The Morning Update

Friday February 2nd, 2024

Written by:
Paul Harrison

The USD eases, oil prices firm, equity markets are up, and US yields rise ahead of the US jobs data. The USD eased slightly heading into today's US jobs data as analysts expect a modest slowdown in jobs growth, while annual wage growth is forecasted to have maintained its strong pace from December. Nonfarm Payrolls (Jan) are expected to have eased to 180k vs 216k in December, while Average Hourly Earnings are expected to hold steady at 4.1%. Equity markets posted gains after robust earnings from the US tech giants, with Meta Platforms up 16% and Amazon up 6.7% in premarket trading after both companies beat expectations. Elsewhere, oil prices rebound in early trading but look set for a weekly loss on China demand growth and on reports that negotiations are advancing for a ceasefire in the Israel-Hamas war. In focus today, the US NFP, Average Hourly Earnings, US Unemployment rate, Michigan Consumer Sentiment Index, UoM 5-year Consumer Inflation Expectations, and Factory Orders will help provide intraday direction to currency markets.

In other news. IMF is 'very close' to the fresh Egypt loan deal, IMF chief says. Tesla is recalling 2.2 million US vehicles-NHTSA. US to impose sanctions on Israeli settlers responsible for West Bank violence. Eurozone inflation slows to 2.8% in January. UK carbon price falls to record low, and analysts fear it may deter investment in renewable energy. Saudi Arabia pushes for US defense pact ahead of the presidential election. Toyota is expected to outshine rivals as more consumers opt for hybrids amid the EV slowdown. The RBI will likely hold interest rates in India until mid-year, first cut in Q3/24. Apple's iPhone target is billions short of Wall Street's as China sales lag. Almost 300 were injured, and three died in Kenya after a gas explosion.

In currency markets. The USD eases, heading for a weekly loss as risk sentiment improves on the back of solid big tech earnings. Currency markets are holding steady ahead of today's crucial US NFP data. CNY holds steady, while Asian currencies firm by 0.1% on average vs USD. Trading currencies are mixed, with NOK & ZAR weakening 0.35%, JPY dipped 0.1%, while SEK is flat, NZD, MXN & CHF are up by 0.2%, and AUD strengthened by 0.5% vs USD.

In commodity markets. Oil prices are up by 0.4%, Natural Gas prices strengthened by 1%, Gold and Soybean prices are flat, Silver prices gained by 0.25%, Copper prices slipped by 0.3%, and Wheat prices firmed by 0.5%.

CAD strengthens to a nearly three-week high as risk sentiment improves based on strong tech earnings and stronger-than-expected CAD GDP data. The loonie also found support from Bank of Canada Governor Macklem's comments that new developments could push inflation higher, which could cause the central bank to keep its interest rate higher for longer. Intraday, the US jobs data will help provide direction to currency markets today.

EURCAD holds steady, off 4-month lows heading into today's US jobs data.

EUR extends gains as risk-on sentiment improves ahead of US NFP. The Euro moves higher towards 1.0900, while the USD loses ground as risk sentiment improves on the back of strong tech earnings. It has been a volatile start to February, with the Euro testing 1.0780 on Thursday and then rallying towards 1.0890 as the risk sentiment swings as near-term sentiment remains bullish. A break of 1.0900 could see the Euro extend gains towards 1.0960, but in the longer term, we are bearish as we anticipate the ECB will be the first major central bank to ease interest rates.

GBPEUR is flat with the absence of EU or UK data, and investors are sidelined ahead of the US NFP data.

GBP holds near two-week highs above 1.2750 ahead of the US jobs data releases. A hawkish BoE and improving global risk sentiment support the pound. Yesterday, the BoE kept interest rates unchanged and said they need more evidence that inflation will fall to the 2% target and stay there before cutting its current interest rate levels. With no UK data releases today, markets are sidelined, looking to today's US jobs data for fresh direction.