Markets In Wait And See Mode

The capital markets are off to a mostly quiet start today, with Japanese markets closed and mixed signals from the Middle East after the war expanded over the weekend. Crude oil prices initially rallied but have come back off. The line-up of the new UK government is awaited. The tech sell-off continued in Asia but US index futures are trading firmer. 

The preliminary July PMIs are due at the end of the week, and the ECB meeting on July 23 is seen as paving the ground for the next hike in September. At the end of the week, the US Section 122 tariffs expire. The Section 301 (10%-12.5%) tariffs for using forced labor might not be ready to be implemented before the others expire. The Trump administration will likely address these issues in the coming days.  

Prices 

G10

• The euro traded in about quarter-of-a cent range before the weekend above $1.1425 and remains in that range today. Options for 1.6 bln euros at $1.1425 expire today. Around 4.7 bln euros of options at $1.1400 expire tomorrow and Wednesday. The high for the month, almost $1.1485, was recorded last Wednesday after the softer than expected US inflation gauges. 

• The Japanese yen consolidated last week and remained in the previous week’s range. The small decline in US rates and the threat at the end of the week of material intervention did not give the yen much traction. For the fourth session today, the dollar did not trade below JPY161.90. It did record a marginally new seven-day high today near JPY162.60. The dollar appears bounded by two strikes today. One set, for nearly $3 bln is struck at JPY162 and the other for about $560 mln is struck at JPY162.50. Local markets were closed today for a national holiday (Marine Day). 

• Sterling fell to $1.3425 before the weekend. It had recorded a one-month high in the middle of last week (~$1.3560), after the soft US CPI and PPI, and amid speculation that Mahmood would be the next Chancellor of the Exchequer. A formal announcement of the new cabinet is expected later today. Sterling has rallied around a nickel since the late June lows. It is consolidating today between about $1.3450 and $1.3480. 

• The US dollar’s May and June gains against the Canadian dollar continued to unwind last week, helped, we think, by narrowing of the US two-year premium over Canada. The premium has narrowed for the past four sessions coming into today. The US dollar fell to a marginal new low since June 17 (the Federal Reserve delivered a hawkish hold that day), almost CAD1.40 today, but has recovered to new session highs late in the European morning near CAD1.4035. The pre-weekend high was about CAD1.4050. The CAD1.3980 area holds the (38.2%) retracement of the greenback’s gains since May 1. A break of CAD1.3955 could signal a move to the next retracement target near CAD1.3900. 

• The Australian dollar fell to a three-day low before the weekend near $0.6965. It recovered but stalled around $0.6990. Still, it managed to settle above the previous week’s high (~$0.6970), suggesting that the two-day pullback was corrective in nature. It has traded on both sides of last Friday’s range today and the close is important from a technical perspective. A close above the pre-weekend high (~$0.7000) would be constructive. 

EM

• The Mexican peso fell to new lows for the week ahead of the weekend. The dollar reached almost MXN17.5575. It has come back offered today and was pushed to about MXN17.4850. The dollar appears to be in a large channel in recent weeks. The upper end is near MXN17.60, while the lower end is around MXN17.35. 

• The offshore yuan slipped to three-day low at the end of last week. The dollar traded above CNH6.7800. Still, it was the third consecutive weekly decline for the greenback. It has held below CNH6.78 today and found support near CNH6.7660. While the offshore yuan was confined to its recent ranges, the PBOC set the dollar’s fix at a new three-year low of CNY6.7909 last Thursday before raising it to CNY6.7934 before the weekend. Today’s reference rate was set at CNY6.7948. 

• Intervention by the Reserve Bank of India in both the onshore and offshore markets failed to do more than stabilize the rupee at lower levels. In fact, the dollar settled around INR96.45, its highest level since the record high was set on May 20 (~INR96.9650). 

Other Markets

• The S&P 500 and Nasdaq gapped lower before the weekend and although they traded higher than the opening for most of the session, the gap remained open. They extend to about 7504 in the S&P 500 and 25765 in the Nasdaq. US index futures are trading firmer now. Asia Pacific equities were not as fortunate. Most large markets fell, except Hong Kong and China’s CSI 300. Europe’s Stoxx 600 is treading water, and is little changed through almost midday. 

• Benchmark 10-year yields were mostly softer before the weekend, though on the week, among the major markets, only the 10-year Treasury, Gilt and JGB yield finished lower. Yields are firmer today, with the 10-year Gilt rising 2.5 bp, the most in Europe. The 10-year US Treasury yield is a single basis point to almost 4.56%. 

• Gold was sold to a new low for the week ahead of the weekend, slightly below $3960. It recovered and settled above $4015. It is little changed today but firmer. A move through $4075 is needed to lift the technical tone. Silver recorded a new low for the year before the weekend, a little below $54.80. It recovered and settled higher on the day. It is near $57 now. Still, it must re-establish a foothold above $60 to improve the technical tone.

• September WTI jumped 3.8% before the weekend to around $81.50, its best level since June 12, a couple of days before President Trump suggested a ceasefire with Iran was going to be struck. It has now retraced half of the decline from the May 18 high (~$95.30). It reached $84.60 today before reversing lower amid some hopes of a new mediated effort despite the escalation over the weekend. It found initial support near $81. 

Data

• It is a light week for US economic data, and it begins with the Conference Board’s June index of leading economic indicators. It edged up in April and May. The last time it rose in a quarter was Q4 21. Yet, the Atlanta Fed GDP tracker warns that growth likely slowed sharply in Q2 (~1.3% vs. 2.7% in Q1). The median forecast in Bloomberg’s survey is for 2.2% growth in Q2 but anticipates it slowing to 1.7% in the here in Q3. 

• Canada reports June CPI today. Given the decline in energy prices, the 1.0% increase in May will not be repeated. An outright decline, as in the US, is possible. The last time Canada’s monthly CPI declined was in December. Bank of Canada puts more weight in the underlying core measures (median and trimmed), which average 2.05% in May compared to 2.65% at the end of last year. 

• The eurozone reported a 0.4% increase in construction in May. It was the third consecutive monthly rise, something that has not experienced since 2020. It rose by an average of 0.1% a month last year and fell by an average of 0.1% a month in 2024. The median forecast in Bloomberg’s survey sees 0.2% Q2 GDP after a flat Q1. 

• The UK has a new prime minister: Andrew Burnham. He is the seventh British prime minister since the Brexit referendum a decade ago. Despite the political drama, sterling has done relatively well. In Q2, it was one of only two G10 currencies to have risen against the US dollar (the Australian dollar was the other). Sterling also rose to a new 12-month high against the euro. 

• Chinese banks let the one-year and five-year loan prime rates steady at 3.0% and 3.5%, respectively.