Global risk sentiment continues to be challenged by adverse developments across the world. The US banking earning season has kicked off on the wrong foot, China reported the weakest growth numbers (0.4% YoY, vs 1.2% expected) in more than two years, new Covid variants are boosting infection and hospitalization numbers globally, Italy is facing a new political crisis and markets keep flirting with the idea of a 100bp Fed hike in July. With fears of global recession adding pessimism to the overall picture, we struggle to see a material recovery in sentiment for now.
A number of US data releases will also be in focus today. The University of Michigan indices – and in particular the inflation gauges – will be closely watched, but Empire Manufacturing for July, retail sales, and industrial production for June can also have some market impact.
Yesterday's frenzied surge saw the US dollar rise to over 1.3225 before settling closer to 1.3120. The general risk appetite in Canada continues to appear to be greater than the underlying fundamentals. Despite this week's unanticipated 100 bp rate hike, the Canadian currency is down more than 1%. It marks the Loonie's third straight weekly decline. Wholesale commerce, existing house sales, and international securities transactions are all reported by Canada. We observe that although inflows into foreign portfolios have been very robust, home sales are slowing and are predicted to have declined for the fourth consecutive month. To begin the day, the US dollar is staying below 1.3150.Observe the USD/CAD chart.
EUR/USD continued to hover around parity, and to show elevated intra-day volatility. This looks unlikely to change for now unless we see the pair rebound decisively above 1.0150 (safely away from parity) or drop to the 0.9800-0.9900 area. EUR/USD appears primarily driven by the macro picture, Russian gas supply and Fed pricing. There are no market-moving data releases in the eurozone today.
It will be interesting to see the first TV debate between the remaining five candidates in the Tory leadership contest today, mainly to start gauging what positions on policy and Brexit can be associated with each contender. Rishi Sunak has remained the front runner, while the potentially most pro-Brexit of the leading group, Liz Truss, looks set to receive a vote boost from the endorsement of Suella Braverman. Away from political developments, the UK data calendar is very quiet and there are no scheduled Bank of England speakers today. GBP/USD looks at risk of moving to 1.1600-1.1700 in the coming days on the back of USD strength.
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