The Morning Update

The USD holds steady, oil prices ease, equity markets are up, and US yields are mixed as the risk mood improves ahead of the US retail sales report. The USD steadies after easing on Wednesday as investors await a flurry of US data releases, including the crucial US Retail Sales report. Equity markets rose for a second day as risk-on sentiment improved as robust earnings helped overcome concerns about persistent inflation. Markets continue to scale back expectations of a Fed cut in May, down to 30% from almost 100% just two weeks ago; most analysts are now looking at June for the Fed's first rate cut. Fed Goolsbee said Wednesday that slightly higher inflation data for a few months would still be consistent with a path back to the central bank's 2% goal. Elsewhere, oil prices slipped for a second day after the US reported higher-than-expected crude inventories. Today's focus is US Retail Sales, NY Empire State Manufacturing Index, Initial Jobless Claims, Philadelphia Fed Manufacturing Survey, Industrial Production, CAD Housing Starts, & Manufacturing Sales. Speeches from ECB Lane, BoE Greene, BoE's Mann, and Fed's Waller will help provide intraday direction to currency markets.

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In other news. The UK economy fell into a technical recession in Q4/23. Airbus unveiled a special dividend on Thursday after poster higher 2023 results. Cisco is cutting 5% of its global workforce, just a little over 4,000 jobs. Nvidia passed Alphabet in market cap and is now the third most valuable US company. Russian missiles are shot down as Kyiv comes under fire; Zelensky vows to 'clear the Black Sea.' Japan loses its spot as the world's third-largest economy as it slips into recession. Russia seeks new nuclear capabilities in space, US intelligence shows. India's supreme court strikes down fundraising scheme in blow to Modi.

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In currency markets. The USD steadies ahead of the retail sales data. The pound slipped to 1.2550 after data showed the UK fell into recession. Euro steadies after ECB Lagarde resists calls for interest rate cuts. CNY is flat, while Asian currencies firm by 0.1%. Trading currencies rebounded with MXN & NOK flat, AUD, MXN & NZD up 0.15%, and JPY, SEK & CHF strengthening by 0.35% vs USD.

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In commodity markets. Oil & Wheat prices fell by 0.7%, Natural Gas prices rallied by 1.3%, Gold prices went up by 0.15%, Silver prices firmed by 1.1%, Copper prices firmed by 0.4%, and Soybean prices slipped by 0.2%.

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CAD stalls above 1.3500 but is off two-month lows as risk-on sentiment improves, with markets looking beyond the current inflation pressures as optimism increases for a Fed June rate cut. Domestically, Canadian Housing Starts are forecasted to drop to 235k vs 249.3k y/y January, and manufacturing sales data. Still, the data release should only impact the loonie if it exceeds expectations. Intraday will focus on US Retail Sales and Initial Jobless claims, which will help drive direction for currency markets today.

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EURCAD edges higher on weaker oil prices and ECB Lagarde resisting calls for interest rate cuts.

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EUR firms towards 1.0750 after Lagarde's speech. ECB President Lagarde testified before the committee on the economic and monetary affairs of the EU Parlament and reiterated that the ECB will follow a data-dependent approach to interest rate policy. Lagarde said that the ECB's forward-looking wage tracker points to more substantial wage pressures and resisted pressure for interest rate cuts. Euro found moderate support for her comments, but investors remain sidelined ahead of the crucial US Retail Sales data.

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GBPEUR slips further to a fresh monthly low after data shows that the UK had entered a technical recession.

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GBP holds just off monthly lows after the UK GDP data. The pound remains under pressure vs. its peers after data showed the British economy fell into a recession at the end of 2023, which has increased bets that the Bank of England could cut rates sooner than expected. The UK's GDP shrank by 0.3% in Q4/23 after contracting by 0.1% in Q3/23. The BoE faces conflicting data, with the economy contracting and wage growth slowing, but inflation remains steady at 4%, which could mean the bank may continue to take a wait-and-see strategy. Intraday US Retail Sales and Initial jobless claims will help drive the direction for the pound.

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