The Morning Update

The USD strengthens, oil prices are steady, equity markets are up, and US yields rise on dovish rate expectations. Currency markets hold steady, while the USD index gains as US yields climbed after their largest two-day drop in 2024. Equity markets rebound following Tuesday's soft US jobs data reignites speculation of a Fed cut this year. Risk sentiment is improving with speculation that the Bank of Canada could cut rates today, the ECB could follow tomorrow, and the softer US labor market data has increased bets that the Fed could lower interest rates in 2024. Tuesday saw the US Jolts Jobs opening hit its lowest level since 2021; markets will focus on today's ADP Employment change and Friday's key Nonfarm payroll data. Elsewhere, oil prices were steady after five days of weakness, gold prices held above $2,350, silver prices firmed to $29.72, and Bitcoin strengthened through $70k. Today's focus is the BoC Interest Rate Decision, US ADP Employment Change, S&P Global Composite, Services PMI ISM Services PMI, which will help provide intraday direction to currency markets.

‍

In other news. Indian PM Modi is set to take oath for a third time on June 8th. Eurozone business activity expands at its fastest rate in 2024, PMI shows. The Ukraine war badly hurt Gazprom, according to the company-commissioned report. US seeks EU sanctions guarantee to back $50 billion Ukraine loan. Britain's Sunak & Starmer go head-to-head on the economy in a heated debate. Japan's real wages have been down for the 25th month in a row but have been improving steadily. The US House passes a Republican bill to sanction the International Criminal Court over Israel. Twenty-seven states of the EU are preparing for the European Parliament elections on June 6- 9.

‍

In currency markets. The USD is higher in early trading, and CAD & EUR are steady ahead of their interest rate decisions this week. Indonesia's central bank continues to intervene to stabilize the rupiah. ZAR remains under pressure due to political uncertainty. CNY & Asian currencies slip 0.1% on average against the USD. Trading currencies are mixed, with JPY & ZAR weakening 0.8%, CHF falling 0.35%, AUD, SEK, NOK & NZD are flat, and outlier MXN rallying 1.25% vs. USD.

‍

In commodity markets. Oil & wheat prices slipped 0.1%, natural gas prices rallied by 1.6%, and gold & copper prices edged up 0.15%. silver prices firmed 0.3%, and soybean prices gained 0.3%.

‍

CAD holds below 1.3700 as investors brace for the Bank of Canada's interest rate decision at 8.45 am Eastern time. In a recent poll, 75% of economists expect the Bank of Canada to cut domestic interest rates to 4.75% today and expect a further three more rate cuts in 2024. Markets expect the Loonie to have room to weaken further as the Fed is unlikely to cut its domestic interest rates ahead of the US November elections, while further rate cuts by the BoC could take the Loonie to 1.4000 into Q3/24. The intraday focus will be on the Bank of Canada and the Monetary Policy Statement, which will provide intraday direction for CAD.

‍

EURCAD holds steady near its six-month highs, with markets increasingly expecting the ECB to cut once and maintain, while the BoC is expected to have multiple rate cuts in 2024.

‍

EUR continues to trade within a 1.0800-1.0900 ahead of key US data and Thursday's ECB interest rate decision. The euro has benefited from the weaker US jobs data, which has reignited speculation of a Fed rate cut in Q4/24. Domestically, mixed PMI data results, with Spain & German PMI data beating expectations, while France, Italian, & EU PMIs missed expectations. The EUR Producer Price Index missed expectations at -5.7% but improved on March's -7.8%. Following the weaker-than-expected US Jolts Jobs data, the focus will be on today's ADP employment change, which will set the stage for Friday's crucial US Nonfarm payroll data.

‍

GBPEUR edges towards its recent six-month highs with increasing expectations that the ECB will cut its domestic interest rates on Thursday.

‍

GBP holds above 1.2750, trading within its current range. The pound continues to find support from the prospect that the BoE will keep its domestic interest rates on hold into Q3. Domestically, the conservative & labour debates didn't provide a stand-out winner, while the UK Composite PMI beat expectations. Intraday, the US ADP employment data will be a primary driver for the pound's direction today.