The Morning Update

The USD slips, oil prices weakened, equity markets are up, and US yields steadied on soft landing optimism. Currency markets edge higher as the USD slips, and US yields find support as expectations of a 50 bps rate cut in September have been scaled back to 25 bps. Global equity markets look set for their best week of 2024 following this week's positive US inflation, Jobs, and retail sales data soothed fears of an imminent recession and set the stage for a Fed interest rate cut in September. Fed Musalem said the time is nearing when it will be appropriate to cut rates, and Fed Bostic told the FT that he's "open" to a reduction in September. Elsewhere, oil prices weakened due to increasing fears of recession and falling demand from China. Gold prices ticked higher and are on track for a weekly gain. Bitcoin rallied nearly three percent in early trading, while silver eased off weekly highs of $28.500. In focus today, the US Michigan Consumer Sentiment Index, UoM 5-year Consumer Inflation Expectation, US Building Permits, and US Fed's Goolsbee speech will help provide intraday direction to currency markets.

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In other news, Canada rejects CN Rail's request for binding arbitration in labor disputes. A Chinese regulator says BMW will recall 1.36 million cars due to airbag risks. Japan's eastern region orders evacuations as Typhoon Ampil approaches. North Korea's Kim and Russia's Putin vow deeper ties on Korean liberation day. Gaza ceasefire negotiations extended to another day as the death toll exceeds 40k. The US eases tech curbs to boost the AUKUS security pact with the UK and Australia. Thailand appoints 37-year-old Shinawatra as its youngest PM. Texas Instruments to receive up to US$ 1.6 billion under the CHIPS Act.

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In currency markets. Currency markets steady as this week's US data quiets recession worries. ZAR looks set for a 2% weekly gain supported by improving global risk sentiment. The Pound, EUR, and AUD end the week stronger, while CNH lags its peers on increasing recession fears. CNH is up 0.1%, while Asian currencies strengthen by 0.25% on average against the USD. Trading currencies turned positive, with MXN flat, NOK up 0.1%, SEK gaining 0.25%, AUD, ZAR, CHF & JPY firming 0.45%, and NZD strengthened by 0.7% against the USD.

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In commodity markets. Oil prices tumbled 1.7%, Natural Gas prices strengthened by 0.65%, Gold prices firmed by 0.35%, silver prices eased by 0.5%, copper prices eased by 0.15, wheat prices are up by 0.15%, and Soybean prices weakened by 0.65%.

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CAD holds steady above 1.3700 and looks set to close the week near two-week highs as investors balance a softer USD against weakening oil prices. Domestically, Canadian wholesale trade fell by 0.6% m/m in June, following a decline of 1.2% in May, on falling sales in motor vehicle and motor parts. The focus will be on today's CAD lower-tier Manufacturing Sales and several higher-tier US data releases to help provide intraday direction for the loonie. Investors will be focusing on next Tuesday's CAD inflation report to set the stage for the BoC's Sept 4th interest rate decision.

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EURCAD continues to edge higher, up nearly 1% in August, as weaker oil prices and the prospect of further interest rate cuts by the BoC continue to keep the loonie under pressure.

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EUR continues to straddle 1.1000, holding on to weekly gains amid a softer USD. The euro has benefited from the softer USD amid improving risk-on market sentiment heading into today's US sentiment and housing data. The increasing expectations of a US soft landing and optimism of a 25 bps interest rate cut by the Fed in September provide underlying support to the Euro. Intraday, the US data will help drive direction, but we anticipate that the Euro should hold steady within its current trading range.

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GBPEUR continues to rebound, eating away at early August losses. This is following positive domestic growth data and increasing expectations that the BoE will pause rate decisions in September.

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GBP gains traction towards 1.2900 amid improving risk sentiment and steady domestic rates. The pound has continued its rally from August lows of 1.2650 to retest 1.2900 in early trading amid expectations of a US soft landing, speculation of BoE keeping rates on hold in September, and the UK maintaining modest domestic growth. Heading into the US data, unless we see a print outside expectations, we anticipate the pound will hold on to its weekly gains.

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