The Morning Update

The USD weakens, oil prices ease, equity markets and US yields are mixed as US fiscal anxiety grows. The USD is poised to end its four-week winning streak due to rising concerns about the fiscal outlook as Trump's tax bill moves to the Senate. US futures declined as higher US Treasury yields dampened sentiment, following Moody's downgrade of the US debt rating last week. This shift has turned investors' attention to the country's $36 trillion debt and Trump's tax bill, potentially adding another $3 to $5 trillion. Asian equities are on track for a sixth consecutive week of gains, as news of the first call between the US and China since their Geneva meeting has boosted optimism regarding the progress of trade talks. Following the US House's approval of Trump's tax bill on Thursday, analysts caution that the ongoing deterioration of the US government's fiscal position will continue to weigh on riskier assets. Elsewhere, oil prices are headed for their first weekly decline in three, as OPEC+ looks set for increased output in July. Bitcoin holds near record highs +$111k, and gold is headed for its biggest weekly gain in over a month. Today's focus is US New Home Sales, CAD Retail Sales, and speeches from ECB Schnabel, Fed Cook, Musalem, and Schmid, which will help provide intraday direction to the currency markets.

‍

In the news: German Q1 GDP upgraded as orders rush to beat tariffs. UK retail sales jumped in April, helped by sunny weather. Investors shift away from the US bond market on fears over Trump policies. Trump pushes the EU to cut tariffs or face extra duties. German Chancellor Merz backs Nord Stream ban to prevent the US and Russia from restarting gas link. Apple is set to expand India's supply chain through a $1.5 bn Foxconn plant. G7 ministers threaten more sanctions against Russia over the Ukraine war. Canada Post workers stay on the job, but refuse overtime as contract talks fall short. The Trump administration revokes Harvard's ability to enroll international students.

‍

In currency markets: The USD remains under selling pressure, while safe-haven demand lifts the euro, yen and Swiss franc. The GBP rallies to fresh multi-year highs against the USD, boosted by positive UK retail sales and US debt concerns. CNY firmed by 0.3%, while Asian currencies on average strengthened by 0.5% against the USD. Trading currencies rebounded, with MXN, CHF, and KWD up 0.2%, JPY gained 0.35%, DKK & ZAR firmed by 0.6%, NOK & AUD strengthened by 0.8%, and NZD & SEK rallied by 1 % against the USD.

‍

In commodity markets: Oil & Soybean prices slipped by 0.1%. Natural Gas prices rallied by 1.65%. Gold & Copper prices strengthened by 0.95%. Silver prices firmed by 0.15%. Wheat prices eased by 0.25%.

‍

CAD advances to multi-week highs amid ongoing selling pressure on the USD amid ongoing US debt concerns. Domestically, investors will be focused on today's CAD Retail Sales, which is expected to grow to 0.7% in March, up from -0.4% in February. Retail Sales ex Auto is expected to fall to zero % growth, down from 0.5% in February. The results from today's retail sales could offer further clues on the prospects of the Bank of Canada keeping rates on hold in June. "Overall mood music on the CAD is turning more bullish, essentially reflecting the increasingly negative perspective investors have on the USD outlook," Shaun Osborne & Eric Theoret, strategists at Scotiabank, in a note.

‍

EURCAD edges higher in early trading on concerns for OPEC+ output increases and caution ahead of the CAD retail sales.

‍

EUR tests fresh monthly highs on renewed USD weakness. The euro advances to 1.350 on growing concerns about the US fiscal outlook and government debt after the US House of Representatives passed President Trump's tax bill. Domestically, German GDP QoQ Q1 beat expectations, up 0.4% vs 0.2%, and YoY flat vs -0.2% previously. Elsewhere, EU & US trade talks remain deadlocked, with investors increasingly expecting the trade war could escalate to increased tariffs by both nations. Meanwhile, the ECB reported on Friday that Negotiated Wage Rates rose by 2.38% in Q1, down from 4.12%, easing concerns over strong wage inflation across the eurozone, which could cap euro strength. Intraday, FED & ECB policymaker speeches will help provide direction to the single currency today.

‍

GBPEUR holds steady, with both currencies supported by positive domestic data and a weakening USD.

‍

GBP rallied to three-year highs against the USD, testing 1.3500 in early trading. The pound advanced as heavy selling pressure on the USD continued, with GBP testing its highest level since February 2022. Domestically, UK Retail Sales rose by 1.2% in April, significantly beating expectations of 0.2%, and helping provide an additional boost to the pound. The pound may face pressure next week as investors expect the Bank of England to maintain its trend, easing by another 25 bps at its June meeting. Intraday, the US New Home Sales Change and Fed comments will help guide the pound.