Markets:
- Gold up $33 to $3355
- US 10-year yields up 7.1 bps to 4.42%
- WTI crude oil up $2.14 to $68.71
- S&P 500 down 0.3%
- USD leads, JPY lags
We went into the day waiting for Trump’s letter to the EU with a higher tariff rate but it has yet to arrive. Reports late in the day are mixed with some saying there are no meetings planned for the weekend and others highlighting sticking points around agriculture and autos. All the reports highlight that any deal hinges on the whims of the President.
The market has its own ideas and they were underscored by CAD trading the past 24 hours. The loonie dropped on Trump’s surprise 35% tariff on Canada but the move was relatively small and retraced in large part from the spike highs. Similarly, BRL is only moderately down from levels before Trump’s 50% tariff announcement this week. In short, the market doesn’t believe the tariffs will happen at the Aug 1 deadline.
That’s part of the reason the euro was down just 20 pips on the day and USD/CAD up 40 pips. Also in the case of the latter, the June Canada jobs report was sparkling with strong employment growth and a surprise dip in the jobless rate.
One notable move on the day was USD/JPY as it continues to get a tailwind from a rebound in Treasury yields, fears of tariffs on Japan’s export-sensitive sectors and Japan’s upcoming lower house election. The pair was steadily bid from Asian trade as is poised to finish near the weekly highs.
Cable was also soft on the day, finishing 90 pips lower and underperforming the euro despite the tariff worries. Cable hit stops below 1.3520 and continued another 35 pips lower to the worst levels since June 22.
The US dollar side is also notable on slipping Fed rate cut hopes. The combination of stock markets at record highs, tariffs, an immigration crackdown and the budget bill are all inflationary and there is some angst about next week’s CPI report.
Have a great weekend everyone. I’m taking a few weeks off for an extended vacation but I will be back with a vengeance in no time.
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