The Morning Update

The USD is steady, oil prices are rallying, equity markets are up, and US yields are mixed, as focus remains on tariffs and earnings. The USD stalls after another round of weak US economic data, as markets await President Trump's decision on filling the vacancy on the Fed's Board of Governors. Trump said he will decide on a nominee to replace outgoing Fed Governor Kuglar by the end of the week, and separately, Trump stated that he has narrowed the possible replacements for Fed Chair Powell to a short list of four. Global equities posted gains on decent earnings, but caution is growing as Tuesday's US data showed weakening US services amid sticky price pressures, increasing concerns about the Fed's policy challenges. Additional pressure is growing after Trump increased his tariff blitz, stating that he will impose higher levies on countries purchasing energy from Russia and announcing duties on semiconductor and pharmaceutical imports soon. Elsewhere, oil prices rallied on Trump's threats to Russian crude buyers, Bitcoin firmed to $114,000, and gold prices eased off recent highs. Today's economic calendar features a light schedule with no high-tier releases, so investors will be focused on the Fed's Collins, Cook, and Daly comments to help provide direction to markets.

‍

In the news. Carney says he'll look at opportunities to remove tariffs on the US. Trump envoy Witkoff meets Putin in Moscow ahead of the US ultimatum. Berkshire shares tumble as Warren Buffett prepares to step down. UK Construction activity plunges in July. India's central bank holds rates amid rising tensions over Trump's tariffs. Canada and Mexico to cooperate as 'free traders' facing US tariffs. Carney pledges $870 million for the lumber sector hit by Trump. Trump ramps up tariff blitz with India, Pharma and Chips in sight. Trump threatens the EU with 35% tariffs if a $600 billion investment pledge is not fulfilled. European pharma stocks lose ground after Trump threatens 250% tariffs.

‍

In currency markets. Currency markets mostly drift in a tight trading range as markets remain cautious ahead of Trump's pick for the vacant Fed governor position and a lack of high-tier economic data releases. CNY slips 0.1%, and Asian currencies are flat on average against the USD. Trading currencies are mixed, with JPY falling 0.2%, CHF falling 0.1%, KWD, PLN, MXN & DKK flat, NZD, SEK, CZK and ZAR up 0.2%, NZD, NOK and AUD gaining 0.3% against the USD.

‍

In commodity markets. Oil prices rally 1.6%. Natural Gas prices weakened by 1.5%. Gold prices fell by 0.6%. Silver and Wheat prices easing 0. 3%. Copper prices gained by 0.5% and Soybean prices are flat.

‍

CAD holds steady in early trading, with the loonie finding support from rallying oil prices, as investors remain cautious ahead of Friday's key jobs report in Canada and ongoing US-Canada trade uncertainty. Domestically, Tuesday saw Canada's trade deficit widen in June to its second-largest on record as the impact of US tariffs is being felt. Canada's merchandise trade deficit widened in June to C$5.9 billion, as imports grew faster than exports due to a one-time high-value import of oil equipment. Intraday, with the lack of high-tier data releases from Canada and the US, we expect the loonie to remain within its current trading range.

‍

EURCAD edges higher in early trading, with the euro finding support from a better-than-expected y/y EU retail sales report.

‍

EUR retests 1.1600 as the USD slips and cautious investors return to the single currency. The euro edges higher in early trading as the USD stalls, with investors awaiting the announcement of the Federal Reserve's Chair and Governor Adriana Kugler's replacement, who resigned last week. Investors are returning to the euro with expectations of a Fed easing in September, while the ECB is now expected to keep the rates on hold until spring of 2026. Domestically, EU Retail Sales year over year for June grew to 3.1%, beating expectations of 2.6% and surpassing May's 1.9%. With the lack of economic data releases from the US and the caution of the new Fed picks, we expect the euro to be caught in a tight trading range.

‍

GBPEUR slips as markets await the BoE interest rate decision on Thursday.

‍

GBP continues in a tight trading range, straddling 1.3300 against the USD. The pound stalls as the USD loses traction, while investors remain cautious ahead of tomorrow's Bank of England interest rate decision. The Bank of England is expected to cut rates to 4% on Thursday and again in Q4/25, despite consumer price inflation rising close to double the central bank's 2% target in June. Investors will be focused on the split among BoE policymakers, and how they are divided over how much underlying price pressures are easing, as well as whether a slowing labour market and domestic growth will impact inflation in the medium term.