The Morning Update

The USD edges higher, oil prices firm, equity markets rally, and US yields ease as risk sentiment improves following US Friday's inflation report. Currency & US yields slip in early trading. At the same time, equity markets strengthened as GameStop Corp. more than doubled in pre-market trading, Indian equities rallied 3% on election polls, and risk-on sentiment improved after US PCE data on Friday boosted expectations that policymakers may begin to ease interest rate policy. "We expect the combination of a mild global recovery and a continued disinflation trend to persist into the summer," said Chaigneau, head of research at Generali Investments, pointing to a likely rate cut from the ECB on Thursday and anticipating the Fed will follow in September. Elsewhere, oil prices firmed after OPEC+ set out a plan to restore some production, increasing expectations that the market is ready to absorb increased production. Gold & silver prices hold steady, while Bitcoin rallies by 2%, retesting $69k. This week, Monday's US Manufacturing PMI and CAD Manufacturing PMI. Tuesday, CHF CPI, German Unemployment, US Factory & Jolts Job opening. Wednesday, EUR PPI, US ADP Employment, CAD BoC Interest Rate Decision, US ISM Services PMI. Thursday, EUR Retail Sales, ECB Monetary Rate Policy, and CAD Ivey PMI. Friday, German Industrial Production, EUR GDP, CAD Net Change in Employment, US Average Hourly Earnings, and US Nonfarm Payrolls data release.

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In other news. Sheinbaum becomes the first female president in a landslide victory. Early exit polls in India indicated a victory for PM Narendra Modi. Netanyahu aide said Biden's Gaza plan 'not a good deal' but Israel accepts it. The eurorzone manufacturing sees potential signs of recovery in May, as shown by PMI. Ukraine's Zelensky dominates Asia security conferences as China and Taiwan trade barbs. IATA, global airlines raise 2024 profit outlook as travel soars. South Africa's president urges unity as ANC support plunges. China's lunar probe could return with an answer to the solar system's origin. The Russia-China gas pipeline deal stalls because of Beijing's price demands. Turkish inflation has risen more than 75.5%. Chinese businesses target Vietnam & Mexico as trade tensions with US rise.

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In currency markets. The USD had its first monthly drop in 2024. MXN tumbled nearly 2 1/2% to almost five-month lows after the announcement, fanning concern about increased state control. China's yuan extends losses after 5-straight months of declines. ZAR improves as it focuses on coalition negotiations this week. CNY slips 0.1%, while Asian currencies, on average, are flat against the USD. Trading currencies are mixed, with MXN tumbling 2.25%, NOK weakening 0.4%, CHF flat, AUD, IDR, SEK & NZD down 0.15%, JPY firming 0.25%, and ZAR strengthening 0.5% against the USD.

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CAD weakens in early trading despite OPEC+ announcing further output cuts at the weekend, as investors are increasingly expecting the BoC of Canada to cut interest rates on Wednesday. Friday saw CAD GDP printed below expectations at 1.7% annualized Q1, increasing expectations that the BoC will cut domestic interest rates by 0.25% for the first time since 2022. "It would be a mistake to maintain this degree of pressure on the economy now that inflation is decelerating sharply," said Shenfeld, chief economist at CIBC Capital Markets, adding that a cut to the current 5% overnight would be "well justified in June." intraday, focus will be on CAD & US Global Manufacturing PMI data releases.

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EURCAD holds steady in early trading as the focus shifts to the BoC & ECB interest rate decisions this week.

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EUR slips below 1.0850 as investors remain cautious ahead of the ECB's policy decision and a busy week ahead for US data releases. Euro comes under pressure of a broad-based USD rebound and increasing caution ahead of Thursday's ECB interest rate decision. Domestically, Italian, French & Eurozone Manufacturing PMIs came in below expectations, while the German manufacturing PMI landed as expected. Intraday US ISM Manufacturing PMI will help provide direction today.

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GBPEUR weakened in early trading as investors took profits after the pound's strongest performance in 2024. We anticipate the pound will find support on dips ahead of the ECB monetary decision, while in the UK, markets don't expect a BoE rate cut in Q2.

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GBP struggles to hold above 1.2700 with ongoing profit-taking ahead of the US ISM PMI. The pound continues under pressure as investors took profits following the pound's strongest month in 2024. Domestically, recent data has shown that UK inflation levels have retreated over the last few months, but not as much as some had forecast, which has curbed expectations that the BoC might cut rates before Q3/24. UK swap markets do not anticipate the BoE will cut interest rates until at least September, and the UK election has added an extra layer of uncertainty until the general election on July 4th. Today, the US ISM PMI will be the primary driver of the pound's direction.