The Morning Update

Thursday February 29th, 2024

Written by:
Paul Harrison

The USD eased, oil prices are steady, equity markets are mixed, and US yields rise ahead of crucial inflation data. Investors will be closely watching the release of the Personal Consumption Expenditures (PCE) data for January, which is the US Federal Reserve's preferred measure of consumer prices. In addition, investors will watch the Consumer Price Index (CPI) reading from Germany. The US PCE reading is expected to confirm that Fed policymakers are not hurrying to change their current monetary policy stance, as their recent statements indicate. Russ Mould, Investment Director at AJ Bell, said a hotter-than-expected inflation reading "could put the nail in the coffin of the idea of a pivot to rate cuts before summer." Elsewhere, Bitcoin extends its rally to near $64k, holding below the 2021 record high just below $69k. In focus today are the German CPI, CAD GDP, US PCE, Continuing Jobless Claims, Chicago Purchasing Managers Index, Pending Home Sales, and Fed Speeches from Bostic, Goolsbee & Mester, which will help provide intraday direction to currency markets.

In other news. Putin warns of wider conflict over Ukraine. The US Supreme Court will hear Trump's presidential immunity appeal. UK mortgage approvals surged to their highest level since October 2022. Salesforce beats on earnings but forecasts single-digit revenue growth for the year. Congressional leaders strike a partial budget deal to avert a weekend government shutdown. Canada will reimpose visa rules to deter Mexican asylum-seekers.

In currency markets. The major currencies are holding steady ahead of the crucial US PCE release. JPY stalls at 150 as the BoJ issues fresh warnings against excessive yen moves. CNY is flat, while Asian currencies firm by 0.1% on average vs USD. Trading currencies are mixed, with NZD down 0.2%, CHF slipped 0.15, AUD Flat, MXN up by 0.15%, and JPY strengthened by 0.5% vs. USD.

In commodity markets. Oli & Gold prices eased by 0.2%, Natural Gas prices firmed by 0.4%, Silver prices dipped by 0.3%, Copper & Wheat prices are up 0.15%, and Soybean prices weakened by 0.7%.

CAD steadies near 10-week lows as investors brace for the CAD GDP, which will help to provide clues on the BoC interest rate direction. The Gross Domestic Product is considered the primary measure of Canada's economic activity. The annualized GDP for Q4 is expected to be up 0.8% from -1.1% in Q3, with the higher reading considered slightly bullish for the CAD. CIBC Rai, global head of FX Strategy at CIBC Capital Markets, said, "We should expect a slight pick up in activity, but that's going to be tied primarily to investment in the supply side, which isn't exactly the type of growth that the BoC should be concerned about."

EURCAD holds steady as investors remain sidelined ahead of the German CPI and CAD GDP data releases today.

EUR holds within a 1.0800-1.0850 trading range ahead of the US & German inflation reports. The euro found early support after higher-than-expected Spanish and French inflation data and slightly better German retail sales reports. The focus remains on the all-important German inflation report, which will reduce the prospect of the ECB reducing its interest rate policy by the early summer if it comes in better than expected. Euro has the potential of seeing increased volatility if we see any prints outside of expectations from the US PCE or the German CPI data today.

GBPEUR slips further, testing near monthly lows after Spanish & French inflation levels rose higher than expected.

GBP edges lower as markets await the US PCE inflation report. The lack of any fresh UK data and the prospect of a steady US PCE reading keeps the pound on the back foot as investors increasingly expect the Fed to keep its domestic interest rates higher for longer. Domestically, money markets are betting that the BoE won't begin easing policy until August, expecting the BoE only to cut 50bps by the end of 2024. Intraday, the US PCE data will be the primary driver for the pound today.