The Morning Update

The USD eases, oil prices strengthen, while equity markets and US yields are mixed ahead of the key US inflation report. The U.S. dollar eased from recent two-month highs as Treasury yields pulled back and investors reduced some of their more aggressive Fed tightening bets following softer U.S. data. Attention now turns to today’s Core PCE inflation report, the Fed’s preferred inflation gauge, with markets looking for evidence that underlying price pressures remain persistent enough to justify further tightening. Global equity markets were mixed as investors awaited today’s U.S. Core PCE inflation report, private payrolls and GDP data for fresh clues on the Fed outlook. U.S. futures were little changed, Treasuries steadied after 30-year yields reached their highest since 2002, while European stocks remained under pressure as firmer inflation in France and Italy reinforced expectations for further ECB tightening. Attention also remains on Micron’s earnings as a key test for the narrow AI-led equity rally. Elsewhere, oil prices eased as Middle East supply concerns softened, while gold and bitcoin firmed as Treasury yields pulled back. Today’s economic calendar includes U.S. ADP Employment Change, PCE and Core PCE inflation, personal income and spending, final Q2 GDP and Chicago PMI, alongside speeches from Fed officials Goolsbee and Barkin and the ECB’s Schnabel.

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News Headlines. Russia targets data centres in Kyiv as NATO condemns Moscow's 'nuclear rhetoric' Pressure'. Treasury yields ease after 30-year yield hits highest level since 2002. US forces exit Iraq, emboldening Iran's proxies. Bonds set for bruising in September, but stocks remain resilient. Apple is finally ready to enter its next big category: the smart home. Bank of Canada deputy sees 'dilemma' on trade war and energy shock. TC Energy advances coastal gas link after LNG Canada decision. Canada will do all it can to ensure Cleveland-Cliffs meets obligations, Carney says. The White House holds crunch talks on diesel export ban as midterms near.

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In currency markets. Against the USD, most major currencies edged higher ahead of today’s Core PCE inflation and ADP employment reports as the dollar eased modestly from recent highs. GBP outperformed its peers after UK second-quarter GDP was revised higher and expectations for a November BoE rate hike increased, while AUD remained under pressure despite firmer headline inflation as softer underlying price pressures and the post-RBA reaction continued to weigh on the currency.

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In commodity markets. WTI +0.92% | Nat Gas +0.86% | Gold +0.96% | Silver +0.06% | Copper +0.67% | Palladium +1.01% | Coffee +2.87% | Cocoa +1.68% | Soybeans +0.35% | Wheat +0.72%

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CAD remains under pressure near three-month lows, although yesterday’s GDP data showed the economy holding up better than feared, with activity flat in July and an early estimate pointing to 0.2% growth in August. The Bank of Canada has continued to highlight the drag from shifting trade relationships while noting that elevated commodity and energy prices are supporting parts of the economy but also adding to inflation risks. With Canadian yields still lagging U.S. rates and oil prices recently easing, the loonie remains vulnerable despite signs of some underlying economic resilience.

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EURCAD held steady above 1.61 as both currencies remained under pressure, with the euro struggling to gain traction amid a still-cautious Eurozone outlook while CAD found some support from today’s rebound in oil prices. ECB President Lagarde has acknowledged that inflation remains elevated but said there is little evidence so far of a broader wage response to the energy shock, while upcoming ECB commentary will be watched for further guidance on the rate path.

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EUR remains broadly depressed near yearly lows, with softer German data, renewed concerns over France’s public finances and a still-strong U.S. dollar limiting any recovery. Weak retail sales and a rise in German unemployment reinforced the subdued Eurozone growth backdrop, while Lagarde’s recent remarks were interpreted as relatively cautious, suggesting the ECB is wary of over-tightening even as inflation remains above target. Elevated French debt and wider bond spreads continue to weigh on sentiment.

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GBPEUR gained in early trading as stronger UK data supported GBP, with second-quarter GDP revised up to 0.5% from 0.4%, while recent BoE commentary has kept expectations for further tightening alive if inflation pressures persist. The euro remained softer as higher inflation in France and Italy reinforced concerns over the growth impact of tighter ECB policy, with further ECB commentary also in focus today.

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GBP strengthened away from recent two-month lows as an upward revision to UK second-quarter GDP reinforced expectations for a November BoE rate hike, while softer U.S. Treasury yields weighed on the dollar. The UK economy grew 0.5% in Q2 versus the previous 0.4% estimate, adding to recent hawkish BoE commentary. Attention now turns to today’s U.S. Core PCE inflation report and final GDP data, with Friday’s payrolls still the key test for the Fed outlook.