The Morning Update

Friday September 15th, 2023

Written by:
Paul Harrison

The USD slips, oil prices steady, equity markets rally, and US yields rise as risk sentiment improves. Currencies, equities, and commodities gained after better-than-expected economic data in China boosting hopes that stimulus measures are starting to produce results. China's factory output and retail sales grew a a faster pace in August, but the real estate sector remains a major drag on the economic recovery. Thursday saw the ECB hike 25bps, taking interest rates to 4%, their highest level since the euro was established in 1999. The ECB is expected to hold rates at 4% through 2024 with many economists not expecting ECB rates to fall until 2025. In focus today, the US NY Empire State Manufacturing Index, Industrial Production, Michigan Consumer Sentiment Index, and UoM 5-year Consumer Inflation Expectations will help provide intraday direction to currency markets.

In other news. US auto workers launch simultaneous strikes at three auto-company factories in Detroit. Chinese defense minister under investigation by Beijing, US believes. Ukrainian forces make significant gains near Bakhmut. Miami firm 777 partners agree to buy Everton FC. European shares are set to end the week higher after the ECB signals an end to rate hikes. Argentina looks to renegotiate an IMF loan as domestic interest rates hit 124% as the cost of living crisis sharpens. Sweden braces as property storm clouds darken and property prices are set to slide.

In currency news. The USD slipped off six-month highs, CNY tested two-week highs, and AUD & NZD headed for their biggest weekly gains in two months, boosted by China data. CNY is flat, while Asian currencies are up 0.1% on average vs. USD. Trading currencies are mixed with JPY falling 0.25%, ZAR slipping 0.1%, while CHF & MXN are flat, NZD is up 0.1%, and AUD & NOK gained 0.2% vs. USD.

In commodity news. Oil prices are up 0.3%. Gold gains 0.35%, Copper slips 0.25%, Lumber is flat, and wheat prices gain 0.35%.

CAD holds near September highs vs. USD finding increasing support as oil prices continue to set 2023 highs and on increasing speculation that we could see $100 per barrel in Q4/23. CAD got an extra boost today after Chinese data showed positive signs of growth which strengthened commodity prices. US data releases today will help provide intraday direction, but we anticipate investors will keep to the sidelines and focus on next week's Fed interest rate decision and statements.

EURCAD bounces off 8-week lows but remains down over 1.5% in September and remains vulnerable to further losses as commodity prices improve which supports a stronger CAD.

EUR bounces off 6-month lows as the USD eases on China optimism. The Euro looks set to hit a 9-week losing streak, its worst downward streak since being established in 1999. The ECB hiked interest rates to all-time highs at 4% for the Euro, while at the same time took a dovish tone and signaled an end to its tightening cycle. The monetary policy statement downgraded the CPI & GDP forecasts for 2024 & 2025 and reaffirmed expectations further hikes may be off the table for now. The Euro has the potential for further weakness, a break of 1.0630 opens the potential of a move to 1.0480 (January lows) next. Intraday US data releases will help drive direction to currency markets today.

GBPEUR holds steady, with the currency pair flat in September and we anticipate markets to remain cautious ahead of the BoE rate decision & statement on Sept 21st.

GBP edges away from 1.2400 lows as risk-on sentiment helped support the pound. The pound bounced off multi-month lows as positive Chinese data helped boost risk sentiment, and weakened the safe-haven USD. Domestically the UK economy contracted at the quickest pace in seven months in July, which increased recession fears. Investors remain pessimistic about future growth with a cooling UK labor market, coupled with ongoing labor disputes and the prospect of another interest rate hike by the Bank of England. We anticipate the pound will likely stall near current levels unless we have an outside print of US data today, with investors preferring to be sidelined ahead of the Fed and BoE interest rate decisions next week.