The Morning Update

The USD is firm, oil prices ease, equity markets are mixed, and US yields rise ahead of key data releases. The USD holds firm, and JPY slips, while GBP climbs, heading into the US PPI report. Asian equity markets gain, US futures rise, while European equity markets are mixed as Middle East tensions weigh on risk appetite. Investors will monitor the US PPI ex Food & Energy, which will help set the stage for the week's key event, the US inflation report on Wednesday. Following last week's volatility, investors will focus on the US Consumer Price Index to help determine whether the Fed has room to ease interest rates in September and secure a soft landing for the economy. Elsewhere, Fitch Rating downgrades Israel's sovereign debt to A, keeping a negative outlook and citing "continued war" and geopolitical risks. Oil prices slip due to demand concerns, Bitcoin dips below $59k, and gold and silver prices turn negative. In focus today, the US Producer Price Index ex Food & Energy y/y is expected to slip to 2.7% vs 3% in June. Fed's Bostic Speech and, later in the evening, the New Zealand interest rate decision.

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In other news. German investment in China soars despite Berlin's diversification drive. Iran lashes out at Europeans over calls for restraint in attacking Israel. Signs of stability from the South African unity government boost business confidence. The IEA maintains the 2024 oil demand forecast and trims the 2025 outlook. Musk, Trump event on X crashes site, Tesla CEO blames cyberattack. Ukraine wants negotiating power as it forces advance in Russia, humiliating Moscow. Home Depot expects sales to weaken as consumers grow more cautious. Alberta and BC are forecasted to see 'well-above average' wildfire activity. Wildfires continue to rage across suburbs of Athens.

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In currency markets. GBP strengthened as UK unemployment unexpectedly fell in Q2. China's yuan eases but holds on to gains following the weakest guidance in almost nine months. The Philippine peso rises as rate-cut prospects fade. The USD holds steady ahead of key inflation reports today and Wednesday. CNY is up 0.1%, while Asian currencies are flat on average against the USD. Trading currencies are mixed, with JPY weakened by 0.4%, CHF & SEK dipping 0.25%, NOK up by 0.15%, AUD, ZAR & MXN firmed by 0.25%, and NZD gaining by 0.4% against the USD.

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In commodity markets. Oil and gold prices eased by 0.1%, natural gas and copper prices weakened by 0.45%, silver prices dropped by 0.8%, wheat prices fell by 1.1%, and soybean prices tumbled by 1.6%.

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CAD continues to hold below 1.3750 as currency markets remain steady ahead of Wednesday's critical US inflation report. Month to date, the loonie has gained 1/2% against the USD, holding close to multi-week highs on the prospect of a 50 bps interest rate cut by the Feb at their September meeting. Domestically, the lack of high-tier Canadian economic data releases, easing commodity prices, and the prospect of another BoC interest rate cut have not impacted the loonie in the short term. Intraday, the US PPI data release will be the primary driver for the loonie today.

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EURCAD eases in early trading following the disappointing eurozone economic sentiment results.

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EUR slipped in early trading, but it holds above 1.0900 ahead of the US PPI report. The euro continues to stagnate within a tight trading range as investors remain conflicted by expectations of a Fed rate, offset by increasing market uncertainty on geopolitical concerns. Domestically, the German and EU ZEW Survey—Economic Sentiment reports both fell below expectations in August. We expect the euro to remain steady within its current range ahead of Wednesday's critical US inflation report. Still, if the US PPI report prints outside expectations, it could trigger increased volatility.

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GBPEUR extends its weekly gains, continuing to advance above the August 5th multi-month low of 1.1600 following today's disappointing German ZEW report and the UK's surprise drop in the UK unemployment rate.

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GBP dips below 1.2800, giving back some early gains following the unexpected fall in UK employment levels. The UK unemployment rate fell to 4.2% in the three months to June from 4.4% previously. Markets anticipate that the Bank of England will likely pause rate cuts in September but expect the Bank to cut 25 bps in November and December. Intraday focus will be on the US PPI, but investors are expected to keep their powder dry ahead of the US and UK inflation reports out on Wednesday.