Market Update: USD Under Pressure, Canada Tech Tax Deal, and Eurozone CPI in Spotlight
This week’s trading outlook starts with a “risk-on” tone as the US dollar weakens ahead of Thursday’s non-farm payroll release, Canada removes its digital tax on tech giants, and Eurozone inflation data could reset ECB rate expectations.
Morning Headlines:
- Canada's Trade Olive Branch: In a move to restart tariff negotiations with the United States, Canada has announced the removal of its Digital Services Tax. This signals a proactive step towards easing trade tensions.
- Trump's Signature Legislation Progresses: The "one big beautiful bill" championed by President Donald Trump continues its journey through the Senate, indicating ongoing legislative momentum for this significant proposal.
- US Jobs Data in Focus: The market's attention this week will heavily centre on upcoming US labour market statistics. These figures will be crucial in shaping expectations for economic growth and potential Federal Reserve policy actions.
Market Recap
Friday's trading session presented a fascinating mix of economic data, leading to a somewhat subdued dollar performance despite its marginal upward edge. Here's a quick look at what happened:
Inflation Persistent, Spending Cools:
The Core PCE (Personal Consumption Expenditures) index, the Federal Reserve's preferred inflation gauge, registered a higher-than-expected reading on Friday. This signals that underlying inflation remains a concern. However, this was juxtaposed with personal income and spending data coming in softer than anticipated, suggesting consumers might be pulling back their wallets despite persistent price pressures.
Stocks Continue Upward Charge:
Despite the mixed economic signals, equity markets pushed higher. This resilience suggests investors are either looking past current data, focusing on longer-term growth prospects, or are optimistic about other factors like potential future rate cuts or improved trade relations.
Today’s Market Update:
We're kicking off the week with a "risk-on" sentiment in the markets, driven by significant developments and eagerly anticipated economic data. Here's what you need to know:
- Trade Breakthrough with Canada: Canada has agreed to remove its Digital Services Tax on major tech companies like Meta and Alphabet. This move, aiming for a deal by July 21st, signals a thawing in trade relations with the US and has been positively received by markets. This follows prior tension where the tax had led to a halt in trade negotiations.
- US Dollar and Jobs Data in Focus: The US dollar is showing weakness early this week. With a shorter trading week due to Friday's Independence Day holiday, the crucial Nonfarm Payrolls data will be released on Thursday. Expectations are for a slowdown in job additions in June (forecast at 113,000 from 139,000 in May). Unless there's a significant upside surprise, the dollar's downward trend is likely to continue as the market remains in a "selling mood."
- European Inflation Watch: This afternoon brings German CPI figures, with broader EU CPI data following tomorrow. Current market pricing suggests only one more rate cut from the European Central Bank (ECB) this year. Therefore, any unexpected rise in these inflation figures could potentially strengthen the Euro by dampening further rate cut expectations.
- "One Big Beautiful Bill" Progress: President Trump's "One Big Beautiful Bill" is making its way through the Senate, with hopes for it to be signed by July 4th. While some analysts are sceptical of this ambitious deadline, the bill is anticipated to provide a positive boost to US GDP growth, particularly in 2026, and could create favourable conditions for the USD and broader US assets once passed.
- Fed's Stance and Political Influence: This week's US data, especially the labour market figures, will be key in shaping expectations for the Federal Reserve's (Fed) future policy. Recent comments from FOMC member Waller suggested a potential for rate cuts as early as July, contributing to the dollar's recent decline. Additionally, President Trump's ongoing criticism of Fed Chair Powell and hints at a potential replacement before his term ends next year are adding a layer of political uncertainty to the monetary policy outlook.
We'll be closely monitoring these developments as the week unfolds.
30th June 2025
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