The Morning Update

Monday March 18th, 2024

Written by:
Paul Harrison

The USD is steady, oil prices are firm, equity markets are up, and US yields are rising as investors await the Fed meeting. Currency markets start the week sidelined, while the US 10-year treasury yield holds near three-week highs, supporting the USD. Equity markets got a boost following China's stronger-than-expected industrial production printing at 7% and China Retail Sales at 5.5%. Global risk sentiment improves, heading into a busy week for global central bank rate decisions and crucial inflation reports, with the Fed's policy meeting on Wednesday likely to dictate the risk sentiment for markets heading into Q2/23. Elsewhere, oil prices hit a fresh four-month high. Copper prices eased from Friday's highest close of 2024. The focus this week is Monday's Eurozone CPI. Tuesday, Australia & Japan's Interest Rate decision, and CAD CPI report. Wednesday, China, the Feds, Brazil, and Indonesia's interest rate decision, UK CPI, & ECP President Lagarde's speech. Thursday, New Zealand GDP, Taiwan, Switzerland, Norway, Mexico, and UK Interest rate decision. Friday, UK Retail Sales, and Fed Chair Powell's speech.

In other news. Alphabet is up 2.7% in premarket trade after reports that Apple is in talks to let Google's Gemini power iPhone AI features. Vladimir Putin cements Russian rule for another six years. Israel raids Gaza's largest hospital. Europe's top banking supervisor warns of more challenging times ahead. Ocean's set heat records for more than 365 days in a row. Netanyahu says Israel is to press on with Rafah's assault plan. Nasdaq says it is investigating issues impacting connectivity. China's growth bump may dent the urgency for more stimulus.

In currency markets. The USD and JPY start the week steadily ahead of their central bank interest rate decisions. The Russian Rouble recovers from three-month lows after Putin's re-election. The South African rand slips ahead of CPI and central bank meetings. Google Malaysia apologies for misquoting the ringgit exchange rate. CNY slips 0.1%, while Asian currencies are flat on average vs USD. Trading currencies are mixed, with ZAR weakening by 0.45%, SEK dropping 0.3%, JPY, CHF & MXN down 0.1%, AUD up 0.1%, and NZD & NOK strengthening by 0.2% vs. USD.

In commodity markets, oil prices strengthened by 1%, Natural Gas prices rallied by 5.9%, Gold, Soybean, and Copper prices slipped 0.15%, silver prices eased 0.35%, and wheat prices gained 1.35%.

CAD starts the week near its two-week lows despite strengthening oil prices. Investors remain sidelined heading into Canada's crucial inflation report and the Fed's interest rate decision this week. Domestically, on Tuesday, Canada's Consumer Price Index is expected to edge higher y/y Feb from 2.9% to 3.1%, while m/m Feb levels are expected to rise to 0.6% from flat. Suppose we don't see any surprises in the CAD inflation report. In that case, we expect the Loonie to remain sidelined and look for Fed Chair Powell's comments to be the primary driver for currency market direction this week.

EURCAD edges higher in early trading amid improving risk-on sentiment, while gains are limited on stronger oil prices.

EUR edges higher in thin trading amid an improving risk mood supported by stronger-than-expected China industrial production. Investors are expected to stay on the sidelines today, heading into a busy week of global central bank interest rate decisions, the EBC President's speech, and a flurry of G10 inflation data. Domestically, today, the EU Core Harmonized Index of Consumer Prices came in as expected at 3.1%, and Trade Balance s.a. Jan turned to a surplus of Euro 28.1B vs -Euro 14.3B. We expect the Euro to be capped below 1.0930 heading into the FOMC on Wednesday.

GBPEUR holds steady as markets wait for the BoE interest rate decision and the UK inflation data this week.

GBP remains capped at 1.2750 despite market optimism. Investors remain cautious as they head into a critical week of inflation data and the Bank of England rate decision. Domestically, this week sees a flurry of data releases on Wednesday, including UK PPI, CPI, & Retail sales. On Thursday, S&P Global/CIPS Manufacturing, Services & Composite PMI, BoE Interest Rate Decision & Monetary Policy Report. Friday Retail Sales. With the lack of critical economic data released today, we expect the pound to hold on the sidelines as it awaits further economic guidance.