The Morning Update

Friday 10th, November 2023

Written by:
Paul Harrison

The USD is steady, oil prices advanced, equity markets are down, and US yields have risen after Powell's warning. The USD holds on to recent gains, up nearly 3% since August, while oil prices advance in early trading but are set for their third weekly decline as the Middle East supply concerns ease. US treasuries rose, while global equity markets erased 9 days of gains after Federal Reserve Chair Powell warned interest rates may have to climb further. Fed Chair Powell said officials would move carefully but would not hesitate to tighten policy further if required to contain inflation. In focus today, ECB President Lagarde is due to participate in a fireside chat, in the US the Michigan Consumer Sentiment Index and the speech from Fed's Logan will help provide intraday direction to currency markets today.

In other news. Iran warns expansion of the Gaza war is 'inevitable'; officials say air strikes hit hospitals. A ransomware attack hit China's biggest lending bank ICBC. The UK economy fails to grow but narrowly escapes the start of a recession. China's largest private property developer Country Garden aims to have an offshore debt restructuring plan by the end of 2023. China's biggest chipmaker warns geopolitics is stoking global glut, co-chair of SMIC says. Portugal president calls March snap election, leaves time to pass budget. Canada is near a plan to limit emissions from the oil and gas sector. Diageo Plc slumped more than 14% on a surprise outlook cut from the drinks maker.

In currency news. The USD is set for its best week against JPY in three months. The UK Pound holds near 1-week lows on disappointing Q3 growth data. The Indian Rupee fell to a record low vs USD. China hits one-week lows, Asian currencies come under selling pressure after Fed Chair Powell's comments, and AUD & NZD are set for their 5th trading session of losses. CNY and Asian currencies are down 0.1% on average vs USD. Trading currencies are mixed with ZAR falling 0.5%, AUD, NZD, MXN & JPY down 0.1%, while CHF is flat, SEK is up 0.1%, and NOK rallying 0.6% vs USD.

In commodity markets. Oil prices advanced 0.8%, Natural Gas prices slipped by 0.1%, Gold prices dropped by 0.6%, Silver prices tumbled by 1.3%, Copper prices slid by 0.8%, while Wheat prices dipped 0.4%, and Soybean prices dipped by 0.2%.

CAD weakens through 1.3800 as investors favor the USD after the Federal Reserve Chairman 'tone correction' saying the Fed wouldn't hesitate to raise interest rates again if it is required to fight the ongoing inflation battle. The Fed Chair comments sent US yields higher and took global equity markets and the Loonie lower with the prospect of still higher US yields. In Canada, the BoC adopted a less hawkish tone vs the Fed with BoC Senior Deputy Rogers saying the era of super-low interest rates was over. Today we expect to see the loonie to remain on the back foot, but with the lack of key data releases we expect the CAD to hold current levels as higher oil prices should provide some support.

EURCAD edges slightly higher as markets await ECB President Lagarde's comments at her fireside chat.

EUR holds above 1.0650 ahead of ECB President Lagarde's comments. Euro is ending the week under pressure, dropping from 1.0750 on Monday as risk sentiment eased and the Fed increased its hawkish stance. Focus has shifted to ECB Lagarde's fireside chat, but it is unlikely that the ECB President will change her rhetoric that the rate has peaked and that the EU economy has the potential to enter recession status in 2024. We anticipate the Euro could breach 1.0650 and is vulnerable to further weakness towards 1.0580 next.

GBPEUR as markets await ECB Lagarde's comments, while the pound narrowly misses recession.

GBP holds above 1.2200 after a volatile week and UK GDP. The UK GDP from the UK shows that growth expanded at an annual rate of 0.6% in Q3, although the reading was slightly above expectations it failed to rally the pound. Other UK data showed that the UK industrial production continued to stagnate in September, while on a slightly positive note, Manufacturing Production increased by 0.1%. The overall market sentiment remains bearish as total business investment declined 4.2% in Q3. Intraday the Michigan Consumer Sentiment Index which has proven to be a good indicator for the future course of the US economy, is expected to slip slightly to 63.7 in November vs 63.8 in October.