The Morning Update

The USD weakens, oil prices are steady, equity markets are down, and US yields are mixed on global trade concerns. The USD Index dropped to a fresh three-month low, and equity markets fell as tech shares slumped globally. Nasdaq futures lost more than 1% in early trading. Investors' risk sentiment waned on concerns that the US may take a stronger stance on Chinese trade and semiconductor technology. Bloomberg News reported today that the Biden administration is considering using the most severe trade restrictions available if tech companies continue to give China access to advanced semiconductor technology. Adding further pressure to markets, former President Donald Trump, speaking in an interview with Bloomberg Business Week, also questioned whether the US has a duty to defend Taiwan, a hub of semiconductor manufacturers. Elsewhere, oil prices remained steady on falling US crude inventories, Bitcoin and silver prices strengthened, and gold slipped off record highs. In focus today, the US Building Permits, Housing Starts, Industrial Production, the Fed's Beige Book, and comments from the Fed's Waller will help provide direction to the currency markets.

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In other news. Trump says Taiwan should pay the US for defense, shares of chip giant TSMC fall. Biden set to announce support for major Supreme Court changes. Europe fears weakened security ties with the US as Trump picks JD Vance. UK inflation pressures stay hot, reducing the chance of an August rate cut. The new UK government has set out plans in the state opening of parliament with the King's speech today. Following Trump's comments, global chip stocks from Nvidia to ASML fell on geopolitics. National Bank will raise more equity for the CWB deal after the shares recover. Paris Mayor swims in the Seine to show it's safe for Olympic races. J&J beats Wall Street estimates on solid drug sales.

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In currency markets. The USD has come under selling pressure, weakening to a fresh 3-month low. Former President Trump told Bloomberg, "We have currency problems, as you know. Currency. When I was president, I fought very strongly and hard with President Zi and with Shinzo Abe..." The Japanese Yen rallied over 1% on speculation of intervention and concern about tariffs under the Trump administration. CNY gains 0.2%, while Asia currencies strengthen by 0.35% on average against the USD. Currencies markets rebounded, with AUD up 0.3%, MXN, NOK & ZAR firmed by 0.5%, CHF gained 0.7%, NZD & NOK strengthened 0.8%, and JPY rallied 1.25% against the USD.

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In commodity markets. Oil prices are flat. Natural Gas prices slipped 0.4%. Gold, Copper, and Wheat prices firmed by 0.4%. Silver prices weakened by 1%. Soybean prices gained by 0.7%.

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CAD strengthened off yesterday's two-week lows but continues to underperform its G10 peers as investors increasingly expect the Bank of Canada to cut interest rates at its July 24th meeting. Domestically, Canada's annual inflation rate cooled to 2.7% in June, beating expectations that it would ease to 2.8%. Expectations have increased to near 90% chance of a BoC cut of 0.25% in July, up from 82% before the data release. We anticipate the loonie will remain under selling pressure against the euro and the pound, with expectations of increasing interest rate divergence.

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EURCAD strengthened in early trading, testing a fresh 8-month high. The Euro gained 2% in July against the Loonie. With the increasing prospect of a BoC interest rate cut in July, we anticipate the Euro has room to strengthen further.

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EUR extends gains towards 1.0950 amid a weakening USD. The Euro extends gains following Fed's Williams comments in the WSJ that the Fed is closer but not ready to cut, which has increased speculation of a Fed rate cut in September. Former President Trump's comments that "we have a currency problem" added further pressure on the USD. Domestically, Eurozone inflation levels remain unchanged at 2.5%, which increased expectations that the ECB will keep rates on hold at tomorrow's interest rate decision.

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GBPEUR extended gains, up 1% in July, testing a near two-year high after the services inflation was at 5.7% y/y, which is expected to keep domestic interest rates on hold beyond the August 1st BoE meeting.

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GBP extends gains beyond 1.3000, hitting a one-year high after sticky services inflation, which adds doubt to a Bank of England rate cut in August. Domestically, the UK annual CPI inflation held steady at 2%, while at the same time core CPI rose 3.5%. UK Retail Sales came in as expected at 2.9% y/y, while PPI Core Output increased to 1.1% y/y. Following the UK inflation data the probability of a BoE interest rate cut dropped to 33% from 50% before the data release. We remain bullish on the pound with the combination of a Labour government with a clear majority and the prospect of BoE keeping domestic interest rates on hold as inflation levels remain hot.