The Morning Update

The USD eased, oil prices weakened, equity markets were up, and US yields eased as risk sentiment improved. The USD and US yields eased after the Fed minutes acknowledged that the US economy appeared to be slowing and that "price pressures were diminishing." Equity markets extend gains, with global equity markets remaining on track for their longest stretch of weekly gains since March. Investor sentiment improved following Wednesday's data, which showed that the American services sector contracted at the fastest pace in four years, which revived the possibility of a Fed rate cut by September. Elsewhere, oil prices eased on worries about demand from a slowing US economy. Bitcoin continues to weaken, down 4% towards $57k, while gold prices are flat and silver prices eased. Markets are expected to be quiet today with the US 4th of July holiday. The UK election will be a primary focus for markets today.

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In other news. Britons start voting in elections expected to propel labour to power. Olympics' high costs and safety worries hurt Paris games bookings. German factory orders fall for a fifth straight month. In France, the far right to fall short of a majority in the French parliament, poll says. Democratic governors back Biden as crisis deepens. Portugal will reintroduce tax breaks for skilled foreigners. European central bankers warn of risks to the region's economy. Canada enacts a digital services tax despite the threat of retaliation from the US.

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In currency markets. The USD continues to ease following weaker-than-expected PMI data on Wednesday and increasing speculation of a September Fed rate cut. The Chinese Yuan rebounded from a 7 1/2 month low, and the AUD strengthened towards a six-month high on the US rate outlook. CNY is flat, while Asian currencies gain by 0.15% on average vs USD. Trading currencies turn positive, with NOK & SEK flat, CHF firming by 0.1%, MXN, ZAR, NZD, JPY & AUD up 0. 25% against the USD.

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In commodity markets. Oil and silver prices fell by 0.55%, Natural Gas and copper prices strengthened by 0.3%, and gold prices slipped by 0.2%. Wheat and Soybean prices are flat.

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CAD continues to extend gains, testing its strongest levels since June 25th as the USD weakens on increasing speculation that the US could cut domestic interest rates as early as September. Domestically, Canada recorded a bigger-than-expected trade deficit of C$1.93 billion in May, the country's third consecutive monthly shortfall, as exports declined faster than imports. We expect the CAD to be somewhat sidelined today without the US markets. On Friday, markets will focus on the CAD and US key unemployment reports.

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EURCAD holds flat as investors are sidelined ahead of Friday's key CAD jobs data and Sunday's run-off election in France.

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EUR extends gains towards 1.0800 against a softer USD following softer-than-expected US data. Euro extends gains towards three-week highs against the USD on escalated speculation for a September Fed rate cut. Domestically, German factory orders y/y tumbled -8.6% in May vs -1.6% in April due to the decrease in foreign demand. New orders in the 'manufacture of other transport equipment' dropped significantly by 19.2%, and automotive orders fell 2.9%. We expect the euro to stall at 1.0800 with the US holidays, with investors sidelined ahead of the US Nonfarm payroll report.

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GBPEUR holds steady as both France & the UK brace for elections and the prospects of government changes.

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GBP holds at multi-week highs at 1.2750 amid a weakening USD and the UK election. Investors prefer to focus on a weaker USD as UK voters head to the polls, with the Labour Party widely expected to have a landslide victory over the Conservatives. Domestically, S&P Global/CIPS Construction PMI dropped to 52.2, versus 54.7 in May, but is holding in the positive zone, indicating that the construction sector is generally expanding. We expect the pound to hold steady as investors focus on the UK election results and Friday's critical US Nonfarm Jobs data.