The USD is steady, oil prices are strengthening, equity markets are up, and US yields are rising, heading into key US inflation data. Currency markets are sidelined, with the USD holding 8-month highs ahead of the critical US inflation report. Equity markets mostly gained, while France's CAC weakened ahead of the weekend's parliamentary election. Markets expect the Fed's preferred inflation gauge, the core PCI Price Index, to slow down to 2.6% in May, which would be its lowest reading since March 2021. Fed Bank president Bostic said he continues to expect one rate reduction in 2024 amid signs inflation has resumed its decline. Elsewhere, oil prices are heading for their 3rd week of gains, Bitcoin holds steady at $61,300, Zinc climbed to its highest level in three weeks on speculation of production cuts, and Gold looks set for a 3rd quarterly gain. In focus today, the US Core PCE Price Index, Personal Income & Spending, Chicago Purchasing Managers Index, Michigan Consumer Sentiment, UoM 5-year Consumer Inflation Expectation, and CAD Gross Domestic Product will help provide intraday direction to the currency markets.
In other news. Democrats panic as Biden stumbles in bad-tempered debate with Trump (FT). Turkey was removed from the money laundering 'grey list.' The US is in talks to send Israel's Patriot systems to Ukraine. EU leaders endorse a second term for von Der Leyen as the bloc's top official. Nike shares tumble 14% as sales warning rattles retailers. The UK economy grew faster than initially estimated in Q1. French far-right dominate polls two days ahead of the snap election. Westjet strike averted as the federal government intervenes.
In currency news. The USD holds at multi-month highs heading into the critical US inflation report. The JPY hit a fresh 38-year low against the USD and a new low against the Euro. ZAR range rallies despite the South African cabinet announcement drags on. CNY firms 0.1%, while Asian currencies gain by 0.2% on average against the USD. Trading currencies are mixed, with NZD & NOK down 0.1%, JPY & CHF flat, AUD & SEK firms 0.1%, MXN strengthening 0.4%, and ZAR rallying 1.4% against the USD.
In commodity news. Oil, wheat, copper & silver prices strengthened by 1.1%, Natural Gas prices rallied by 1.9%, Gold prices firmed by 0.2%, and soybean prices gained by 0.6%.
CAD straddles 1.3700, holding steady heading into the CAD GDP and US critical inflation data today. CAD continues to hold steady as solid oil and commodity prices provide underlying support to the loonie despite the prospect of a further rate cut by the BoC in July. The BoC was the first G7 central bank to cut rates, and economists see a 40% chance that the BoC could cut interest rates again in July, while the Fed is not expected to cut rates until at least December. Domestically, CAD Gross Domestic Product m/m in April is expected to rise to 0.3% against flat in March. Intraday, the US Core PCE report is expected to be the prime driver for the loonie today.
EURCAD holds steady after bouncing off 8-week lows yesterday as investors brace for the CAD GDP & US Inflation report.
EUR remains steady at 1.0700 heading into the US PCE inflation report. The Euro remains on edge heading into Sunday's French elections, and the USD is firmer despite a generally improving risk sentiment heading into the last day of Q2 trading. Euro remains vulnerable to increased volatility over the next week following the US Presidential debate, the prospect of a far-right government in France on the weekend, and today's US inflation report. Domestically, France's CPI held steady at 2.5%, Spanish inflation increased to 3.5%, and the German unemployment rate increased to 6%.
GBPEUR holds on to 1.1800 on stronger-than-expected domestic growth, but markets remain cautious heading into France's Election this week and the UK election next week.
GBP continues to straddle 1.2650 as investors remain cautious heading into the US inflation report. Investors remain wary despite the upward revision to the UK Q1 GDP data, as the pound is sidelined ahead of the key US PCE inflation data. Domestically, the UK Gross Domestic Product y/y grew by 0.3%, and q/q Q1 improved by 0.7%. The pound remains vulnerable to increased volatility with a flurry of US economic releases today and the UK election on July 4th.
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