The Morning Update

The USD is steady, oil prices are rising, equity markets are down, and US yields ease due to political and rate uncertainty. Currency markets slip, and European equities are under pressure following Sunday's French election and ahead of Fed Chair Powell and ECB President comments later in the morning. In France, 180+ candidates have confirmed they will not stand in Sunday's 2nd round election to avoid splitting the anti-RN vote. In Portugal, the Fed Chair and the ECB President will speak at an ECB forum, which may provide clues on interest rates in the US & Europe into Q3. Elsewhere, the 10-year treasury yields eased following Monday's rise on speculation that a Trump presidency would lead to greater US fiscal deficits and higher inflation. Oil prices edged towards 2-month highs on escalating tensions in the Middle East, while Bitcoin eased 1%, and Gold prices held steady. In focus today are the US Fed Chair & ECB President's speeches, US Jolts, and CAD S&P Global Manufacturing PMI, which will help provide intraday direction to currency markets.

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In other news. France's Le Pen says she will seek to form a government even if she does not have an outright majority. Hungary's Orban arrives in Kyiv on his first wartime trip to Ukraine. Eurozone inflation slows to 2.5%. Iran would use "all means" to back Hizbollah if Israel launches a full-blown war, officials say. US Supreme Court says Trump immune for 'official acts' as president. Chinese exporters raise fears of Christmas freight crisis with Red Sea attacks. JPMorgan's Kolanovic warns the S&P 500 will plummet 23% by year-end. WestJet says it has reached a deal with striking mechanics, ending the strike while disruptions continue.

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In currency markets. Monday's gain in US 10-year yields continues to support the USD, while the JPY remains under pressure at 38-year lows. The South African Rand remains under pressure over unity government obstacles. China's yuan slumps to fresh seven-month lows on weaker guidance. CNY and Asian currencies slip by 0.1% on average against the USD. Trading currencies are under pressure, with ZAR tumbling 0.55%, NZD, SEK, NOK & MXN falling by 0.35%, and JPY, CHF & AUD easing by 0.15% against the USD.

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In commodity markets. Oil prices firmed by 0.7%, Natural Gas prices weakened by 0.65%, Gold & Silver prices slipped by 0.15%, Copper prices gained by 0.5%, Wheat prices tumbled by 1%, and Soybean prices rallied by 1%.

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CAD prices steadied in early trading as oil prices extended gains after the loonie weakened alongside its peers after the USD strengthened on Monday on rising US long-end yields. Domestically, Friday saw Canada's economy decelerating after a strong start to the strong start in Q2, which will keep the BoC on track to continue to cut rates further in Q3. In focus today, Fed & ECB speeches, US Jobs data, and CAD Global Manufacturing PMI is a leading indicator gauging business activity in Canada's manufacturing sector, which is expected to edge higher in June to 50.2 vs 49.3 in May. In the short term, CAD remains vulnerable to further weakness due to the prospect of lower domestic interest rates compared to its G7 peers.

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EURCAD weakens in early trading as political uncertainty in France as political uncertainty remains high heading into France's 2nd round of voting on Sunday.

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EUR battles to hold above 1.0700 ahead of EBC, Fed comments, and US jobs data. The euro continues under pressure amid ongoing political uncertainty in France, and the USD strengthened on the prospect that a Trump win would increase US inflation levels with growing debt and global tariffs. Domestically, the eurozone Core Harmonized Index Consumer Prices missed expectations at 2.9%, compared to the expected 2.8%. Meanwhile, the Harmonized Index Consumer Prices y/y eased from 2.6% to 2.5%, helping give markets some optimism that inflation levels are easing. Intraday comments from ECB President Lagarde and Fed Chair Powell will help provide intraday guidance to currency markets.

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GBPEUR bounces off July lows, retesting 1.1800 after testing near one-month lows on Monday after ECB Lagard said that the ECB was in no rush to cut domestic interest rates.

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GBP retest 1.2650 ahead of US data and Fed Chair comments. The pound remains under pressure heading into Thursday's UK general election and increasing expectations that the BoE could cut interest rates as early as August. The pound neared two-month lows as the USD is finding increasing support from firmer US treasuries and expectations that the Fed will keep its domestic interest rates on hold until after the US election in November. We expect the pound to remain vulnerable to increased volatility without high-tier domestic economic data this week and the prospect of a conservative loss on Thursday. Intraday comments from the Fed & ECB will help drive intraday direction.