The Morning Update

Monday November 27th, 2023

Written by:
Paul Harrison

The USD steadies, oil prices weaken, equity markets are down, and US yields are mixed amid weak China data. Equity markets fall, possibly ending Wall St's four-week rally, gold climbs to a six-month high, while the USD & US treasuries are sidelined after a slowdown in China's industrial profit growth added to concern about deflation in the world's 2nd largest economy. Oil prices tumbled nearly 2% in early trading, as traders looked ahead to this week's delayed OPEC+ meeting. Gold prices extended gains above $2,000 and silver prices rallied approaching $25 as weaker US economic data added to expectations for early rate cuts by the Fed in 2024. In the US the volatility (VIX) index fell last week to its lowest level since January 2020. In focus this week, Monday sees ECB President Lagarde's speech & US New Home Sales Change. Tuesday, NATO Foreign Ministers meet, US Conf. Board consumer confidence. Wednesday Australia CPI, RBNZ policy decision, Eurozone economic & consumer confidence, BoE Governor Bailey Speech, US wholesale inventories, GDP & Fed Beige Book. Thursday China non-manufacturing & Manufacturing PMI. EU CPI, UK Manufacturing PMI, US Construction Spending, ISM Manufacturing. Friday Fed Chair Powell's Speech.

In other news. Hamas-Isrel truce enters the final day of pressure builds for an extension. Russia claims to repel Ukrainian drones after record air strikes on Kyiv. China's industrial profits growth slows, keeping stimulus calls alive. Vietnam set to raise the effective tax rate on multinationals as part of a global deal. The German government agreed to budget fixes as a way out of the crisis. President Biden to skip COP28 climate meeting in Dubai. China's respiratory illness surge is not as high as pre-pandemic WHO.

In currency markets. The USD steadies after suffering its biggest monthly loss in a year as expectations are that US interest rates have peaked. Chinese yuan slips after disappointing Industrial profit growth ends 5 sessions of gains. AUD & NZD test near 4-month highs heading into key domestic inflation and central bank rate decisions. CNY slipped 0.1%, while Asian currencies firmed 0.2% on average vs USD. Trading currencies maintain positive momentum with NOK flat, MXN  & SEK up 0.25%, AUD, CHF & JPY Up 0.35%, NZD gaining 0.4%, and ZAR rallying 0.6%, vs USD.

In commodity markets. Oil prices weakened by 1.7%, Natural Gas prices tumbled by 4.8%, gold prices gained by 0.6%, Silver prices rallied by 2.1%, Copper prices eased by 0.5%, Wheat prices are flat, and Soybean prices firmed by 0.4%.

CAD holds steady in early trading despite oil prices tumbling nearly 2%,and as the USD remains on the back foot investors keep pressure on the greenback with investors betting that the US interest rates have peaked. Friday saw the loonie test a 6-week high of 1.3595 after CAD retail sales surprised markets when it grew by 0.6% in September and expectations October could spike to 0.8%. Shaun Osborne, Scotiabank said, "The huge buildup in net CAD short positions among speculative, institutional, and real money accounts I've noted previously is perhaps starting to feel the pinch from price action". This week sees no key CAD economic releases, so the loonie will be at the mercy of US data releases and commodity price action to provide direction to the loonies this week.

EURCAD firms in early trading as weakening oil prices put pressure on the loonie in early trading.

EUR holds steady, straddling 1.0950 ahead of President Lagarde's speech. Euro holds on to November gains as the USD remains under pressure and sluggish US yields amid an ongoing cautious mood within the capital markets. President Lagarde is expected to maintain her ongoing rhetoric that interest rate cuts in the short term are "very optimistic" and will likely maintain the stance that likelihood that more tightening may be needed to tackle stubborn inflation levels. We anticipate Euro will hold within current levels with the lack of any high-tier US data releases today.

GBPEUR is flat holding at November highs as currency markets are sidelined with the absence of any high-tier data releases today.

GBP tests a fresh 2-month high amid ongoing USD weakness. The pound breached 1.2600 as the USD continued to ease, and found additional support from upbeat UK PMI reading and hawkish BoE commentary. UK PMI showed that the private sector moved back into expansion territory in early November, while the BoE chief Economist Pill added that they had to resist the temptation to declare victory in its battle against inflation. Intraday US Housing data is not expected to have a major impact on markets today.