The USD is steady, oil prices strengthened, equity markets are up, and US yields rose as markets await bank earnings. Currency markets held on to Thursday's gains after the softer-than-expected US inflation report, while US yields edged higher after 10-year yields dropped seven basis points yesterday. US equity futures are flat after the S&P 500 suffered its worst day since April, while European equities rose for a third day. The US inflation data increased expectations of a Fed rate cut in September and raised the possibility of two more rate cuts in Q4/24. Investors have shifted their focus to JPMorgan, Wells Fargo, and Citibank's reports on results today. They will be followed by Goldman Sachs on Monday and Morgan Stanley and BoA on Tuesday. Elsewhere, oil prices extended gains for a third day, Bitcoin weakened back to $57k, while gold and silver prices weakened in early trading. In focus today, alongside US bank earnings, US PPI ex-food & energy, Michigan Consumer Sentiment Index, UoM 5-year Consumer Inflation Expectation, and CAD Building Permits will help provide intraday direction to currency markets.
In other news. China's exports grew 8.6% in June, beating forecasts despite trade tensions. Biden vows to 'complete the job' despite stumbles in press conference. The US says it will not reopen the makeshift aid pier to Gaza. The Kenyan president fires most of his cabinet after mass protests. Delta says the Olympics will cost it $100 million as travelers skip Paris. Canada's PM Trudeau calls NATO target 'crass' but sets 2032 deadline to meet it. China hits back at NATO over Russia accusations. The US, Canada, and Finland are looking to build more icebreakers to counter Russia in the Arctic. Musk's X has breached EU online content rules, EU industry chief Breton says.
In currency markets. Japan likely spent $22 billion on JPY intervention on Thursday. China's Yuan eases after mild midpoint fixing and mixed trade data. The USD steadies but remains under pressure with the increasing prospect of an interest rate cut in September. CNY is flat, while Asian currencies slip 0.1% on average against the USD. Trading currencies are mixed with SEK weakened by 0.4%, JPY down 0.25%, NOK slips 0.1%, CHF flat, AUD, ZAR, MXN & NZD up 0.2% against the USD.
In commodity markets, Oil prices rallied by 1.1%, Natural Gas prices flat, Gold and Soybean prices fell by 0.5%, Copper prices firmed by 0.5%, Wheat prices weakened by 1.25%, and Silver prices tumbled by 2%.
CAD struggles to make gains, underperforming against its G7 peers despite the weakening USD and strengthening oil prices. The loonie continues to languish with the increasing prospect that the Bank of Canada will cut interest rates again at its July 24th meeting. Domestically, today's CAD building permits are expected to fall 5% in May vs. April's 20.5% gains. Intraday, the US PPI ex-food & energy, and the Michigan Consumer Sentiment Index will be the primary driver for currency markets.
EURCAD continues to extend gains, rising 1.2% in July, testing a fresh four-week high as investors remain cautious of the Loonie ahead of the BoC interest rate decision on July 24th.
EUR extends gains, testing a fresh five-week high against the USD as improving risk sentiment supported the single currency. Euro stalls below 1.0900 heading into the US PPI data as investors look for supporting inflation data after Thursday's softer US CPI report. Domestically, the German Harmonized Index of Consumer Prices came in at 2.5%, showing that inflation levels are stalling, which could support an ECB rate cut in September. The prospect of a Fed rate cut in September grew to 90% from 70% after yesterday's US CPI report, but we remain cautious of Euro gains beyond 1.1000 in Q3 with the potential the ECB could also join its peers by cutting rates in September.
GBPEUR rallied to near 2-year highs as the pound became the new darling of investors, boosted by political stability and an improving economic landscape.
GBP extends its gains to a fresh 2024 higher, strengthening through 1.2950 ahead of the US PPI report. The pound looks unstoppable, rallying against its peers as growth returns, the BoE maintains its hawkish stance, and with increasing confidence in the political stability of the UK Government. The increasing prospect of interest rate cuts in the US and Europe is expected to continue to support the pound in the short term. Intraday, the US PPI will be the primary driver for the pound.
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