The Morning Update

The USD holds steady, oil prices firm, equity markets are mixed, and US yields ease heading into a busy data week. The USD holds steady, while the JPY & CHF come under fresh selling pressure as investors focus on Wednesday's US inflation report. Equity markets are mixed, according to Citigroup Inc., traders are positioning for the S&P 500 to move 1.2% in either direction when the US inflation report is released. On the weekend, Fed Bowman said she still sees upside risk for inflation and continued strength in the labor market, suggesting she may not support an interest rate decrease at the September meeting. Elsewhere, oil prices extend gains for a 5th trading session on increased Mideast tensions. Bitcoin fell 2.5%, gold prices edged higher, and silver prices strengthened. The focus this week is Monday's US monthly budget statement. Tuesday UK Employment data, German & EU Economic Sentiment. US PPI. Wednesday, NZ Interest Rate Decision, UK CPI, EU GDP, US CPI. Thursday, Japan GDP, AUD Employment Report, China Industrial Production & Retail Sales, UK GDP, US Retail Sales, Initial Jobless Claims. Friday, UK Retail Sales and US Michigan Consumer Sentiment Index will help drive direction for currency markets this week.

‍

In other news. Hamas casts doubt on participation in new Gaza ceasefire talks. Greek wildfire spread to the edge of Athens, and towns and hospitals were evacuated. Israel braces for potential attacks from Iran and its proxies. The US accelerates military deployment to the Mideast region amid reports Iran may attack within days. European gas traders shun Ukraine storage after Russian attacks. Russian reinforcements fail to push back the Ukrainian incursion. UK wage growth still a concern for inflation, warns BoE rate setter. Multinational brands sound the alarm over weak demand in China.

‍

In currency markets. CNY, CHF & JPY come under pressure, while the USD holds steady ahead of the US inflation report on Wednesday. The Russian Rouble weakens 6% against the USD following the August 6th Ukraine attack on Kursk. CZK leads regional currency gains as domestic inflation ticks up, increasing expectations that the Czech central bank will keep rates unchanged. CNY weakens by 0.2%, while Asian currencies are flat on average against the USD. Trading currencies are mixed, with JPY weakening 0.5%, CHF down 0.3%, MXN & SEK slipping 0.1%, NOK up 0.15%, AUD gaining 0.4%, and NZD & ZAR strengthening by 0.5% against the USD.

‍

In commodity markets. Oil prices gained 1%, Natural Gas prices rallied by 4.8%, Gold prices firmed by 0.35%, Silver prices strengthened by 1.5%, Copper prices gained by 1.25%, Wheat prices weakened by 1%, and Soybean prices dropped by 0.45%.

‍

CAD holds near three-week highs as the USD is sidelined ahead of its key inflation report this week, and the loonie finds support from stronger oil and metal prices in early trading. On Friday, a Bloomberg article highlighted that hedge funds had been the most bearish on commodities since 2013 as fears of a deeper economic slowdown cast doubts on demand for everything from crude oil to metals and grains primarily attributed to the slowdown in China. The potential of weakening commodity prices and anticipation of more BoC rate cuts combined put the loonie under selling pressure in the second half of 2024. With the absence of high-tier Canadian economic data releases this week, the loonie will be focused on US data to provide direction.

‍

EURCAD remains steady near two-week lows as stronger commodity prices continue to provide support to the loonie.

‍

EUR continues to flatline between 1.0900-50 as markets remain cautious ahead of a flurry of key EU & US data releases this week. Euro is expected to remain capped at 1.0950 amid escalating tensions between Israel and Iran. With the lack of domestic and US data releases today and increasing geopolitical tensions, we anticipate that the Euro has the potential of retesting 1.0900 ahead of the US inflation report on Wednesday.

‍

GBPEUR firmed to a fresh 1-week high following comments from BoE Mann, which cast doubt on a BoE rate cut in September.

‍

GBP holds above 1.2750 as hawkish BoE comments offset increasing geopolitical concerns. In a podcast released today, Catherine Mann, a member of the BoE Monetary Policy Committee, said goods and services prices were set to rise again, and wage pressures in the economy could take years to dissipate. We expect investors to remain sidelined ahead of Tuesday's UK employment data and Wednesday's UK Inflation data to help provide guidance for the BoE September 19th interest rate decision.