The Morning Update

The USD steadies, oil prices rally, equity markets are mixed, and US yields rise on signs of trade war impact. The USD index remains under pressure, surrendering early gains as investors stay cautious about the potential effects of tariffs in the coming months and in anticipation of Wednesday's US Fed interest rate decision. Meanwhile, the Bank of England is expected to announce rate cuts on Thursday, which may pave the way for back-to-back reductions in response to US tariffs. Asian equities advanced, while the Stoxx 600 snapped a 10-day streak of gains in Europe as companies warned of uncertainty fueled by the ongoing US trade war, and on Monday, the S&P 500 halted a nine-day rally, which was its longest in about 20 years. Markets have already priced in any short-term positives on this front and are bracing for the economic slowdown, said Mohit Kumar, chief economist and strategist at Jefferies International. “Our view is to use the recent rally to reduce exposure to the US,” Kumar said in a client note. “We do see some slowdown in the economic data as we head toward June and the tariffs start to have an effect.” Elsewhere, oil prices rallied on new sanctions targeting Iranian oil exports, while Bitcoin is steady, and gold prices rally to four-week highs. Today sees no key US economic releases, so the focus will be on the CAD Ivey Purchasing Managers Index and the BoE's Breeden speech to help provide direction to currency markets.

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In the news. Friedrich Merz fails in initial vote to become Germany's chancellor. Chinese exporters undervalue cargo to skirt Trump tariffs. DoorDash strikes GBP 2.9 billion deal for Deliveroo. The EU is to set out plans to halt Russian gas imports by the end of 2027. Safe-haven demand lifts gold to 2-week peak, focus on Fed meeting. Alberta Premier promises separation referendum in 2026 if petition signatures warrant. S&P 500 futures are little changed as Wall Street looks to the Fed policy meeting. Ford suspends 2025 guidance amid $2.5 billion tariff impact. As Europe snubs Musk, Tesla's UK sales were the lowest in April in over two years.

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In currency markets. China's yuan ends at a six-month high, while Hong Kong's central bank intervenes to maintain the HKD peg, and other Asian currencies soar against the USD. USD & GBP steady ahead of this week's central banks' interest rate decisions. CNY rallied 0.7%, while Asian currencies are up 0.2% on average against the USD. Trading currencies are mixed, with CHF weakening 0.5%, MXN & AUD down 0.3%, DKK, ZAR & KWD flat, NZD up 0.1%, and JPY gained 0.3% against the USD.

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In commodity markets. Oil prices rallied 2.8%. Natural Gas, Silver & Gold prices strengthened by 2%. Copper & Soybean prices eased by 0.15%, and Wheat prices firmed by 0.6%.

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CAD holds steady above 1.3800, as investors remain sidelined ahead of today's White House meeting between Trump and Carney, with markets looking for any signs of concessions on tariffs. Domestically, Canada's services economy contracted for a fifth straight month in April. Today's Ivey Purchasing Managers Index s.a. for April is expected to remain steady at 51.2, compared to 51.3 in March. We expect the loonie to stay within current trading ranges ahead of today's Carney/Trump meeting and tomorrow's Fed interest rate decision, which will help guide the loonie.

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EURCAD edges higher despite rising oil prices, as investors remain concerned that the Trump/Carney meeting won't produce the concessions that markets expect.

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EUR stalls above 1.1300 with markets sidelined amid the absence of key US economic releases and Wednesday's Fed rate announcement. In Germany, Merz failed to be elected German Chancellor in a shock first-round vote, causing investors to pause and step to the sidelines. Domestically, the Italian, French, German & EU Composite and services PMI reports all reported as expected. We expect markets to be focused on German political updates and Wednesday's US Fed interest rate decision and statement to help guide the single currency in the short term.

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GBPEUR gains as political uncertainty in Germany puts pressure on the euro.

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GBP rebounded above 1.3300 despite dovish Bank of England sentiment. The pound retakes 1.33 amid ongoing USD softness as both the UK and the USA await key interest rate decisions this week. The Bank of England is expected to cut its domestic interest rates on Thursday, with investors forecasting three interest rate cuts in 2025 and possibly two more rate cuts in 2026. We expect the pound to steady within its current trading range as investors are expected to remain on the sidelines for the US & UK interest rate decisions.

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