The Morning Update

The USD is flat, oil prices are steady, equity markets are up, and US yields rise on improving risk sentiment. Currency markets are steady ahead of the US PMI data, while European PMI releases support the prospect of an ECB easing in June. Equity markets rose for a second day after solid earnings, positive economic data, and easing tensions between Iran and Israel. "We remain focused on the current earnings season, which could re-focus investor attention on solid underlying fundamentals," said Citibank strategist Tirodkar & Manthey, "We would view the recent pullback as a buying opportunity." Elsewhere, gold remains under pressure after suffering its most significant drop in two years on Monday. Oil prices steadied on robust EU data, and Middle East tensions eased. Tesla & Pepsi earnings today, with IBM, Boeing & Meta on Wednesday. On the economic front, US PMI data and new home sales will help provide intraday direction to currency markets.

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In other news. Apple's China iPhone sales dived 19% in the worst quarter since 2020. Rise in UK business activity overshoots forecast in April. Mediterranean ports warn of overflowing storage yards, which is the latest threat to the supply chain. Biden tells Zelensky that US weapons will arrive 'quickly.' UK grocery inflation falls to 30-month low. CP sources say that Honda will build electric vehicles and a battery plant in Ontario. Citigroup is selling maple bonds in its first sizable deal since 2015. China acquired recently banned Nvidia chips in Super Micro and Dell servers, tenders show. UPS's quarterly profit falls on high labor costs and weak small-package demand.

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In currency markets. Japanese yen remains under pressure, sitting at its lowest levels vs the USD in nearly 25 years and 16-year lows vs. the Euro ahead of next week's BoJ meeting. ZAR slips on weaker metal prices, AUD steadies ahead of key inflation data, IDR eases off near 5-year lows, and CNY continues to languish at 5-month lows. CNY & Asian currencies slip 0.1% on average vs. the USD. Trading currencies are steady, with NZD & NOK down 0.2%, ZAR slipping 0.1%, SEK, CHF, AUD & JPY flat, IDR is up 0.1%, MXN gains 0.2% vs. USD.

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In commodity markets. Oil prices are flat; natural gas prices firmed by 0.4%; gold, copper & silver prices tumbled by 1.4%; wheat prices rallied by 1.6%; and soybean prices are up 0.2%.

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CAD slips off a 10-day high as metal & oil prices come under selling pressure despite improving risk sentiment. Domestically, CAD home prices stabilized in March, and investors are shifting their focus to Wednesday's CAD Retail Sales, which are forecasted to rise to 0.1% vs. -0.3% in January. Intraday will focus on the US PMI and new home sales to help drive direction for the loonie today.

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EURCAD edges slightly higher in early trading as weaker oil & metal prices put pressure on the loonie. At the same time, the Euro finds support after eurozone PMI services & composite beat expectations.

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EUR sees a volatile start to the day, testing 1.0700, then falling back to 1.0650 after the PMI data release. The euro gained in early trading on improving risk sentiment, but the rally quickly reversed following upbeat eurozone and German PMI data. Dr. de la Rubia, Chief Economist at HCB said "the eurozone got off to a good start in Q2. The Composite HCOB Flash PMI took a significant step into expansionary territory." Investors are increasing their expectations that the ECB will ease its domestic interest rates in June. We are increasingly expecting the Euro will remain under selling pressure vs. the USD & GBP with the expectations of diverging interest rates in Q2.

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GBPEUR holds steady as the currency pair continues to sit at near 5-month lows as markets anticipate the BoE may lower rates earlier than expected.

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GBP continues to remain under pressure after the UK PMI data is released. The pound continues to be capped below 1.2400 as investors wait for the US PMI data to provide direction to the markets today. The UK PMI showed the UK economy is recovering from last year's recession, but the upward inflation pressure will continue to pressure the BoE to keep interest rates on hold. On a positive note, UK grocery inflation fell to a 30-month low, easing to 3.2% in the four weeks to mid-April as retailers continue to promote special offers.