The Morning Update

Monday September 18th, 2023

Written by:
Paul Harrison

The USD slips, oil prices inch higher, equity markets are down, and US yields rise as a cautious mood increases before rate decisions this week. Currency markets are stable, equity markets drop globally, and US yields rise as investors are sidelined ahead of interest rate decisions and statements from Japan, Switzerland, the UK, and the USA this week. The Federal Reserves will announce its rate decision on Wednesday, followed by the BoE, BOJ & SNB on Thursday. Markets expect the Fed, BOJ & SNB to pause rates this week, while the BoE is expected to hike its domestic rates by 0.25% on Thursday. This week alongside the central bank's rate decisions, the focus will be on Monday's ECB Panetta Speech, Tuesday's RBA Meeting Minutes, the EUR Inflation report, the CAD Inflation Report, and US Building Permits. Wednesday's UK inflation report, Thursday's US existing home sales, EUR consumer confidence. Friday's UK retail sales, EUR & Germany PMI, CAD retail sales, US PMI.

In other news. China Evergrande shares tumble 25% after wealth management staff detained. US & Iran to swap detainees after $6 billion unfrozen. House Republicans eye short-term spending deal as shutdown looms. SocGen shares tumble after new strategy sees little growth. UAW strike against Detroit's three automakers enters its third day. US and China officials meet in Malta ahead of possible Biden-Xi summit. Turkey President Erdogan invites Elon Musk to build his next Tesla factory in Turkey. Russia expected to reinforce defenses as Ukrainians made gains, advancing in a grueling counteroffensive.

In currency markets. The USD is holding near six-month highs heading into a flurry of central bank decisions this week. China's CNY slips despite improvements in recent economic data as domestic property woes continue to weigh on the yuan. CNY weakened 0.3%, while Asian currencies slipped 0.1% on average vs. USD. Trading currencies are mixed with NOK tumbling 0.6%, SEK & ZAR slipping 0.15%, while MXN is flat, AUD, NZD & JPY up 0.1%, and CHF firms 0.25% vs. the USD.

In commodity markets. Oil is up 0.6%, Natural Gas strengthens by 0.8%, Gold firms by 0.1%, Copper and Lumber prices are flat, and Wheat weakens by 1.25%.

CAD made small gains in early trading after last week when the loonie posted its biggest weekly gain since June as commodity prices gained on signs of improving China stimulus and as oil prices continue to advance, hitting 10-month highs from ongoing supply cuts. Investors will be focused on Tuesday's inflation report which is expected to show the annual inflation levels have increased to 3.8% in August vs. 3.3% in July. We anticipate markets will be somewhat subdued heading into the US interest rate decision on Wednesday.

EURCAD is flat in early trading after the EUR bounced off two-month lows last week after the ECB increased domestic interest rates.

EUR stalls below 1.0700 amid quiet markets ahead of a flurry of central bank interest rate decisions this week. Investors remain cautious heading into a busy week of central bank interest rate decisions, domestic inflation, and consumer confidence reports. The ECB last week hiked interest rates by 25bps but suggested that it has completed its tightening cycle. With the prospect of no further rate hikes in 2023, we anticipate the Euro is vulnerable to further weakness towards 1.0435 vs. USD into Q4/23.

GBPEUR holds steady near September lows as investors are sidelined ahead of the BoE interest rate decision on Thursday.

GBP retests 1.2400 as the pound turns on the defensive heading into Thursday's BoE interest rate decision. The pound bounced off three-month lows as markets rebalance heading to the Fed & BoE interest rate decisions. The prospect of higher UK interest rates while the Fed is widely anticipated to support helps provide underlying support to the pound with widening interest rate differentials. In the long term, the pound remains vulnerable to further weakness as recession fears continue to grow as ongoing labor disputes, increasing energy costs, and increasing unemployment levels will impact growth into Q4.23.