Market Briefing - Volatility Subsides, Dollar Weakens

Markets are sluggishly coming to life this morning, with equity futures rising and the dollar creeping lower in holiday-thinned liquidity conditions. Measures of short-term market volatility are falling, and oil prices are holding steady. 

- The euro slipped overnight after French president Emmanuel Macron lost his National Assembly majority in yesterday’s parliamentary election. A coalition of leftist parties, led by Jean-Luc Mélenchon, took 131 seats while Marine Le Pen’s far-right party took 89 - a result that could lead to legislative paralysis, modestly higher French fiscal spending and more tension within the European Union’s governance structure. 

- Cable is moving higher ahead of Wednesday’s inflation print, which is expected to show prices rising 9.1 percent year-over-year in May. After dissenting in favour of a 50 basis point hike at the last Bank of England meeting, chief economist Huw Pill and rate-setting committee member Jonathan Haskel are scheduled to speak this week. Markets will pay attention. 

- The Canadian dollar is changing hands at a slight premium as risk appetite improves, having broken back through psychological resistance around the 1.3000 mark earlier this morning.  

- Tomorrow’s April retail sales report could bring some downside risk - although prices have now recovered, gasoline costs fell in the month, and high-frequency data suggests receipts in non-auto segments might have been on the softer side. 

- On Wednesday, however, traders expect Statistics Canada to report headline prices rose 7.5 percent year-over-year in May, as higher food, shelter, and gas prices did much of the heavy lifting. Odds on a 75-basis-point hike at the Bank of Canada’s July meeting are hovering near the 85 percent mark, and could move higher on stronger-than-expected price growth. 

- Mexico’s central bank meets on Thursday, and is seen following the Federal Reserve with a 75 basis point move of its own. Markets will monitor for hawkish dissents, with the peso exposed to some upside potential after last week’s brutal decline. 

- By our count, at least seven Fed officials are slated to speak this week, with Jerome Powell’s semi-annual Congressional testimony featuring as the main event. Officials are likely to emphasize the central bank’s “unconditional” commitment to bringing inflation down - a message that, if repeated forcefully enough, might wipe out any remaining vestiges of the “soft landing” trade in financial markets. Risk appetite is unlikely to stage a meaningful recovery until this narrative changes. 

Upcoming Events

MONDAY

AUD Reserve Bank of Australia, June Meeting Minutes

TUESDAY

GBP    Bank of England Speech, Pill

CAD   Retail Sales, April

JPY     Bank of Japan, April Meeting Minutes

WEDNESDAY

GBP Consumer Price Indices, May

CAD    Consumer Price Indices, May

USD    Federal Reserve Congressional Testimony, Powell

USD    Federal Reserve Speech, Evans

THURSDAY

EUR    European Central Bank Economic Bulletin

EUR    S&P Eurozone Purchasing Manager Indices

GBP    Retail Sales, May

USD    Current Account Balance, Q1

USD    Weekly Jobless Claims

USD    S&P US Purchasing Manager Indices

GBP    Bank of England Speech, Haskel

USD    Federal Reserve Congressional Testimony, Powell

USD    Department of Energy Weekly Inventories

MXN    Bank of Mexico Rate Decision

CNY    Current Account Balance, Q1

FRIDAY

JPY     Bank of Japan Speech, Amamiya

AUD   Reserve Bank of Australia Panel, Lowe

CAD    Survey of Employment, Payrolls and Hours, April

USD    Baker Hughes Weekly Rig Count