The Morning Update

Thursday May 18th, 2023

Written by:
Paul Harrison

The US$ extends gains, oil prices weaken, equity markets rally, while US yields rise as debt deal prospects lift risk-mood. The US$ advances to near 2-month highs, global equity markets turned higher after days of anxiety at an impasse in Washington on the debt ceiling talks eased as hopes built for an eventual breakthrough to raise the debit limit ahead of June 1st. President Biden expressed confidence there will be no US default, and House Speaker McCarthy said reaching on agreement this week is "doable". JPMorgan chief Dimon said the US government "probably" will not default on its debt after he and other bank leaders met in Washington to discuss debt limit. In focus today, US Initial Jobless Claims, Philadelphia Fed Manufacturing Survey, Fed Jefferson Speech & CAD New Housing Price Index may help provide some intraday direction to currency markets.

In other news. Japan's export growth hits two-year lows on weak China demand. G7 leaders meet in Japan today with the war in Ukraine and economic protections against China to top the agenda. China says theres "no panacea" to ending Ukraine war; Kyiv hit with 'unprecedented Russian missile attack-CNBC. PwC's global bosses to seize oversight of scandal-hit Australian team-FT. Global chipmakers to expand in Japan as tech decoupling accelerates-FT. Walmart Inc to announce its corporate earnings at 8am est today.

In currency markets. Turkish Lira and South African rand extend losses and continue to create new record lows vs US$. CNY drops through 7.0000 vs US$ again, AUD slips on weak jobs data and the US$ continues to extend gains as a safe-haven currency play. CNY weakens 0.45%, while Asian currencies slip 0.25% on average vs US$. Trading currencies are under pressure with JPY & NZD slip 0.1%, CHF down 0.2%, AUD & SEK fall 0.35%. MXN, ZAR & NOK weaken 0.6% vs US$.

Oil prices remain under pressure on a higher US$, ongoing concern on China's slow growth and a lingering uncertainty on the US debt ceiling talks. C$ slips vs US$ in early trading as the US$ extends gains to multi-week highs. The loonie is finding some underlying support led by money markets betting the Bank of Canada could hike one more time in 2023 rather than a shift to rate cuts that had been previously expected. Today focus will be on US data to provide intraday direction as CAD low-tier data releases are not expected to impact the C$ today.

EURCAD slips as support builds towards the C$ as speculation increases for the BoC to shift policy from pause to a possible hike in 2023 after April's increase inflation.

EUR stalls, holding above 1.0800 amid cautiously optimistic market moods. Euro remains under pressure for a 3rd successive day, holding near its lowest levels since April. The recent hawkish remarks from the Fed which pushed back against market expectations for US interest rate cuts in 2023. Domestically ECB President Lagarde has made it clear that further interest rates are likely in an effort to tackle stubbornly high EU inflation levels. The prospect of further ECB interest rate hikes should provide an underlying support for the Euro vs the US$ & its peers into Q3. Intraday US jobs data will help provide some intraday direction to markets today.

GBPEUR remains relatively steady in early trading as the US$ continues to dominate currency markets, while MTD the pound is up almost 1% vs Euro.

GBP remains under pressure and looks vulnerable to breach 1.2400. The pound extended its weakening trend testing its lowest levels since April as the GBP bearish outlook remains intact. The US$ continues to find support from the combination of hawkish Fed comments and increasing safe-haven buying on lingering concerns over China growth and the ongoing US debt ceiling talks. Domestically the UK continues to suffer the highest inflation levels of G7 counties and remains under pressure from the largest national labour disputes in years. The BoE are likely to continue to maintain its strategy to hike interest rates, which could assist the UK entering recession as growth concerns persist. Intraday US data may help provide some intraday direction to currency markets.