The Morning Update

The USD firms, oil prices strengthened, equity markets are up, and US yields are mixed amid tariff threats and the US jobs report. The USD edges off three-year lows as investors focus on the US ADP Employment Change today, ahead of tomorrow's US Nonfarm Payrolls to see if there are signs of softening US employment, which will help guide the Fed's interest rate direction. US futures and global equity markets are mainly up, while the Japanese Nikkei index fell after Trump threatened Japan with new tariffs, claiming that Japan would not buy America's rice. Tesla shares dropped 7% on Tuesday as the Musk-Trump feud continued and markets focused on the company's Q2 deliveries report. A week before Trump is set to reimpose steep tariffs on dozens of economies, including the EU and Japan, many are still scrambling to reach a deal, with Bessent maintaining that Washington has been focused on striking deals with about 18 key partners. Elsewhere, oil prices firmed ahead of the US jobs report, with Bitcoin strengthening by 2% to $107,700. Meanwhile, gold and silver prices edged higher in early trading. In focus today are the ADP Employment Change, CAD S&P Global Manufacturing PMI, and ECB President Lagarde's speech, which will help drive direction in currency markets.

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In the news. Trump's 35% tariff threat feeds Japan's worst-case scenario fear. The US Senate passes Trump's sweeping tax-cut and spending bill, setting up a battle in the House. European junk bond sales hit a record as investors cut US exposure. Ukraine summons the US embassy after Washington halts some arms supplies. The EU is to exempt heavy industry from the Carbon Tax on exports. The US says Israel has agreed to conditions for a 60-day Gaza ceasefire. A poll shows that more Canadians are avoiding U.S. goods and travel amid the Trump trade war. The European heat wave closes the Eiffel Tower's top floor and bakes Wimbledon. The UK benefits bill will continue to rise without NHS reform.

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In currency markets. The USD Index edges off three-year lows of 96.98 in early trading, but remains under pressure due to increasing expectations of Fed easing, as well as the focus on Trump's tax bill. The pound and euro slip from multi-year lows as investors consolidate ahead of today's US ADP jobs report and caution ahead of Thursday's key US Nonfarm payrolls. CNY is flat, while Asian currencies firmed by 0.25% on average against the USD. Trading currencies are mixed, with JPY & NOK weakening 0.5%, ZAR & NZD falling 0.4%, CHF & AUD easing 0.2%, KWD & MXN flat, DKK firmed by 0.2% and SEK strengthening by 0.5% against the USD.

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In commodity markets. Oil prices strengthened by 0.8%. Natural Gas prices eased 0.5%. Gold, Silver, Copper and Wheat prices are up 0.1%, and Soybean prices gained by 0.65%.

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CAD steadies near 1.3650 ahead of the Canadian manufacturing PMI and US ADP jobs report, with markets quieter than usual amid the Canadian July 1st holiday and Friday's July 4th holiday. The loonie has been subject to increased volatility, which saw a spike to 1.3760 on Friday and a subsequent drop to 1.3590 on Tuesday, following the US on-again, off-again trade talks after the Liberals rolled out and then rescinded the digital services tax on technology. We expect the loonie to remain vulnerable to increased volatility ahead of a confirmation of a US/Canada trade deal.

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EURCAD eases in early trading as investors consolidate their euro positions ahead of this week's key US jobs data. Over the past 52 weeks, the euro has strengthened from a low of 1.4487 to a high of 1.6110.

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EUR consolidates above 1.1750 ahead of two days of key US employment reports. The euro snapped a two-week winning streak as investors consolidate long euro positions in thinner-than-normal markets, ahead of the ADP Employment Change today and the US Nonfarm Payrolls on Thursday. Investors are also cautious ahead of the July 9th EU/US trade deadline, following comments from President Trump that he doesn't plan to impose further pauses on tariffs. Intraday, ECB President Lagarde's remarks and the ADP Jobs report will be the drivers for the euro today.

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GBPEUR are sidelined ahead of the US jobs report.

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GBP slips from multi-year highs, holding above 1.3700 with the US jobs in focus. The pound eases on BoE comments and as investors cover short USD positions ahead of two key US jobs reports. At the same time, ongoing Trump attacks on the Fed's credibility and uncertainty surrounding the US tax bill are expected to provide underlying support to the pound. Domestically, BoE Governor Bailey told the Lords Economic Affairs Committee on Tuesday that the bank is observing a softening of the labour market, and Deputy Governor Ramsden said that inflation will undershoot the target, allowing the bank to accelerate rate cuts.