The Morning Update

Friday 19th May, 2023

Written by:
Paul Harrison

The US$ weakens, oil prices firm, equity markets rally, while US yields rise as risk sentiment improves. Markets are buoyed by signals that US politicians may reach a debt-ceiling deal as soon as this weekend. The improved market optimism saw the Nikkei 225 close at 33-year highs, the German DAX Index is on track for a record close and the S&P is expected to open at 9-month highs. President Biden told his negotiating team that he's confident Congress will act in time to avoid a default, according to US official. House Speaker McCarthy & Senate Majority Leader Schumer are making plans for votes in coming days on a bipartisan deal. In focus today sees High-Tier CAD Retail Sales, Fed Chair Powell speech and Mid-Tier Fed Williams, Fed Bowman, & ECB Schnabel speeches will help provide intraday direct to currency markets.

In other news. G7 Leaders announce more Russian sanctions on ships, aircraft & diamonds as Ukraine President set to attend the summit, intensifying focus on Russia.. US, Taiwan reach deal on first part of '21st Century' trade pact-Reuters. German producer prices post smallest increase in two years. China Xi offers to help central Asian countries on defense. UK consumer confidence rises to highest level in more than a year. Economic situation takes centre stage at Greek elections. ECB steps up scrutiny of bank liquidity, may raise requirements. Bank of Canada sees financial stress rising among homebuyers. Strike averted as WestJet, pilots reach 11th-hour deal.

In currency news. CNY rebounds from fresh 6-month lows ahead of Monday's China Interest rate decision. US$ eases ahead of Fed Chair Speech as markets look for signs of pausing & possible future rate cuts. NZD & AUD firm ahead of their central bank interest rate decisions next week. Turkish Lira extends losses testing fresh record lows. CNY firms 0.45%, while Asian currencies firm 0.2% on average vs US$. Trading currencies benefit from a weaker US$ with ZAR edging higher 0.2%, MXN firms 0.25%, JPY, SEK & CHF up 0.4%, AUD gains 0.6%, NZD & NOK strengthen 0.8% vs US$.

Oil prices rebounds on improving optimism for a US debt ceiling solution as soon as next week. C$ edges higher alongside its peers as risk sentiment improves and the US$ eases. BoC Governor Macklem all but blunted speculators looking for a change in the BoC pause strategy when the Governor suggested April's inflation increase, its first in 10 months was an anomaly and said consumer prices would continue to come down. Today CAD Retail Sales (m/m Mar) is expected to fall to -1.4% vs -0.2% in February and will be watched closely alongside Fed Chair Powells speech will be the primary driver's to currency markets today.

EURCAD hold relatively steady as markets hold on the sidelines heading into the Fed Chair's Speech and Cad retails sales release.

EUR steadies near 1.0800 as the US$ eases ahead of Fed Chair Powell's speech. Euro bounces off weekly lows as the US$ corrects as risk sentiment improves and on ECB hawkish comments. EBC has maintained its rhetoric that the central bank it will main its efforts to curb stubbornly high inflation with expectations the central bank hike two more times by September. Intraday EBC Schnabel is speaking but focus will be on Fed Chair Powells speech which has the greatest potential to impact currency markets today.

GBPEUR are sidelined, holding near 5-month highs as markets await the Fed Chairs speech today.

GBP bounces above 1.2400 amid positive UK data and renewed US$ weakness. UK consumer confidence rose for the fourth consecutive month in May to its highest level since Feb 2022. Consumer spending remains depressed, in Q1/23 it is still more than 2% below the level in Q4/19 as high inflation keeps pressure on household budgets. Expectations are the pounds strength into Q3 is likely to be capped as markets after BoE less hawkish comments has investors expecting fewer BoE rate increases. Today Fed Chair comments will drive intraday currency market direction.