The Morning Update

The USD eased, oil prices have firmed, equity markets are down, and U.S. yields are mixed due to geopolitical, inflation and tariff expectations. Currency markets remain stable, with the USD and EUR flat despite Trump's announcement of 30% tariffs on the EU, effective August 1st. Investors appear to be sidelined ahead of Tuesday's US inflation report, with inflation levels expected to rise as companies begin passing on the increasing costs of imported goods. Global equity markets are mostly down, and US futures fell as the US administration escalated its trade war with the EU and Mexico. While markets expect the latest round of tariffs to be a negotiating tactic and anticipate softer final tariffs, the moves have increased global investor anxiety. US Congressmen are urging quick action by the US against Russia as it escalates its war on Ukraine, urging a bipartisan bill they've introduced, implementing sanctions on Russia that they say could be the "sledgehammer" President Trump needs to end the conflict. Elsewhere, Bitcoin prices hit fresh highs of over $ 122,000 as the US Congress begins 'Crypto Week'.  Oil prices rise as investors eye Trump's statement for possible new Russian sanctions. In focus this week: Monday's CAD Wholesale sales, the G20 meeting, and China's GDP. Tuesday, CAD Inflation Report, US CPI report, and BoE's Governor Bailey speech. Wednesday: UK CPI and US PPI (excluding Food & Energy). Thursday, UK Unemployment report, and US Retail Sales. Friday, the Michigan Consumer Sentiment index, which will help drive direction in currency markets this week.

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In the news. The EU pauses trade retaliation against the US after Trump's 30% tariff threat. The Netherlands rations electricity to ease power grid stresses. Senators tout Russia sanctions bill as 'Sledgehammer' for Trump to end war in Ukraine. Trump to send Patriot missiles to Ukraine, US envoy visits Kyiv. EU trade ministers meeting to discuss the new US 30% rate. Trump 'certainly' could fire Fed Chair Powell 'if there's cause, ' said NCE Director Hassett. DOW futures drop over 200 points after Trump slaps 30% tariff on Mexico and the EU. Air quality alert issued for Toronto, GTA as forest fire smoke pushes levels to 'high risk.' The UK labour market cooled rapidly in June, according to the. Bitcoin tops $120,000 for the first time.

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In currency markets. The euro rebounds from early losses at the European open as many investors view Trump's latest salvo of tariffs as just a negotiating tactic, and EU ministers don't respond with any reciprocal tariffs. We expect markets to be sidelined today ahead of Tuesday's US inflation report, which could shape the Federal Reserve's wait-and-see stance on rate cuts as Swap markets continue to price in two Fed rate cuts in 2025. CNY flat, while Asian markets slipped 0.1% on average against the USD. Trading currencies are mixed, with SEK weakening 0.5%, MXN & CHF falling 0.25%, NOK down 0.1%, AUD, NZD, and DKK flat, and JPY & KWD up 0.1% against the USD.

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In commodity markets. Oil and Silver prices strengthened 1.4%. Natural Gas prices rallied 4.8%. Gold and Soybean prices gained by 0.5%. Copper prices tumbled 1.1% and Wheat prices gained by 1%.

CAD holds steady in early trading as investors sit on the sidelines, ignoring the strengthening of oil prices, and await Tuesday's key reports on CAD and US inflation. RBC is predicting Canada's consumer prices to have ticked higher in June after May's downside surprise. RBC expects month-over-month increases of 0.2%, excluding food and energy inflation, to rise slightly to 2.7% from May's 2.6%. Friday's better-than-expected unemployment and job addition numbers are likely to tilt the BoC towards another hold at its July 30th meeting. Intraday, we expect the loonie to hold steady within a tight range ahead of tomorrow's key inflation reports.

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EURCAD stalls below 1.6000 as both countries focus on the US August 1st trade tariffs and Tuesday's key inflation reports.

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EUR continues to straddle 1.1700 amid increasing US/EU trade uncertainty. The euro recoups initial losses against the USD as investors digest the 30% tariffs on products from the EU announced by Trump over the weekend. Markets remain hopeful that a trade deal between the EU and the US will happen before the August 1st deadline. The euro tested near four-week lows of 1.1655 in early trading, after the EU avoided retaliatory tariffs and EU Trade Commissioner Sefkovic, reiterated that an agreement with the US is imminent, providing support to the euro.

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GBPEUR holds steady after the euro rebounds on increasing EU/US trade optimism.

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GBP edges off three-week lows to retest 1.3500 against the USD. The pound improves in early trading amid a softer USD, but continues to face growing UK economic risks that are expected to keep the pound under pressure in the coming weeks. The UK economy experienced an unexpected contraction in May, with GDP falling by 0.1% m/m. The weakening labour markets saw job seeking surge in June to its highest levels since November 2020, and the UK unemployment is up around 4.6%, with job placement and pay growth stalling. Public debt is currently at around 94% of GDP, and with rising gilt yields and increasing funding costs, the markets are expecting the Bank of England to start easing inter KPMG/REC surveyest rates soon, which will put additional pressure on the pound.