The Morning Update

The USD is flat, oil prices are steady, while equity markets and US yields are mixed amid US & UK bank holidays. Currency markets are contained within tight trading ranges with the absence of both the UK & US markets. European equity markets are struggling to make gains following comments from EBC Lane telling the FT that the bank is on track to cut interest rates in June but will have to keep the policy in restrictive territory through 2024. Elsewhere, gold prices firmed, oil prices edged higher, while Bitcoin prices eased in thin markets. The focus is this week, Monday, and there are no key economic releases. Tuesday, US House Price Index, Consumer Confidence, & Fed Kashkari speech. Wednesday, German CPI, US Fed's Beige Book. Thursday, Swiss GDP, CAD Current Account, US GDP, US Initial Jobless Claims, US PCE, Pending Home Sales. Friday, Japan CPI, China NBS PMI, German Retail Sales, France CPI, EUR CPI, CAD GDP, US PCE.

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In other news. The ECB is ready to start cutting rates, says chief economist(FT). The EU demands Israel comply with the ICJ ruling on Rafah. Six NATO countries plan a 'drone wall' to defend borders with Russia. Dozens killed and wounded after explosions at Gaza "safe-zone" camp. China's premier hails 'new beginning' with US-allied South Korea and Japan. China sets up a third fund with $47.5 bln to boost the semiconductor sector. Macron heads to Germany in the first presidential state visit in 24 years. Lithuania raps Hungary over hold-ups in EU military aid to Ukraine. Saudi Arabia plans Aramco share sale as soon as June.

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In currency markets. The USD index holds steady but looks set for its first monthly loss in 2024 ahead of EU & Japanese inflation data this week. China's yuan holds near 1-month lows ahead of critical Chinese data. South African Rand steadies as markets shift their focus to domestic elections and interest rate decisions. CNY is flat, while Asian currencies are up 0.1% on average vs. USD. Trading currencies improved, with MXN flat, JPY & CHF up 0.1%, AUD & NZD strengthened by 0.3%, ZAR, SEK & NOK rallied 0.45% vs USD.

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In commodity markets. Oil, Copper & Gold prices increased by 0.5%, Natural gas prices gained by 0.35%, Silver prices rallied 1.6%, and Wheat & Soybean prices are flat.

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CAD continues to improve compared to the USD, finding support from improving risk sentiment alongside firmer commodity prices. With the absence of the UK & US markets and the lack of any key economic data releases, we anticipate the loonie will hold within a tight trading range today. This week will focus on Friday's GDP data release in Canada.

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EURCAD holds steady near 5-month highs, up nearly 1% in May, with the Canadian economic outlook appearing weaker than its EU peers. Markets expect the BoC to be the first major central bank to cut interest rates at its next meeting on June 5th.

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EUR continues to pivot around 1.0850 as the market balance rate comments and a softer USD. ECB's Chief Economist Lane said that while services prices continue to rise rapidly, there is a downward trend in inflation, which means further rate cuts will be possible after the June move. The ECB has signaled that it will likely cut its key interest rate on June 6th, which is expected to put pressure on the Euro against the USD.

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GBPEUR is sidelined, holding at three-month highs with the pound finding supporting on the prospect of diverging interest rates, with the ECB expected to cut interest rates in June.

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GBP holds onto gains, sitting at six-week highs against the USD. The pound is holding on the sidelines with both the UK & US for national holidays today. The pound has had a strong May, rallying 2% against the USD amid a softer USD and the expectations that the UK will keep its domestic interest rates on hold through to Q3. This week, the focus will be on Friday's crucial US PCE report, a key inflation gauge for the Fed.