The Morning Update

Monday November 20th, 2023

Written by:
Paul Harrison

The USD drops, oil prices gain, equity markets are mixed, and US yields rise as investor focus shifts to the FOMC minutes. The USD extends its decline, with the greenback hitting its lowest level since August amid growing speculation that US interest rates have peaked. Equity markets are mixed after strong stock rallies that saw the S&P500 test an 11-week high. US yields are steady as investors are pricing in a 30% chance of a Fed rate cut in March after cooling inflation data last week. Markets are now focused on the publication of the FOMC meeting minutes, out on Tuesday for further insight into the Fed policy markers thinking. Oil prices rise ahead of an OPEC+ meeting later this week and Natural Gas prices jumped after a vessel was seized in the Red Sea by Iran-backed Houthi. This week sees a light economic docket on Monday with the focus falling on BoE Bailey speech and the US Conference Board Lending index, Tuesday CAD CPI, ECB Lagarde speech, and FOMC Minutes. Wednesday Eurozone Consumer Confidence, US Initial Jobless Claims. Thursday Eurozone & UK PMI, the ECB publishes the account of October policy meetings, US Thanksgiving Holiday. Friday Japan CPI, Germany GDP, US Manufacturing PMI.

In other news. Microsoft hires former OpenAI chief Altman. Argentina elects radical libertarian Milei as President. Arab foreign ministers press China to support the end of Israel-Hamas fighting. The Middle East conflict restarts the German debate on selling jets to Saudi Arabia. Zelensky fires head of Ukraine's medical forces as US defense chief visits Kyiv. China keeps lending bench rates unchanged, as expected. Moody's lifts Italy's outlook on the country's debt to stable, removing the immediate threat of downgrade to junk. Kyiv suffers second night of drone attacks; Ukraine claims gains in Dnieper river battle.

In currency news. The USD dropped to two-month lows as Fed cut bets increased. Chinese CNY jumps to 3-month highs on corporate dollar selling. Asian and Commodity currencies edge higher as the USD eases into the FOMC minutes on Tuesday. CNY strengthens 0.6%, while Asian currencies are up 0.3% on average vs USD. Trading currencies rebounded with CHF & MXN gaining 0.25%, SEK firmed 0.3%, NOK firming 0.5%, AUD & NZD strengthening 0.7%, and JPY rallying 0.9%, while outlier ZAR fell 0.3% vs USD.

In commodity news. Oil prices strengthened by 0.9%, Gold Prices slipped by 0.35%, Silver prices tumbled by 1.3%, Copper prices gained by 0.6%, Wheat prices eased by 0.2% and Soybean prices firmed by 0.45%.

CAD underperforms its peers in early trading, holding steady despite strengthening commodity prices and a weakening USD. Investors appeared sidelined ahead of Tuesday's FOMC meeting and the critical Canadian inflation report. Canadian Consumer Price Index y/y is expected to drop in October to 3.2%, down significantly from September's 3.8%. US AmChan business executive sentiment on the Canadian economy hits a 'record low'. AmChan chair commented that while Canada's immigration policy is attracting investments, concern remains high with Canada's economy being in a technical recession and that economic activity in the US is a concern as uncertainty exists south of the board as well. Intraday we expect the CAD to remain range-bound ahead of Tuesday's key inflation data.

EURCAD continues to strengthen, up 2% in November and testing a fresh seven-month high as investors appear increasingly wary of investing in the loonie with its reliance on the US economy.

EUR holds steady above 1.0900 amid increasing US weakness. Euro is holding steady near its 3-month highs vs USD, which is primarily driven by a weaker USD vs a strengthening Euro. Euro is benefiting from increasing bets that the US could lower rates at the end of Q1/24 and that US interest rates have peaked. The Euro has gained over 3% vs the greenback in November and is retesting its highest levels since August. Intraday the lack of any tier-one economic releases from the US, we anticipate the Euro will steady ahead of Tuesday's key FOMC minutes.

GBPEUR holds steady, sitting at seven-month lows after Friday's UK retail sales data dented investor risk sentiment towards the pound.

GBP drops despite increasing USD weakness as investor sentiment wanes for the pound. The pound rejected 1.2500 despite a tumbling USD as investors remain wary of returning to the pound after Friday's disappointing UK retail sales and a dovish repricing of BoE policy expectations is contributing to the pound underperforming its peers over the past few weeks. Domestically the UK economy avoided recession but failed to grow, house prices staged its first annual fall since 2012 and business insolvencies in England & Wales rose by 18% annually in October. The focus will be BoE Bailey's comments today and Finance Minister Hunt on Nov 22nd when he delivers a budget update.