Canada Backs Down on Digital Tax After Trump Suspends Talks; USDCAD Edges Lower

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar        1.3540-1.3780

Euro                 1.5930-1.6180

Sterling            1.8620-1.8860

WTI Oil (opening level) $65.24

The CAD/USD is opening at 1.3671 ( 0.7315 )

After a volatile Friday on Trump’s suspensions of trade talks over Canada’s threatened digital services tax that would have impacted US companies hardest and Canada’s suspension of that tax at the weekend, USDCAD only pushed a bit lower in the overnight session to 1.3665 versus a Friday close of 1.3689, although the intraday high on Friday was 1.3759- shortly after Trump made the announcement that trade talks were suspended.

Headlines

·    Canada announced late yesterday that it would cancel a planned digital services tax that was set to go into effect today and caused Trump to suspend trade talks with the country. The digital services tax would have mostly hit large US tech companies, taxing 3 percent of revenues for the largest internet services providers, many of which are large US companies like Meta, Netflix and Amazon. Prime Minister Carney said that eliminating the tax "will support a resumption of negotiations" on trade.

·    Trump's extensive tax cut and spending bill passed a vote to allow further debate in the US Senate on Saturday with a 51-49 vote, with one Republican Senator against the bill announcing he will not run for re-election. President Trump hailed the Senate's vote as a great victory, referring to the bill as the "great big, beautiful bill." Votes on amendments to the bill continue today.

·    US President Trump said Sunday that he was considering keeping the 25% tariffs on Japan’s cars, citing the imbalances in the number of cars that Japan purchases relative to the number they sell into the US.

·    US May Core PCE inflation, released Friday, saw core prices rising 0.2% MoM and 2.7% YoY, higher than the 0.1%/2.6% expected and vs. a revised 2.6% YoY (From 2.5%) in April..

Key Points

·    Equities: New highs, trade optimism, rate cut hopes, tech and consumer lead

·    Volatility: VIX low, hedges rolled, cheap downside protection

·    Digital assets: Bitcoin steady, strong ETF inflows (IBIT, ETHA), liquidity focus

·    Fixed Income: European long yields hit highest level in over a month

·    Currencies: USD weakens in Asian session, with JPY the largest gainer

·    Commodities: Gold consolidation continues. Grains sector await key reports