Market Briefing - Markets Tiptoe Into Event Risk-Laden Week

Currency markets are slowly coming awake ahead of the US equity open, with the dollar climbing against most of its rivals in sluggish price action. No major data releases are scheduled for the day ahead.

Commodities are broadly weaker after Chinese authorities closed businesses in Macau and reimposed coronavirus measures in other cities. Reports suggest almost 115 million people are enduring some form of restriction, with anecdotal evidence indicating a substantial share of Shanghai residents are back in lockdown. 

Treasury markets are stuck in the doldrums as investors await Wednesday’s consumer price data. Investors see US headline inflation hitting 8.7 percent year-over-year in June, up from 8.6 in the prior month - although a sizeable contingent expects price growth to begin falling thereafter.

Later in the week, the US will release its latest retail sales numbers and the results from University of Michigan consumer sentiment survey - numbers that could add to Friday’s better-than-expected jobs report in putting upward pressure on interest rates. 

The yen is trading near two-decade lows after the ruling Liberal Democratic Party and its coalition partner Komeito secured a so-called “supermajority” in yesterday’s Japanese election. The result underlined broad public support for the government’s economic policies - including the Bank of Japan’s yield curve control framework - in the aftermath of former Prime Minister Shinzo Abe’s assassination last week. 

The Bank of Canada is almost universally expected to raise its benchmark lending rate by 75 basis points on Wednesday. This will bring Canada’s policy rate to the highest in the Group of Seven, maintaining the loonie’s slightly-positive rate differential against the dollar.

With the Nord Stream gas pipeline entering a long-scheduled ten-day shutdown today and many investors questioning whether Russian President Putin will turn the taps off completely, the euro is trading with a wide risk discount. The common currency could easily fall below parity in the days ahead. 

In the United Kingdom - where you’ll be surprised to learn the government is not actually chosen by strange women laying in ponds distributing swords - the contest to replace Boris Johnson will heat up. Eleven candidates have announced they will stand thus far, with bookmaker odds favouring former chancellor Rishi Sunak’s bid. The promise of lower taxes, more fiscal spending, and a better relationship with the euro area might support the pound, but growing stagflationary risks are likely to cap any gains. 

Upcoming Events

TUESDAY

GBP Bank of England Speech, Bailey

CNY    Trade Balance

WEDNESDAY

GBP Monthly Gross Domestic Product, May

USD    Consumer Price Indices, June

CAD    Bank of Canada Rate Decision

CAD    Bank of Canada Monetary Policy Report

USD    Department of Energy Weekly Inventories

THURSDAY

USD    Weekly Jobless Claims

CNY    Gross Domestic Product, Q2

FRIDAY

USD    Retail Sales, June

CAD    Existing Home Sales, June

USD    Baker Hughes Weekly Rig Count