The Morning Update

Friday November 17th, 2023

Written by:
Paul Harrison

The USD dips, oil prices rally, equity markets are up, and US yields ease as rate cut expectations grow. Currency markets edge higher, oil prices firm, but crude is set for its fourth week of declines and dropped into bear market status after falling 20% from its September highs. Equity markets gained and yields dipped as increasing signs of an economic slowdown encouraged investors to increase bets on interest-rate cuts into 2024. Walmart's CEO said on Thursday that he sees potential for deflation in 2024. Markets are now pricing in a full percentage point of interest rate cuts in 2024 from the European Central Bank. In the US the softer inflation and jobs data has fueled conviction that the Federal Reserve and other global central banks are at the end of their hiking cycles. In focus today, the US Housing Permits, Housing Starts, BoE Ramsden, German Buba President Nagel, and a flurry of Fed speakers will help provide intraday direction to currency markets.

In other news. Finland to close four border crossings with Russia over migration influx. Canada says India trade talks on hold to let the murder probe unfold. Spain PM Sanchez wins second term as amnesty uproar grows. Turkish parliament postpones vote on Sweden's NATO accession. Iran told the US it did not want the Israel-Hamas war to escalate. US hits 3 UAE shipowners with sanctions for violating Russian oil price cap. ECB's President Lagarde says increasing signs that the global economy is fragmenting into competing blocs. Amazon will allow auto dealers to sell cars on its site, starting with Hyundai.

In currency markets. The USD is set for its steepest weekly falls against major currencies in 2023 on cooling inflation and weakening jobs data. Japanese yen rallies aggressively, breaking through 150, up 1.6% in November as the USD continues under pressure. CNY strengthens 0.5%, while Asian currencies are up 0.3% on average vs USD. Trading currencies turn positive as CHF & MXN gain 0.2%, NZD, ZAR, and SEK are up 0.3%, AUD & NOK strengthen by 0.6%, and JPY rallies 0.9% vs USD.

In commodity markets. Oil prices rally by 1%, Natural Gas and Copper prices are up by 0.15%, Gold prices firmed by 0.4%, Silver prices strengthened by 1.15%, Wheat prices gained by 0.5%, and Soybean prices slipped 0.1%.

CAD steadies after a volatile week that has seen the loonie swing from a low of 1.3840 to 1.3652 a 9-day high as markets responded to cooling US inflation and declining US employment levels. The price of oil, one of Canada's major exports continues under pressure, dropping 5% this week, looking set for its 4th week of declines which is keeping pressure on the loonie vs other major currency peers. Intraday, with no high-tier US or Canadian data we anticipate Fed comments may help provide some support for the USD.

EURCAD holds steady at 6-month highs, up 1.7% in November as weaker oil prices are keeping the CAD on the back foot vs the Euro.

EUR steadies above 1.0850 amid fresh USD selling pressure. The euro steadies after a volatile week amid a positive shift in risk sentiment as investors increased optimism that global interest rates have peaked after seeing US and UK inflation levels cool and unemployment levels increase. Speculation also grew after comments from ECB policymakers that the EBC interest rates could drop by as much as 1% in 2024. Intraday we anticipate the euro to hold within its current range with the lack of any high-tier economic releases to drive the markets.

GBPEUR holds at 6-month lows after a volatile week and markets consolidate without any high-tier data to drive intraday markets.

GBP fails to gain traction versus USD despite improving global risk sentiment. The pound is sitting below 1.2450 and looks likely to slip towards 1.2350 with investors nervous due to the UK's slow consumer spending, cooling UK inflation, and growing unemployment levels. British retail sales fell to a two-year low as high-interest rates continue to impact household spending. Retail Sales hit their lowest level since February 2021, m/m down -.3% vs expectations of +0.3%, and this is another warning sign of the UK entering a recession in 2024. Today we anticipate the pound has room to slip further with investors favoring other currency peers vs the pound.