The Morning Update

The USD is steady, oil prices gain, equity markets advance and US yields are mixed heading into the US inflation report. Currency markets are sidelined while the European equity markets advance, and US futures hold in a tight range ahead of the US CPI report today, which is expected to signal whether the Fed will start cutting interest rates in September. Markets expect the Consumer Price Index y/y to ease slightly to 2.9% from 3% in June, while CPI ex-food & energy y/y is expected at 3.2%, down from 3.3% in June. In the UK, the pound came under pressure after the UK inflation rose less than expected at 2.2%. Elsewhere, oil prices have gained due to falling crude stock levels and ongoing Mideast concerns. Iron ore weakness continued after the world's biggest steel producer warned that China's steel industry is facing a crisis than the downturns in 2008 & 2015. New Zealand's central bank surprised markets when it cut interest rates by 25% today. Bitcoin prices edged higher, approaching $61k. Markets will be focused on the US Consumer Price Index and the RBNZ's Governor's speech to drive currency markets today.

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In other news. Japan's prime minister Fumio Kishida to step down. Iran not expected to attack Israel if ceasefire agreed with Hamas, says Biden. Germany issues a warrant for a Ukrainian over the Nord Stream attacks. UK inflation picks up less than expected, boosting rate-cut bets.UBS posted a net profit of $1.1 billion in Q2, easily beating the forecast. In the UK, unions are hopeful of a deal to end train strikes. Greece remains on high fire alert as forecasts predict temperatures will reach heats of 40C across the country. Rogers turned 'predatory' after Shaw acquisition, Shaw-controlled media firm says. CN Rail and CPKC begin halting shipments of certain goods as the strike threat looms. Thailand PM dismissed for 'breach of ethics.'

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In currency markets. The NZD tumbled after the Reserve Bank of NZ surprised markets with a 25 bps rate cut, its first cut in over four years. GBP rebounded after weakening after UK inflation levels picked up less than expected. The USD holds steady ahead of the critical inflation report, while Fed Bostic says a "little more data" is needed to support cutting rates. CNY & Asian currencies, on average, gained by 0.2% against the USD. Trading currencies continued to be mixed, with NZD tumbling 1%, JPY eased 0.2%, AUD up 0.1%, CHF & ZAR gained 0.3%, MXN firmed 0.4%, NOK & SEK  by 0.55% against the USD.

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In commodity markets. Oil, soybean, and natural gas prices firmed by 0.5%, Gold prices increased by 0.2%, silver and copper prices gained by 0.7%, and wheat prices weakened by 0.6%.

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CAD continues to edge firmer, testing a fresh multi-week high of 1.3700 on the increasing prospect of a 50 bps Fed rate cut in September and strengthening oil prices. Domestically, "We remain convinced that growth will soften in most provinces during quarters ahead, and a fuller rebound will only come closer to 2025 once more cuts have been made," said economists Desormeaux & Begin at Fédération des caisses Desjardins du Québec. In the absence of Canadian high-tier data releases this week, the loonie remains at the mercy of the US data releases to drive direction today.

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EURCAD rebounds, up 1% month-to-date, heading back towards multi-year highs as the euro strengthens on a positive Eurozone GDP report.

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EUR breaches 1.1000, testing a fresh 7-month high after Eurozone data and increasing expectations of a US Fed rate cut. Investors returned to the euro with rising expectations of a 50 bps rate cut in September, expecting the US CPI today to be softer than anticipated following Tuesday's US PPI, which printed weaker than market expectations. Domestically, French inflation levels came in higher than expected at 2.7%, while EU GDP met expectations at 0.6% y/y, but eurozone industrial production disappointed markets, coming in at -3.9% vs expectations of -2.9%. Intraday, the USD inflation report will guide the single currency today.

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GBPEUR was down nearly 2% in August and continued under selling pressure after softer UK inflation data, while eurozone GDP remained positive.

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GBP eases but remains above 1.2800 following a softer UK inflation report. The pound weakened in early trading towards 1.2825. Still, it quickly rebounded on expectations that the US inflation could be softer than expected, which increases the prospect of a 50bps rate cut by the Fed at its September meeting. Domestically, despite the easing inflation levels, investors remain mixed on the prospect of a BoE interest rate in September. The pound touched a two-week high on Tuesday following the UK jobless rate, which dropped to 4.2% in June, defying expectations for a slight rise. Intraday, all eyes will be on the US inflation report; if it comes in softer than expected, we could see the GBP retest at 1.2885.

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