The Morning Update

The USD extends gains, oil prices rise, equity markets are up, and US yields rise in the last full trading day of Q1/24. The USD and US yields extended gains following Fed Waller's hawkish comments on interest rates. Equity markets continue to post record highs, heading for their second-quarterly gain as investors remain optimistic that central banks will cut interest rates into Q2-Q3/24. In a speech at the Economic Club of NY, Fed Waller said, "There is no rush to cut the policy rate" right now. He noted that recent data "tells me that it is prudent to hold this rate at its current restrictive stance perhaps for longer than previously thought to help keep inflation on a sustainable trajectory toward 2%". Markets continue to "tread water" before Friday's release of the Fed's preference inflation gauge, the core personal consumption expenditure price index y/y. Elsewhere, gold steadies near record highs, Bitcoin attempts $71k, and oil looks to be set for quarterly gains on expectations that OPEC+ supply cuts will tighten the global markets. In focus today, CAD GDP, USD GDP, Initial Jobless claims, PCE q/q, Michigan consumer sentiment Index, pending home sales, and UoM 5-year consumer inflation expenditures will help provide intraday direction to markets.

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In other news. Foreign firms' losses from exiting Russia topped $107 billion. Lloyd's of London says the Baltimore bridge may trigger a historic marine loss. Data confirms that the UK economy went into recession in 2023. German Retail sales fell more than expected. Xi lieutenant calls for Asia to 'jointly' manage security in rebuke of US. EU states agree to curb Ukrainian poultry imports to appease farmers. Janet Yellen warns China against clean energy dumping. Putin says Russia will not attack NATO, but F-16s will be shot down in Ukraine. UK tourists traveling to the EU are warned not to get caught by the "passport 10-year rule". Home Depot will buy the SRS distribution in a $18.25 bln deal.

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In currency markets. JPY holds below 152 vs. USD as Japan repeats its verbal warning to yen bears. CNY steadies on strong central bank guidance. AUD & NZD slips to 5-month lows. CNY is flat, while Asian currencies weaken by 0.25% on average compared to USD. Trading currencies come under renewed selling pressure, with ZAR & SEK tumbling 1%, AUD, NOK & NZD falling by 0.75%, MXN weakening by 0.45%, CHF dropping 0.25%, and JPY slipping by 0.1% vs USD.

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In commodity markets. Oil prices strengthened by 0.65%, natural gas prices tumbled by 1.35%, gold & wheat prices firmed by 0.25%, silver prices weakened by 0.8%, copper prices slipped by 0.1%, and soybean prices fell by 0.35%

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CAD followed its G10 peers weaker, testing towards three-month lows after Fed Waller's end-of-day hawkish comments at the Economic Club of NY. The prospect of higher US rates for longer helped strengthen the USD, putting renewed selling pressure on the loonie with the prospect that the BoC could lower its domestic interest rates as early as June. Investors will be focused on the CAD Retail Sales, which are expected at 0.4%, but markets remain cautious about Canadian economic growth following earlier BoC deputy governor's comments.

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EURCAD weakened, giving up March gains and breaking out of the recent tight trading range following weaker-than-expected German retail sales.

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EUR weakened through 1.0800 after German Retail sales disappointed markets, raising speculation that the ECB could cut interest rates in Q2/24. Domestically, German retail sales disappointed investors, falling below expectations at -2.7% vs. expectations of -0.8%, while the unemployment level held steady at 5.9%. Bloomberg opinion columnist Marcus Ashworth commented that interest rate differentials and growth outlooks favor the greenback over the euro, saying a Euro decline to parity with the USD beckons. Today's focus shifts to US economic data and Friday's key Core PCE & Fed Chair comments to guide the Euro into Q2/24.

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GBPEUR strengthened after Germany posted weaker-than-expected retail sales data.

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GBP weakened amid a strengthening USD amid market caution ahead of crucial inflation data. The hawkish tone from Fed Governor Waller ahead of Friday's key annual Core PCE data and the Fed Chair Powell's speech has put markets on edge. Domestically, revised UK GDP data confirmed that the UK did go into recession in 2023, which will be a blow for PM Sunak, who had been reassuring Tory MPs that the economy is turning around. The pound has given up all of its March gains, which peaked at 1.2893, and is vulnerable to breaking 1.2600 to finish Q1/23. Intraday, the US data releases will drive the direction for the pound today, with markets looking for a possible retest of 1.2570.

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