Friday January 20th, 2023

The US$ firms, oil prices steady, equity markets and US yields rise on optimistic tones from Davos. The Davos economic summit wraps up on an optimistic tone with many business leaders looking for a soft global economic landing. Markets improved in early trading despite hawkish centrals and surging covid cases across China. The global economic outlook may be less bad, but we’re not in a good place, “we have to be cautious” IMF chief says in Davos. She said headline inflation was heading down, China’s reopening should boost economic growth, IMF forecasted China’s will outpace global growth of 2.7% in 2023 after slipping below it for the first time in 40-years. Today, CAD Retail Sales, Fed Harker & Waller speech’s, US Existing home sales.

In other news. Beijing’s top economic adviser tells Davos CEOs ‘China is back’. Japan’s core inflation rose to 4% y/y Dec, the highest level since Dec 1981. The US hits debt ceiling – and Janet Yellen says ‘extraordinary measures’ underway to avoid default. Google parent Alphabet to cut 12,000 jobs worldwide. China Premier Xi warns of covid spread as China starts lunar new year migration. US announces new US$2.5billion security package for Ukraine, while defense ministers of NATO countries are holding meetings today in Germany.

In Currency markets. US$ edges higher in cautious markets. CNY slips on spiking covid cases. NZD remains under pressure on political uncertainty with the PMs resignation. ZAR steadies despite ongoing power outages. JPY weakens on hardline BOJ policy. CNY down 0.1% while Asian currencies are up 0.1% on average vs US$. Trading currencies are mixed AUD & CHF dip 0.3%, NZD weakens 0.5%, JPY tumbles 1% while ZAR is flat, NOK, MXN & SEK are up 0.15% vs US$.

Oil prices hold steady, looking set for a 2nd week of gains as China demand optimism continues to offset recession and covid concerns. C$ holds on to Thursday’s gains, recovering from January lows as investor optimism improved as Fed narrative turns less hawkish. Focus will be on Wednesday’s BoC monetary meeting where markets expect rates to rise 0.25% to 4.5%. Today focus will be on CAD Retail Sales for intraday direction. Support holds at 1.3435 while resistance remains at 1.3540.

EURCAD holds steady heading into CAD retail sales and next week investors focus on central banks for rate direction. Support holds at 1.4550 while resistance remains at 1.4685.

Euro holds gains on hawkish ECB comments. ECB President Lagarde pledges to ‘stay the course’ on high interest rates to battle soaring inflation levels. German producer price inflation eases to its lowest levels since November 2021. Our bias is that Euro will remain toppish towards 1.1000 as Europe steps up support for Ukraine and energy costs are expected to increase into the heart of winter. Support holds at 1.0780 while resistance remains at 1.0900

GBPEUR weakens after the ECB reiterating their hawkish stance. Support holds at 1.1300 (.8850) while resistance remains at 1.1450 (.8733).

GBP struggles to hold weekly gains after weak UK data. Disappointing UK retails sales data and a firmer US$ is putting pressure on the pound. The UK is caught between weakening sales/growth and continuing high inflation which is causing concern for the BoE policy makers who are expected to hike rates into an economy facing recession. We remain bearish pounds heading into February. Support holds at 1.2280 while resistance remains at 1.2400.