency markets.
In other news. Ukraine war comes to Moscow as both capitals are hit by drones. Spanish inflation falls more than expected to 2.9%. Turkey's lira weakens to record lows as economists warn of Erdogan's "unsustainable" polices-FT. UK shop price inflation rises to 9%, a record high British Retail Consortium data shows. China declines US request for a meeting between defense chiefs. Kosovo erupts in violence as ethnic serbs bar Albanian mayors from taking office. President Biden says he and Erdogan talked about F-16's & Sweden's NATO bid.
In currency markets. The Chinese yuan holds near 6-month lows on faltering recovery. JPY edges firmer on intervention speculation. AUD & NZD stall on China concerns. ZAR remains under pressure on credit extension and budget figures. CNY slips 0.1%, while Asian currencies are flat on average vs US$. Trading currencies steady with SEK down 0.2%, while NZD, NOK, MXN & AUD is up 0.15%, JPY & CHF firm 0.3% vs US$.
Oil prices fall 2% as the US debt ceiling heads to congress and increasing mixed messages from major oil producers clouded the supply outlook ahead of the OPEC+ meeting this weekend. C$ strengthens marginally as risk-sentiment improves on anticipation that debt ceiling will clear the House & Senate ahead of June 5th default deadline. Increasing China growth concerns is keeping pressure on commodity prices and the prospect of a 25bps hike by the Fed in July could cap the loonie's ability to rally into the summer. Today focus will be on US data releases and CAD Current Account which is expected to improve Q1 to -9.35B vs -10.64 in Q4/22.
EURCAD edges higher in early trading as risk-sentiment improves on anticipation of the US debt ceiling agreement completing before the June 5th default deadline.
EUR remains capped at 1.0750 as the US$ slips ahead of the North American open. Risk sentiment holds steady with the debt ceiling expected to go before the House as soon as Wednesday and should be on track to pass through the Senate ahead of the June 5th deadline as both the President & House Speaker reach out to lawmakers. Spanish inflation declined to 2.9% beating expectations, setting the stage for Germany's inflation data on Wednesday and the Eurozone inflation on Thursday. If we see inflation levels follow Spain's lead, this could see the potential for the ECB to take a less hawkish stance on interest rates moving forward. Intraday US data & debt ceiling updates will help provide intraday direction.
GBPEUR advances after UK shop inflation spikes to record highs and sets the stage for further BoE rate hikes, while in Europe Spanish inflation levels dropped more than expected.
GBP rallies through 1.2400 amid cautious optimism and expectations of BoE rate hikes. Domestically, the rate of price rises at UK supermarkets hit a new high in 2023 due to coffee, chocolate and non-food goods. The British retail consortium and NielsenIQ said that the overall rate of inflation at grocers reached 9%-BBC. PM Sunak is in talks about asking supermarkets to cap prices on food items to help the cost of living. The pound gained with increasing expectations the BoE will continue to raise interest rates three more times in 2023 to reach a terminal rate of 5.25%. Intraday US data & debt ceiling talks will drive intraday currency market direction.
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