The Morning Update

Friday April 26th, 2024

Written by:
Paul Harrison

The USD steadies, oil prices firm, equity markets are up, and US yields ease ahead of key inflation data. The USD steadies at two-week lows, while the Japanese yen hits fresh historic lows after the BoJ kept interest rates on hold. Equity markets advanced after solid earnings from Microsoft & Alphabet highlighted that the AI boom continues to drive gains for tech stocks. Risk sentiment continues to improve after nearly 80% of S&P 500 firms reported so far have beaten analysts earning estimates. This morning, we await the release of the Core Personal Consumption Expenditures (PCE) Price Index data, the Fed's preferred inflation gauge. Markets expect the core PCE inflation to signal continued firm price pressures, which is anticipated to delay a Fed rate cut until Q4 or later. Elsewhere, gold prices improve but are left to be net down for the week. Oil prices reach their highest levels over a week, and Bitcoin slips in early trading, sitting below $65k. Today, the primary focus will be on the US core PCE index, also in focus, Personal Income & Spending, Michigan Consumer Sentiment Index, and UoM 5-year Consumer Sentiment Index, which will help provide direction to currency markets intraday.

In other news. China's Xi says the US needs to accept Beijing's rise in order for bilateral relations to improve. S&P 500 futures rally in overnight trading, boosted by Alphabet & Microsoft. Anglo-American rejects BHP's $39 billion takeover proposal. In a Reuters poll, economists see the global economy set to stay on a roll for the rest of 2024. Investors brace for 5% US treasury yields as US inflation worries mount. India votes in second election phase as Modi vs Gandhi contest heats up. Sources say China's Country Garden plans to present a debt revamp plan in the second half. Poland & Lithuania to help Ukraine repatriate men of fighting age.

In currency markets. BoJ keeps interest rates on hold, causing JPY to rally towards 157, another fresh 34-year low against the dollar. Yellen says currency intervention is acceptable only in rare situations. AUD gains on rate hike jitters. CNY weakens by 0.1%, while Asian currencies slide 0.15% on average against the USD. Trading currencies are mixed, with JPY tumbling 0.75%, NOK & MNX weakening 0.3%, IDR & SEK slipping 0.1%, NZD & CHF are flat, and AUD & ZAR gaining 0.2% against the USD.

In commodity markets. Oil prices gained by 0.4%, natural gas prices tumbled by 3.3%, gold prices were up by 0.8%, silver & copper prices rallied by 1.4%, and wheat and soybean prices weakened by 0.3%.

CAD is holding steady at two-week highs but is down nearly 1% in April against the USD overall. The loonie has found support from improving risk sentiment, firmer commodity prices, and a general weakness in the USD. Domestically, the Bank of Canada continues to monitor wage growth; in February, payroll employment fell by 0.1%, while on average, weekly earnings increased to an annual pace of 4.5% from 3.7%. The US PCE data will primarily drive today's loonie direction.

EURCAD holds steady, with the currency pair sidelined ahead of the crucial US inflation report.

EUR holds on to its weekly gains amid a weaker USD ahead of key US data. The euro has held its bullish momentum, with the single currency testing its highest level in two weeks near 1.0750. Improving risk sentiment is helping to provide an underlying support for the Euro, but technically, the currency is looking to be overbought. Investors will focus on today's Core PCE price index release, which is expected to drop y/y to 2.6% compared to 2.8%. A print outside of expectations is expected to increase currency market volatility.

GBPEUR holds steady after rallying from Monday's lows, locking a nearly 100 basis point gain for the week as investors expect the ECB to cut its domestic interest rates in June.

GBP slips in early trading, giving up early gains as investors turn cautious ahead of the US PCE data. The pound held gains for a third consecutive day, testing towards 1.2530 in early trading. Still, it weakened towards 1.2500 as investors grow careful of long pound positions heading into the core PCE data despite the weaker-than-expected US GDP on Thursday. Markets have discounted mainly the prospect of a Fed cut until Q4, while markets are increasingly expecting the BoE could cut its domestic interest rates as early as Q3. Intraday investors will focus on the PCE, driving the pound's direction.