The Morning Update

The USD is flat, oil prices are strengthening, equity markets are up, and US yields are mixed as inflation fears ease. The USD holds steady after Thursday's data showed that US inflation remains sticky, but is easing gradually, while US Jobs data indicated that the labor market is softening. Today saw Eurozone inflation fall to 2.6% in February, from 2.8% in January, but it was slightly ahead of expectations at 2.5% as core prices remain stubbornly high. Equity markets edged higher, wrapping up their 4th winning month as risk sentiment improved with easing inflation levels. Fed Daly said the central bank officials are ready to lower interest rates as needed but emphasized there's no urgent need to cut given the economy's strength. Meanwhile, Fed Bostic said the central bank could begin cutting this summer. Elsewhere, US treasuries steadied after gaining for two sessions in a row. Oil prices strengthened 1% as markets await OPEC+ decision on supply agreements for Q2. Bitcoin gained for a 7th day, trading above $62k as demand for ETF continues. In focus today, the US ISM Manufacturing PMI, Michigan Consumer Sentiment Index, Fed Monetary Policy Report, S&P Global Manufacturing PMI, UoM 5-year Consumer Inflation Expectation, CAD S&P Global Manufacturing and PMI, BoE Pill, Fed's Weller, Bostic & Daly speakers will help provide intraday direction to currency markets.

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In other news. The US Senate approves the bill to avert a government shutdown, sending the bill to the White House. China's economy suffers a blow as factory activity slows. UK public trust in political parties plunged in 2023. Toyota is recalling 381k US vehicles. Facebook owner Meta angers Australia with a plan to stop paying for news content. China's Country Garden faces heat from liquidation suit to increase pressure on debt revamp talks. Emissions reach record high despite growth in clean energy, IEA says. NYCB's share price fell more than 20% after the bank disclosed "internal controls," flagging weaknesses in loan oversight, and the CEO resigned.

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In currency markets. China's CNY eases on weak manufacturing data. The USD holds steady with persistent inflation levels. Japanese Yen remains on the back foot, holding above 150. CNY slips by 0.15%, while Asian currencies are flat on average vs USD. Trading currencies are mixed, with JPY down 0.25%, CHF easing 0.1%, while MXN & ZAR are flat, AUD & NZD firmed 0.15%, NOK & SEK strengthened by 0.2% vs USD.

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In commodity markets. Oil prices rallied by 1.1%, Natural Gas prices are up by 0.2%, Gold prices edged higher by 0.35%, Silver prices are flat, Copper prices dropped by 0.45%, Wheat prices slipped by 0.3%, and Soybean prices gained by 0.6%.

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CAD steadies near 10-week lows after the loonie found some support from firming oil prices and Thursday's GDP report, which showed the economy grew at 1% (Q4), keeping the country out of recession. The GDP growth beat expectations but could be perceived as disappointing, considering the strong population growth in 2023. Markets continue to forecast that the BoC will, according to a majority of economists polled by Reuters. Today's focus will be on CAD S&P Global Manufacturing PMI and the US ISM Manufacturing PMI to help provide intraday direction to the loonie. We anticipate investors will remain cautious before the March 6th BoC interest rate decision.

EURCAD edges slightly higher after the eurozone inflation levels came in higher than expected.

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EUR finds support at 1.0800 after EU inflation levels reach higher than expected. The eurozone core HICP rose 3.1% on a y/y basis in February vs expectations of 2.9%. The euro has failed to rally despite higher inflation levels and is suffering its 3rd day of weakness as investors continue to favor the USD amid continued hawkish Fed comments. The focus will be on a flurry of US data releases today; the primary data release is the ISM Manufacturing PMI, which is expected to edge higher to 49.5 vs 49.1 previously. A break of 1.0790 opens up the prospect of further weakness towards 1.0740 next.

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GBPEUR holds steady at its 6-week midpoint as investors appear sidelined ahead of the US ISM Manufacturing data release.

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GBP remains contained below 1.2650 after Thursday's US inflation data release. The pound remains under pressure despite improving risk-on sentiment as investors await the US Manufacturing and the Fed's monetary policy report later this morning. Domestically, the lack of key UK data releases has left the pound at the mercy of the US & European data to dictate intraday direction. Next week sees another light week of UK data releases, with just the UK Budget on March 6th to focus on. A break of 1.2590 could see a quick move to 1.2500 Dec 13th low.