The Morning Update

The USD is steady, oil prices weakened, equity markets are down, and US yields and US yields rise on rate cut doubts. The USD edges higher in early trading, as US yields gained and equity markets fell as doubts over US interest rate cuts will not be seen until after Q2/24 at the earliest. Oil prices weakened in early trading on demand fears and doubts over OPEC+ cuts. Bitcoin surged past $42,000 on expectations of ETF approval and gold prices briefly touched an all-time at $2,130 an ounce. This week sees a flurry of economic reports that will shed light on the current state of the job market and whether or not the markets are becoming overly enthusiastic about the possibility of the Federal Reserve reducing interest rates as a result of weakening economic circumstances. In focus this week, are US Factor orders & durable goods. Tuesday sees Japan's Tokyo CPI, China Caixin services PMI, and Eurozone PMIs. Wednesday Australia GDP, Eurozone retail sales, BoC Interest Rate decision. Thursday Germany industrial production, Eurozone GDP, US wholesale inventories, and initial jobless claims. Friday Japan GDP, US key nonfarm payroll, and U of M consumer sentiment.

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In other news. Spotify to cut 1,500 employees in layoff around this year. Temperatures in Siberia dip to minus 50 Celsius as record snow blankets Moscow. UK inflation is highest for households with mortgages says ONS. A US warship and commercial vessels attacked in the Red Sea, says the Pentagon. US funding for Ukraine is set to run out by the end of the year, the White House warns. EU budget dispute threatens Euro 50 bn war lifeline for Ukraine. The UN secretary-general lambasts the COP28 presidency's net zero charter. Israel says it uncovered 800 shafts to Hamas tunnels below Gaza. Evergrande liquidation hearing paused until January, focus on new debt revamp plan.

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In currency markets. The USD gains in early trading after three weeks of declines as uncertainty over the timing of US rate cuts put pressure on G10 currencies. China's CNY steadies as markets wait on fresh economic data and key policy meetings. CNY is flat, while Asian currencies slip 0.1% on average vs USD. Trading currencies are mixed with NOK tumbling 0.65%, MXN, ZAR & SEK weakened 0.5%, AUD & CHF falling 0.35%, NZD slipping 0.25%, while JPY is up 0.15% vs USD.

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In commodity markets. Oil and silver prices weakened by 1.2%, Natural Gas prices tumbled by 3.2%, Gold prices slipped from all-time highs by 0.1%, Copper prices dropped by 1.6%, Wheat prices are unchanged, and Soybean prices fell by 0.7%.

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CAD weakens in early trading as markets consolidate ahead of a flurry of economic data including the key US non-farm payrolls and the BoC interest rate decision. On Friday the loonie tested its highest levels in 2-month after the Canadian employment levels rose to 24,900 jobs in November, eclipsing expectations of 15k although hours worked fell and the jobless rate edged up to 5.8%. This week the focus will be on the BoC interest rate decision on Wednesday, with markets expecting interest rates to remain on hold and expectations are growing for an interest rate cut by March dropping to 60% after Friday's strong jobs data. Intraday with no tier-one data releases, we anticipate CAD will be under pressure as momentum is favoring the USD in early trading.

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EURCAD bounces off three-week lows as CAD eases in early trading as commodity prices come under fresh selling pressure.

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EUR stalls below 1.0900 with the absence of fresh economic data today and as markets await President Lagarde's speech today. The Euro slips in early trading as risk sentiment eases amid renewed geopolitical concerns and uncertainty that the US will lower rates as markets had anticipated after Fed Chair Powell's comments on Friday. With the lack of key US & Eurozone data, the focus will be on ECB President Lagarde's speech where she is expected to push back against market expectations of rate cuts as early as the second quarter of 2024. If Lagarde's comments are perceived as hawkish, this could help provide fresh support to the Euro.

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GBPEUR holds steady at three-month highs as both currencies are sidelined ahead of the key US jobs data on Friday.

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GBP holds steady below 1.27 amid fresh USD demand. The pound stalls below 1.2700 as the Israel-Hamas war escalated to the Red Sea, increasing risk-off sentiment and supporting the USD. Investors are becoming increasingly concerned that the Israel-Hamas conflict may become a more widespread conflict after the US responded to Yemen's Houthi rebels' attack on three commercial ships in the Red Sea on Sunday by shooting down three drones. The lack of any key economic data today is expected to see the pound hold within its current trading range.