The Morning Update

Thursday June 15th, 2023

Written by:
Paul Harrison

The US$ is steady, oil prices strengthen, equity markets are down, while US yields rise as risk sentiment eases. Currency markets are stable, while equity and commodity prices ease after the hawkish Fed comments, the ECB's expected hike today and the ongoing economic weakness in China saw its central bank cut its key lending rate amid speculation that more stimulus is on the way. Fed Chair Powell set a hawkish tone on Wednesday, suggesting two further interest rate hikes in 2023. The ECB appears set to raise rates for an 8th straight time to the highest level in 22-years to 3.5%, and is expected to leave the door open to more hikes in 2023. Today alongside the ECB rate decision, investors will also be focusing on US Initial Jobless Claims, Philadelphia Fed Manufacturing Survey, Retails Sales, ECB Press Conference & BoE Cunliffe Speech.

In other news. China cuts a key policy rate for first time in 10 months as economic rebound cools. New Zealand enters technical recession after its economy shrank 0.1% in Q1/23. China to see the world's biggest millionaire exodus this year, new study shows. Canada cuts ties with Asian Infrastructure Bank on claims of Chinese interference. India's government denies reports of mass leak of citizens' data. Germany's first-ever security strategy names Russia as 'greatest threat' to peace. Brussels ramps up Google antitrust case with break-up threat. US senators to launch bill to seize and transfer Russian assets to Ukraine.

In currency news. JPY drops to fresh 2023 lows at 141.45 vs US$ on the Fed & domestic political uncertainty. US$ bounces off monthly lows on hawkish Fed comments. CNY retests 6-month lows after PBOC rate cut and markets expect further CNY weakness. NZD under pressure as NZ enters technical recession. CNY is flat, while Asian currencies are down 0.1% on average vs US$. Trading currencies are mixed with JPY tumbling 0.7%, NZD weakens 0.35%, MXN & ZAR slip 0.15%, while CHF & SEK are flat, AUD strengthens 0.4% & NOK rallies 0.65% vs US$.

Oil prices remain volatile and bounces in early trading on strong China refinery data, but further strength is expected to be capped due to ongoing economic concerns. C$ retreats from 2-month highs (1.3269) primarily driven by the hawkish Fed comments suggesting 2 more rate hikes in 2023. The Loonie is finding support at 75 cents (1.3333) as focus shifts to US Jobs data and key US retail sales which will help provide intraday direction to markets. In Canada CAD Housing Starts is expected to see a slip to 235K in May vs 261K in April, CAD Manufacturing sales expected at -0.2% April vs 0.7% in March.

EURCAD continues to edge higher which has seen Euro rebound from 1.4305 lows on June 7th to retesting 1.4450 heading into the ECB rate decision today.

EUR stalls at 1.0850 ahead of the ECB rate decision. The remains volatile bouncing off Wednesday's lows as focus shifted from the Fed to today's ECB's interest rate decision. The ECB is expected to hike rates by 25bps to 3.5%, its 8th straight hike and taking the EU's interest rates to their highest levels since 2001. ECB President Lagarde is expected to take a less hawkish tone, suggesting the ECB may have one more hike pending in 2023 as inflation continue to remain ahead of target levels. Alongside the ECB rate decision & President Lagarde's comments, US key Retail Sales & US Jobs data could add to a potentially volatile trading day for the Euro.

GBPEUR slips from 2023 highs heading into the ECB interest rate decision.

GBP steadies within the weekly trading range straddling 1.2650 ahead of the ECB and US data. The pound steadies near 1.2650 after testing 1.2699 its highest level since April 2022 on Wednesday. Investors remain bullish on the pound as high inflation levels continues to support the prospect of ongoing BoE rate hikes in 2023. Today the pound will be driven by markets response to the ECB rate hike and US data releases.