The Morning Update

The US$ rebounds, oil prices steady, equity markets are mixed, while US yields rise and investors are cautious. The US$ is headed for its biggest weekly loss in more than two months, oil prices are poised for its 2nd week of losses, while this week saw the S&P500 start a new bull market, joining Stoxx Europe 600, Germany's Dax & South Korea's Kopsi. Markets were volatile this week with disappointing China data, the Eurozone slipping in to recession and by the surprise hikes by central banks in Canada & Australia. We expect markets to be range bound today as investors shift their focus to the Fed & ECB rate decisions next week and the BoE the following week. Today sees a US light economic docket, CAD Net Change in Employment May, Unemployment Rate (May) Average Hourly wages & Participation rate will help provide intraday direction to the C$.

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In other news. China's factory deflation steepens as demand wanes, after China's factory gate prices fall at the fastest pace in 7-years in May. Russia reports heavy fighting in southern Ukraine, Kyiv silent on the counterattack. Global equity markets edge up as Fed pause best help bolster sentiment. Bank of Japan set to keep ultra-low rates, may signal inflation overshoot. Binance US to hold dollar deposits after SEC crackdown. President Biden PM Sunak unveil 'Atlantic declaration' to strengthen economic ties. International help rolls in to fight persistent Canadian wildfires.

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In currency news. GBP set for a 2nd week of gains on the prospect of further BoE rate hikes. The US$ has its biggest weekly loss in over 2-months on Fed pause expectations. CNY holds at 6-month lows on disappointing domestic data. Australia & NZ dips on soft China data, set for weekly lows. CNY weakens 0.3%, while Asian currencies are down 0.15% on average vs US$. Trading currencies are mixed with JPY weakens 0.5%, CHF & SEK fell 0.4%, AUD & NZD dips 0.1%, while ZAR strengthens 0.35%, and NOK rallies 0.9% vs US$.

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Oil prices are heading for a 2nd week of losses as markets balance demand & recession worries vs Saudi oil output cuts. The Loonie opens at the key 75 cent (1.3333) level after testing a 4-week high in a volatile week which saw the BoC surprise markets by raising interest rates this week to 4.75%. BoC Beaudry said the surprisingly strong household spending in Q1 and stubbornly high core inflation were among the top reasons the BoC hiked rates after a 4-month pause. Today focus will be on the CAD jobs data which is expected to see Net Change in Employment in May will drop to 23.3k vs 41.4K and the unemployment rate will rise from 5% to 5.1% in May.

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EURCAD weakens in early trading, down over 1% in June as the C$ remains supported as expectations the BoC may hike again in Q3.

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EUR fails to break through 1.0800 amid further disappointing China data offsetting the prospect of a Fed pause in June. The Euro failed to extend gains as market expectations grew that the Fed may pause in June after Thursday's US unemployment rate jumped to 261k vs expectations of 235k. Euro is balancing continuing disappointing China growth data and ongoing growth concerns in Germany which caused the EU to enter a technical recession in Q1/23. The lack of US economic releases today and the Fed & ECB policy meetings next week is expected to see the Euro steady today within its current trading ranges.

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GBPEUR extends gains up 3% year to date, testing fresh 2023 highs, with the pound benefiting from EUR weakness.

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GBP holds on to weekly gains amid expected quiet Friday trading. The pound looks set to log a 2nd week of gains as markets expect the BoE will hike again at its rate decision meeting, as the central bank continues to fight to bring down the highest inflation levels across leading economies. The OECD said that UK inflation levels are expected to hit 6.9% by the end of 2023, compared with the OECD average of 6.6%. With the lack of economic data out of the US and ahead of next weeks Fed & ECB rate decisions, we expect the pound to hold within its current trading range today.

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