The USD is steady, oil prices have weakened, equity markets are mixed, and US yields rise as markets await key inflation data and Fed Chair Powell's testimony this week. The US steadied after losing 1% last week, European equity markets gained, while US Futures and Asian equities declined after a volatile week of political uncertainty. In France, the run-off election delivered a blow to Macron and denied the far RN a victory after the left-wing bloc came first but no majority in parliament. In the US, Democratic lawmakers join calls for Biden to step down, while in the UK, PM Starmer begins a tour of the UK nations to 'reset' relations. This week, investors main focus will be Tuesday & Wednesday's US Fed Chair Powell's testimony in front of the US Congress, delivering 'The Semiannual Monetary Policy Report and Thursday's US inflation report. Elsewhere, oil prices weakened after four weeks of gains, while Bitcoin continues to be under pressure due to concerns over possible token sales by creditors. This week's key economic releases include China's CPI and the Fed's Beige Book on Wednesday, a German inflation report on Thursday, and US PPI ex-food and energy on Friday. Intraday, we expect markets to be sidelined by the lack of high-tier economic releases, with the focus remaining on US political updates.
In other news. The Left-Wing surge thwarts the far right in the French election. NATO allies pledge Euro 40 billion for Ukraine amid domestic turmoil. PM Starmer tells Netanyahu of the 'clear and urgent' need for a Gaza ceasefire. Japan and the Philippines deepened their defense ties in response to China's threat. UK Chancellor Rachel Reeves orders assessment of state spending. Hungary's Orban unexpectedly visits China, backs Xi's peace plan. Hurricane Beryl intensified as it neared Houston, warning of a 'deadly storm.' 2024 could be the world's hottest year as June breaks records. Trump distances himself from right-wing 'Project 2025' policy blueprint.
In currency markets. The euro steadies as investors weigh up French gridlock after the runoff election results. China's yuan holds steady as the PBOC plans to start new liquidity operations. Taiwan's central bank says there is no digital currency launch timetable. CNY and Asian currencies, on average, are flat against the USD. Trading currencies are mixed, with SEK weakened by 0.3%, NOK, JPY, NZD & AUD down 0.15%, CHF flat, MXN firms by 0.35%, and ZAR strengthened by 0.55% against the USD.
In commodity markets. Oil, silver, wheat, and soybean weakened by 1%, Natural Gas & Copper flattened, and Gold prices eased by 0.7%.
CAD holds steady near July highs as markets are sidelined by the lack of high-tier economic data releases. Domestically, Friday saw unemployment rise to 6.4% in June, its highest level in over two years, as the economy lost 1,400 jobs. The weakening jobs data has increased the odds of a rate cut by the Bank of Canada at its July 24th meeting. Our bias remains bearish on CAD with the prospect of another interest rate cut in July.
EURCAD slips in early trading as markets take stock of a coalition government in France.
EUR remains above 1.0800 following Sunday's run-off elections. The euro holds on to last week's 1% gains against the USD despite the political uncertainty in Europe's second-largest economy, as France faces a hung parliament. The left-wing alliance New Popular Front won the second round of French elections by securing 182 seats in the National Assembly, but it fell short of the 289 seats required to win a majority. We anticipate the euro will hold above 1.0800 heading into tomorrow's Fed Chair's testimony and the German inflation report later in the week.
GBPEUR tested fresh three-week highs after the French runoff vote left France in deadlock, while the Labour majority government in the UK gave investors confidence, supporting the pound.
GBP strengthens through 1.2800 amid improving risk on sentiment for the pound and increasing political uncertainty in the US. Markets are cautious in early trading as investors weigh up the new UK government steps to revitalize the economy and reservations ahead of Powell's testimony and the US & German inflation reports later in the week. Domestically, the new Finance Minister, Rachel Reeves, pledged to make "difficult decisions" to drive economic growth, including swift changes to unblock infrastructure and private investments. The Bank of England meets on August 1st, which sees a 63% chance of a rate cut given the falling inflation levels.
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