The Morning Update

The USD holds steady, oil prices weakened, equity markets are up, and US yields rise as risk sentiment improves. Currency markets are steady as investors remain cautious ahead of the US Producer Price Index, which is forecast to ease to 1.6% vs 1.8% previously. After Tuesday's hotter-than-expect Consumer Price Index caught markets off guard, investors prefer to remain on the sidelines in case the PPI creates similar market shocks. Equity markets extend gains as the risk-on sentiment continues, following another record session on Wall Street. Atlanta Fed President Bostic said there's no rush to cut interest rates with the US labor market and economy still strong, and cautioned it's not yet clear that inflation is heading sustainably to the central bank's 2% target. Elsewhere, US yields ticked higher after Fed Bostic's comments. Oil prices slip from near 3-month highs, but markets remain confident with OPEC supply cuts. UK Retail Sales beat expectations, coming in at 3.4% in Jan vs -3.3% in December. In focus today are the US PPI, the Michigan Consumer Sentiment Index, UoM 5-year consumer inflation expectation, Housing Stats, and Building Permits. CAD Wholesale Sales, Feds Daly, and BoE's Pill speeches will help provide intraday direction to currency markets.

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In other news. Harvard hit with Congressional subpoena over antisemitism probe. EU Commission President calls on the EU to subsidize defense production. Coinbase share surged in premarket trade after posting its first quarterly profit in two years. White House discloses 'troubling' anti-satellite advance by Russia. Ukraine's Zelensky will sign security agreements with Germany & France as Kyiv shores up support. Indian farmers strike to demand guaranteed crop prices as others attempt to march to New Delhi. Russian prison reports Navalny died today.

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In currency markets. The USD is on track for a fifth straight weekly gain. GBP fails to make gains after stronger-than-expected UK Retail Sales. CNY and Asian currencies hold steady on average vs USD. Trading currencies are primarily subdued, with JPY down by 0.2% and CHF slipping by 0.1%, while AUD, MXN & NZD are flat, SEK & NOK firms by 0.1%, and ZAR by 0.25%.

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In commodity markets. Oil prices are down 0.8%, Natural Gas, Soybean & Gold prices firmed by 0.2%, Silver prices gained by 0.4%, Copper prices strengthened by 0.9%, and Wheat prices tumbled by 1%.

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CAD consolidates below 1.35, heading into the US PPI data release today. CAD benefited from more substantial oil prices, which tested three-month highs as OPEC+ members supported output cuts in the face of weakening demand. Domestically, housing starts fell 10% in January, and factory sales dropped 0.7% in December. Alongside a flurry of US data releases, we will monitor CAD Wholesale Sales, which are expected to slip to 0.8% vs 0.9% in November. Intraday, the US PII data will be the primary drive for currency markets.

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EURCAD edges off five-month lows as oil prices ease, supporting the Euro as markets await the US PPI data releases.

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EUR remains capped at 1.0800 ahead of the US data releases. Euro has slipped to the back foot as renewed USD dollar demand and dovish ECB commentary are starting to weigh on the single currency. After Fed's Bolstic's comments of higher rates for longer and the increasingly cautious tone heading into the US PPI data after Tuesday's surprising spike in US inflation levels is helping to support the USD. Intraday, the US data releases will provide direction to the Euro today.

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GBPEUR continues to edge lower despite mixed EU data, and the pound remains under pressure after slipping into a recession in 2023.

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GBP fails to break through 1.2600 despite better-than-expected UK Retail Sales. The UK data showed Retail Sales grew by 3.4% monthly, surpassing the 1.5% forecast. Markets remain cautious heading into the US PPI, which is forecast to increase by +0.1% following the -0.1% in December. A negative print could reignite expectations for the Fed to cut interest rates in May and help rally the pound.