The Morning Update

The USD edges higher, oil prices firm, equity markets are up, and US yields rise as risk-on sentiment improves. The USD edges higher, while JPY tumbled 2%. Equity markets rebounded after the Bank of Japan played down the chance of a near-term interest rate hike, keeping the "carry trade" intact. The prospect of a BoJ rate hike set off a selloff in Japanese equities, a surge in the JPY, and investors to rapidly unwind the currency carry trade that dragged down risk assets globally. Justin Onuekwusi, chief investment officer at St James Place, said that the recent turmoil is a "Stark reminder of how quickly things can change. While overall corporate balance sheets are healthy, and recession risks are low, we are starting to see earnings tail off a bit, and companies' guidance outlines a more uncertain future." Elsewhere, oil prices continue to edge off multi-month lows on Mideast tensions and tighter supply concerns. Bitcoin extends gains through $57,50, Gold prices hold steady, and silver prices remain under pressure, retesting $27. Today's focus is CAD Ivey PMI. While there are no high-tier US economic releases, so we anticipate markets will hold within current ranges ahead of Thursday's US Jobless claims.

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In other news. BoJ Deputy Governor plays down the chance of a near-term rate hike and JPY slumps. China's imports resumed growth, but tamer exports raised concerns about the outlook. The US warns Turkey of 'consequences' over military-linked exports to Russia. Harris champions personal freedoms at first rally with Walz. British police brace for anti-Muslim riots and counter-riots. Sony posts 10% profit rise on image sensor boost. Samsung's 8-layer HBM3E chips clear Nvidia's tests for use. Bangladesh's Muhammad Yunus calls for new elections after political turmoil. China imposes restrictions on fentanyl chemicals after pressure from the US. Train delays disrupt Italian business and tourism. The EU inches closer to a trade deal with South America.

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In currency markets. JPY volatility continues after BoJ officials play down the chances of a near-term rate hike, which has seen the JPY trade from a high of 150.89 to a low of 141.66 since August 1st. CNY drops on data, which highlighted the slower pace of export growth. Commodity currencies rebounded on improved risk sentiment following the BoJ comments. CNY weakened 0.4%, while Asian currencies slipped by 0.2% on average against the USD. Trading currencies are mixed, with JPY tumbling 2.1%, CHF weakened by 1.4%, AUD & SEK firmed by 0.75%, NZD, NOK & ZAR strengthened by 1.1%, and MXN rallied 1.65% against USD.

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In commodity markets, oil prices strengthened by 1.1%, natural gas prices rallied by 1.8%, gold prices are flat, silver prices slipped by 0.4%, copper prices tumbled by 1.25%, wheat prices firmed by 0.9%, and soybean prices weakened by 1%.

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CAD broke through 1.3800, rebounding from a two-year low of 1.3946 on Monday, but it continues to underperform against its G7 peers as expectations of more BoC interest rate cuts keep pressure on the loonie. Domestically, Canada recorded a trade surplus of C$638 million in June, vs. expectations of a C$1.84 trade deficit, primarily led by increased crude exports from the expanded Trans Mountain Pipeline. Intraday, the focus will be on the Ivey PMI SA, which is expected to print at 60, down from 62.5 in June. We expect the loonie to underperform vs its G7 peers on expectations the BoC will make three additional rate cuts in 2024.

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EURCAD continues to give back Monday's gains, which saw the euro test a multi-year high of 1.5227 as fears of the BoJ raising interest rates put pressure on the loonie with the prospect of unwinding the "carry trade."

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EUR holds firm above 1.0900 amid improving global risk-on sentiment. The euro holds steady despite a strengthening USD as markets take aim at the JPY & CHF, leaving the single currency sidelined. Domestically, German imports and exports both significantly weakened, missing expectations, while French imports and exports beat expectations. German industrial production was positive, beating expectations in June, up 1.4% and surpassing May's -2.5%. Investors focused on the German Industrial Production data, providing an underlying support for the euro. With the absence of US high-tier economic releases today, we expect the euro to hold steady ahead of the US Jobless claims tomorrow.

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GBPEUR appears to be finding a base near 1.1600, a four-month low after tumbling 2% from 1.1850 in August following the Bank of England's interest rate cut last week.

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GBP edges above 1.2700 on improving global risk sentiment following the BoJ confirmation of static domestic interest rates. The pound appears to be finding a base after two weeks of volatility, which has seen the GBP weaken from 1.2950 to 1.2650. The combination of domestic disturbances, the Bank of England interest rate, and dovish comments, alongside BoJ rate uncertainty, continue to keep selling pressure on the pound. Domestically, Halifax House Prices y/y 3m in July jumped to 2.3% versus 1.6% in June. Intraday, we expect the pound to hold steady with the lack of US economic data releases today.