The Morning Update

Monday February 12th, 2024

Written by:
Paul Harrison

The USD is steady, oil prices weakened, equity markets are buoyant, and US yields are steady as Tuesday's US inflation report looms. Currency markets remain indecisive as investors remain sidelined ahead of Tuesday's US inflation report, the markets' critical event of the week. The annual US inflation rate is forecast to fall to 2.9% in January, which would be the first reading below 3% since March 2021. Equity markets remain buoyant after the S&P 500 closed after setting a new record high on Friday as investors focus on Tuesday's US CPI report. Elsewhere in Asia, China, Hong Kong, Singapore, Taiwan, and South Korea are closed for the Lunar New Year holidays. Oil prices eased following last week's rally after Iran's foreign minister said the war in Gaza may be moving closer to a diplomatic solution. Today sees a light economic calendar with investors focusing on Fed's Barkin, Kashari, and BoE Governor Bailey's speech to help provide intraday direction to currency markets.

In other news. Pentagon Chief Austin was admitted to the hospital's care unit. The rate of UK pay rises set to fall for the first time since the pandemic. The former PM Alex Stubb is to become Finland's next president. China's new bank loans hit a record high on policy support in January. The US Senate advances aid bill for Ukraine. Israel frees two hostages in Rafah under cover of air strikes, Gaza health officials say 67 killed. China & Indonesia face deeper output cuts to tackle nickel price weakness. Elon Musk has been ordered to testify over the Twitter takeover.

In currency markets. Currency markets remain on the sidelines with the Luna New Year Holiday and ahead of Tuesday's US inflation report. CNY is flat, while Asian currencies slip 0.1% on average vs USD. Trading currencies are mixed, with NZD falling 0.35%, while AUD & CHF are flat, MXN & ZAR firms 0.1%, JPY, NOK & SEK strengthening 0.25% vs USD.

In commodity markets. Oil and Wheat prices weakened by 1%, Natural Gas prices slipped by 0.6%, Gold Prices eased by 0.2%, Silver prices rallied by 1.7%, and Copper & Soybean prices firmed by 0.35%.

CAD holds steady as investors remain sidelined ahead of Tuesday's US inflation report despite the weakening oil prices. On Friday, Canada added +37k jobs in January, more than double the forecast, while domestic wage growth slowed slightly. The wage data is a metric that the BoC monitors closely, and with wage growth easing, this will give optimism that the BoC can cut rates in 2024. With the lack of high-tier CAD data releases this week, investors will be focused on the US inflation report to provide direction.

EURCAD holds steady as investors remain sidelined heading into Tuesday's US inflation report.

EUR steadies above 1.0750 as the USD finds support heading into Tuesday's inflation report. Euro lost ground in thin trading based on USD buying and ECB comments calling for interest rate cuts. Over the weekend, ECB council member Panetta commented that the time for an interest rate cut was fast approaching, "any speculation on the exact timing of monetary easing would be a sterile exercise. We anticipate the Euro will continue to straddle 1.0750 ahead of Tuesday's crucial US inflation report.

GBPEUR edges higher in early trading after dovish comments from ECB Panetta and ahead of BoE Governor Bailey's comments today.

GBP steadies above 1.2600 ahead of BoE Governor Bailey's comments. The pound trades within a narrow range ahead of the BoE Governor's speech today, and ahead of Tuesday's crucial US inflation report. Governor Bailey will speak at Loughborough University, and investors will monitor his comments for any insight into the near-term policy outlook. Beyond Governor Bailey's speech, the key event for currency markets this week will be the US inflation report on Tuesday.