The Morning Update

Thursday May 23rd, 2024

Written by:
Paul Harrison

The USD weakens, and oil prices are firm, while equity markets and US yields are mixed ahead of US PMI data. The USD steadies near one-week highs following the hawkish Fed minutes, and the pound is unchanged by the UK election news. European equities strengthened, and Wall Street looked set for another new record following Nvidia's strong earnings, reinforcing the belief that the global AI boom will continue supporting equity markets. Elsewhere, gold and copper prices slipped further from record highs for a 4th day, while Bitcoin and oil prices steadied. In focus today, the G7 finance meeting May 23-25, US S&P Global Composite, Manufacturing & Services PMI, US New Home Sales, EUR Consumer Confidence, and Fed's Bostic speech will help provide intraday direction to currency markets.

In other news. PM Sunak sets the 4th of July for the UK election date. Eurozone May business growth at year high, PMI shows. Nvidia's revenue soars 262% on record AI chip demand. The EU seeks to stop Russia's imports of Western luxury cars via Belarus. Spain hits tourism record in a race to catch France. In the latest minutes, Fed officials were open to further US rate hikes to quell inflation. China holds Taiwan war games, vows blood of 'independence forces.' DoJ seeks breakup of Live Nation-Ticketmaster. According to a recent poll, Canadians feel grocery inflation is worsening, and 18% are boycotting Loblaw.

In currency markets. NZD holds highs after its central bank "out hawks' the Fed. Taiwan Central Bank officials say its forex market is operating normally. Currency markets steady ahead of US PMI and EU consumer confidence data releases. CNY & Asian currencies, on average, are flat vs the USD. Trading currencies improve, with outlier ZAR tumbling 0.7%, IDR Flat, JPY up 0.1%, CHF firming 0.25%, AUD gaining 0.3%, SEK strengthening 0.4%, and NZD & NOK rallying 0.55% vs USD.

In commodity markets. Oil prices strengthened by 0.6%, Natural Gas & Gold prices fell by 1.2%, Silver prices tumbled by 2.4%, Copper prices weakening 0.8%, Wheat prices easing 0.3%, and Soybean prices are flat.

CAD edges off two-week lows benefiting from a weakening USD despite the hawkish Fed minutes and weaker overall commodity prices. Our bias remains bearish on the loonie in Q2 with the increasing prospect of a BoC rate cut in June or July following Tuesday's data, which showed domestic inflation levels falling to 3-year lows at 2.7%. Domestically, the CAD employment Insurance benefits Change and the new housing price index data are not expected to impact the loonie. The focus will remain on the US PMI data to help provide intraday direction.

EURCAD holds steady at near 5-month highs following data that shows that inflationary negotiated wage rates grew quarter-over-quarter.

EUR bounces off 1.0800, retesting 1.0850 following German and EU data. Domestically, German PMI data all beat expectations, while the EU & France's manufacturing PMI beat expectations, while its service PMI fell more than expected. National Wage Rates q/q in Q1 grew to 4.69% significantly vs -4.45% in Q4. Euro remains capped following comments from ECB President Lagarde, who expressed strong confidence in controlling Eurozone inflation, attributing this to the gradual resolution of the energy crisis and the easing of supply chain bottlenecks. The focus will be on the US PMI & EU Consumer Confidence data to help provide intraday direction to the single currency today.

GBPEUR slips off two-month highs following the stronger-than-expected EU wage and PMI data, which could cause a pause for the ECB to ease interest rates as early as June.

GBP continues to flat line within its 1.2700-1.2750 range, despite the UK election announcement. UK PM Sunak set July 4th for the snap national election, with many suspecting that the BoE will not be easing interest rates until at least September, and he is taking advantage of domestic interest rates hitting their lowest levels at 2.3%. Domestically, we saw the UK global CIPS manufacturing PMI beat expectations at 51.3%, compared to expectations of 49.5%. Our bias remains bearish regarding the pound vs USD and bullish for the pound vs G7 peers, with the prospect of interest diversification in Q2. Intraday, the US & EU data releases will help guide the pound.