The Morning Update

The USD steadies, oil prices fall, equity markets are down, and US yields are mixed amid ongoing US fiscal concerns. The USD steadies above two-week lows as investors await the key US Manufacturing and Services PMI in May, and ahead of the vote on the US tax bill in the House. Global equities declined as investor sentiment worsened due to the US fiscal outlook, leading to a greater risk-off tone across markets. US Treasuries steadied after the 30-year yield hit its highest level since 2023 on Wednesday. "Rates are now the clearest lens through which sentiment is being expressed," said Assiri, a strategist at Pepperstone Group. "The message from the bond market is that the cost of capital is rising and risk assets need to rejustify." JPMorgan Chase CEO Dimon said he can't rule out that the US economy will fall into stagflation as the country faces huge risks from both geopolitics, deficits, and price pressures. Elsewhere, Bitcoin advances to a new record high, while oil prices weaken on the prospect of increased OPEC output, and gold and silver both ease in early trading. In focus today, US S&P Global Services & Manufacturing PMI, Initial Jobless Claims, and speeches from ECB Elderson, ECB De Guindos, and BoE's PIll to help provide intraday direction to currency markets.

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In the news. Trump tax bill heads to House floor for vote after last-minute changes. Bitcoin hits new record high above $111k as rally marches on. Carney says Canada, US are in 'high level' talks on Golden Dome System. OPEC+ discusses another super-sized output hike for July. Romanian president-elect backs higher NATO spending. The US accepts $400 million Qatari jet to be used as Air Force One. UK seeks to sell Brexit checkpoint made redundant by EU reset deal. Union reviewing Canada Post offers as strike deadline approaches. "Very Productive," Champagne says after a day of G7 talks with top finance officials, including the US. Trump bill could add $3.8 billion to debt over the next decade.

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In currency markets. The euro ticks lower after the weaker-than-expected EU PMI report. The USD index bounces off two. Euro ticks lower after weaker-than-expected EU PMI report. The USD index bounces off 2-week lows ahead of the US PMI report, while petro currencies ease as oil prices weaken with the prospect of a greater OPEC increase in output in July. CNY is flat, while Asian currencies on average slipped 0.15% against the USD. Trading currencies come under renewed pressure, with CHF, MXN, AUD, KWD, and NOK down 0.1%, DKK & SEK eased 0.25%, NZD weakened 0.4%, while outlier JPY gained 0.25% against the USD.

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In commodity markets. Oil and Wheat prices tumbled by 1.3%. Natural Gas & Silver prices fell 0.8%. Copper prices weakened by 1%. Gold prices eased by 0.1%, and Wheat prices fell 0.6%.

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CAD tested near two-week highs due to reduced expectations of a BoC rate cut in June, following the spike in core inflation levels earlier this week. The loonie slipped in early trading as the USD steadied and the commodity prices weakened across the board due to a combination of US fiscal concerns and caution ahead of the US services and Manufacturing PMI reports. Investors will also monitor the lower-tier CAD Industrial Production Price and Raw Materials Price Index, which could impact the loonie if they print outside expectations.

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EURCAD eased following the weaker-than-expected German and EU PMI reports.

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EUR slips below 1.1300 on weak EU PMI and ahead of the US PMI report. The euro eased in early trading following the disappointing German and Eurozone PMI, which showed that private-sector business activity contracted in May. The HCOB Composite PMI in Germany dropped to 48.6 in May, below 50.1 in April, while the Eurozone declined to 49.5 from 50.4 over the same period. ECB policymakers have been uncommitted to a rate cut in June, but the weaker-than-expected PMI report could pressure policymakers to cut rates in June. Intraday, the US PMI will be the primary driver for markets.

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GBPEUR edges higher following the disappointing eurozone PMI report.

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GBP eases despite mixed UK PMI reports ahead of the US PMI reports. The pound battles to hold 1.3400 after the UK data showed that the S&P Global Composite PMI improved to 49.4 in May, compared to the estimate of 48.5. "These reduced price pressures, coupled with signs of faltering economic growth and job losses, likely keep the door open for further interest rate cuts in coming months," said Williamson, Chief Business Economist at S&P Global Market Intelligence. Investors will now switch their focus to the US PMI reports and BoE's Pill comments to help provide direction to the pound.

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