The Morning Update

The USD holds steady, oil prices strengthen, equity markets gain, and US yields rise as investors watch inflation data. Currency markets continue to range trade, while equity markets post small gains as investors await more readings on US inflation to help provide clues on the Fed's timing to pivot rates in 2024. Investors are sidelined heading into the US Producer Price Index data later this morning, following the hotter-than-expect CPI reading on Tuesday. Markets are forecasting the Producer Price Index ex Food & Energy y/y will ease to 1.9% vs. 2% previously. Elsewhere, Copper hits an 11th-month high on the possibility of Chinese production cuts. Bitcoin extends gains, up 7.2% in the past five days, testing a record high above $73,800. Oil prices test a 5-week high after US stockpiles ease and following Ukraine's attack on another Russian refinery. In focus today, alongside the US PPI, investors will also be focused on US Retail Sales, Initial Jobless Claims, and ECB's Schnabel & De Guindos speeches to help provide intraday direction to currency markets.

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In other news. The US House passes a bill to force ByteDance to divest TikTok or face a ban. According to the largest industrial union, Japanese firms have offered the biggest pay raise since 2013. The IEA sees economic headwinds putting a damper on growth. Commerzbank real estate boss says Germany is halfway through a property crisis. US held secret talks with Iran over Red Sea attacks (FT). Denmark will start conscripting women for the first time. Canada's airline market consolidates, raising the risk of fare hikes. The US brushes off Putin's 'nuclear war' threat, saying it had no reason to adjust the US "nuclear posture."

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In currency markets. The USD holds steady ahead of the US PII & Retail Sales data releases. CNY remains under pressure, while AUD & NZD find support from strengthening commodity prices. CNY slips 0.1%, while Asian currencies are flat on average vs. USD. Trading currencies are mixed, with ZAR, SEK, CHF, JPY & MXN slipping by 0.1%, NOK is flat, AUD firming by 0.1%, and NZD strengthening by 0.2% vs. USD.

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In commodity markets. Oil and Natural Gas prices firmed by 0.85%, Gold & Copper prices slipped by 0.35%, Silver prices up by 0.3%, Wheat prices tumbled by 1%, and Soybean prices strengthened by 0.55%.

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CAD continues to edge firmer, supported by higher oil prices and BoC's comments on higher rates for longer. After Tuesday's hot-than-expected US CPI report, investors have been somewhat sidelined heading into today's US Producer Price Index for clues on the Fed's stance on interest rates policy. Domestically, CAD Manufacturing Sales m/mJan is expected to rise 0.4% and could offer clues on the strength of the Canadian economy. Intraday, the US PPI & Retail Sales results will be a primary driver for the loonie today.

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EURCAD slips as the loonie finds support from strengthening oil prices ahead of several speeches from senior ECB policymakers.

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EUR slips below 1.0950 as investors focus on US data releases and ECB policymaker's speeches. Alongside the US data releases, investors will be focused on several ECB speakers today after ECB Stournaras recommended two interest-rate cuts before the summer break. Domestically, the Spanish Harmonized Consumer Prices Index came in as expected, holding at 2.9%. The US retail sales are expected to rise by 0.8% compared to January's 0.8%, but a print below expectations could put selling pressure on the USD.

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GBPEUR strengthens after dovish comments from ECB Stournaras on calls for two rate cuts by summer.

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GBP firms through 1.2800 heading into the US PPI release. Despite the lack of domestic economic releases and caution heading into the US inflation date, the pound managed to advance through 1.2800 following two days of declines. The US PPI and US Retail Sales data releases will be the primary driver for markets today. If the US inflation levels continue to run hot, this could stall a Fed rate pivot and would put further selling pressure on the pound.