The Morning Update

Friday September 8th, 2023

Written by:
Paul Harrison

The USD steadies, oil prices are up, equity markets are down, and US yields ease on increasing global economic downturn fears. Equity markets drop in their longest losing streak since 2016 as investor fears grow as data indicates deepening economic downturn in Europe and Asia. Investor pessimism is growing for the European equity markets, which saw a 26th straight week of investment outflows according to a note from BoA. The USD and US yields stalled gains following NY Fed Williams's comments saying the US monetary policy is "in a good place", with markets taking his comments as dovish for the USD. Energy markets also came into focus as key Chevron Corp. sites in Australia as union workers started long-anticipated strikes. Brent Crude holds near $90, on track for a small weekly gain. In Focus today, CAD Net Change in Employment & CAD Unemployment Rate, while the US has no high-tier economic releases.

In other news. European LNG prices oar as Australian workers begin strike. India PM Modi prepares to host G20 summit marking India's global ascension-FT. Goldman Sachs plans new job cull for bankers deemed as under-performers. Treasury Secretary Janet Yellen says China has 'policy space' to boost its economy. Apple shares fall after reports that China banned iPhone use by government employees. G20 members struggle for consensus on Ukraine as India gears up for summit. Hong Kong and Shenzhen were deluged by the heaviest rain on record. Oil cut extension raises the risk of Saudi economic contraction this year.

In currency markets. The USD heads for its longest winning streak since 2014. China's CNY remains under pressure testing 2007 lows. China's economic slowdown puts commodity-sensitive currencies under pressure with AUD, NZD, & CAD all testing multi-month lows. Asian currencies post multi-week lows as the USD extends gains. CNY slips 0.1%, while Asian currencies are flat on average vs. USD. Trading currencies bounce off lows with JPY & SEK are flat, while CHF is up 0.1%, AUD, ZAR & NOK firm 0.3%, and NZD & MXN strengthen 0.6% vs USD.

Oil prices hold steady above $90 a barrel as Saudi  Arabia cuts balance out increasing China & European economic growth concerns. CAD holds near 5-month lows as growth concerns in China and Europe continue to keep pressure on commodity-based currencies. Adding further pressure to the loonie, BoC Macklem said "Rates may be restrictive enough', but he did leave the door open for further rate hikes. Investors will focus on CAD employment data with Net Change in Employment (Aug) expected to rise to 15k from -6.4k in July, and the Unemployment Rate (Aug) which is expected to tick higher to 5.6% from 5.5% previously. In the short-term CAD remains vulnerable to further weakness towards 1.3745 vs. USD.

EURCAD slips as improving oil and LNG prices put the Euro under increasing pressure.

EUR steadies within a tight trading range as markets consolidate after a volatile week following disappointing EU data. Euro straddles 1.0700 as the USD & US yields slip after perceived dovish comments from NY Fed Williams. This week has seen a flurry of weaker-than-expected German and Eurozone data which saw factory orders and industrial production fall, and European GDP downward revision. Also this week, Eurozone inflation levels eased setting the stage for the ECB to possibly pause their interest rate hikes next week. We anticipate currency markets will likely consolidate with the absence of any key US data releases today.

GBPEUR is flat and is expected to take a breather as investors await the ECB & BoE rate decisions over the next couple of weeks.

GBP bounces off weekly lows but remains capped at 1.2500 despite a pullback in the USD. The pound has over 100bps vs. USD in steady three days of weakness as the BoE Governor adopts a less hawkish tone in front of parliament and domestic economic growth remains under pressure. According to Reuters markets are pricing in an 85% probability of a 5.75% BoE terminal rate, lower than previously expected at 6.5% back in July. The prospect that UK interest rates will not hike as originally expected has put pressure on the pound as investors shift their focus to the prospect of a prolonged recession in the UK. Today we anticipate the pound will consolidate below 1.2500 with the absence of any key US data releases.