The Morning Update

Thursday September 14th, 2023

Written by:
Paul Harrison

The USD is flat, oil prices edge higher, while equity markets and US yields are mixed ahead of the ECB rate decision. Currency markets are stable as markets await the ECB interest rate decision today with markets split on if the ECB hikes or pauses. Evidence is building that Europe is facing persistent cost pressures which have been increased with soaring energy prices. A majority of economists in a Reuters poll Sept 5-7th had expected the ECB to hold, but the mood has shifted, with money markets now assigning a 63% chance of a hike. Equity markets are mixed ahead of the ECB rate decision, but after Wednesday's US CPI was in line with estimates it fanned hopes the Fed will pause, helping improve risk sentiment. Alongside the ECB rate decision, markets will also be focusing on US PPI, Retail Sales & Initial Jobless claims, and the ECB press conference. Currency markets have the potential of seeing an increase in volatility on the ECB rate decision & the key US data releases.

In other news. China attacks EU's "naked protectionist act" on electric cars. Goldman Sachs fires transaction banking chief over communication policy breaches. Japan's weak machinery orders and other batches of soft data raise the BoJ challenge for the economy. Moody's cut China's property sector's outlook to negative. ARM prices share at $51 apiece ahead of IPO. Ford CEO rebuffs UAW leader's criticisms as strike deadline on Thursday approaches.

In currency markets. Euro holds steady at near 3-month lows ahead of the ECB meeting. China asks big banks to stagger and adjust USD purchases. Polish deputy Finance Minister says there is no reason for Zloty to weaken. AUD edges higher on strong jobs data. CNY slips 0.1%, while Asian currencies are flat on average vs. USD. Trading currencies are mixed with ZAR falling 0.5%, NOK down 0.1%, while MXN, CHF, SEK & NZD are flat, and JPY & AUD are up 0.1% vs. USD.

Oil prices rebound to near 10-month highs as markets refocus on supply cuts offsetting rising US crude & fuel inventories.

CAD holds strong, retesting Sept 1st highs on a combination of oil prices testing 2023 highs and on the possibility that the Fed may pause rate hikes after Wednesday's US CPI came in within expectations. With no high-tier CAD economic releases focus will be on the US key Retail Sales & PPI data releases to help provide intraday direction to the loonie today.

EURCAD slips, down near 1% in September, retesting a 2-month low as markets are becoming increasingly split on the ECB's interest rate decision today.

EUR holds within a tight trading range as the ECB decision looms. Investors refrain from trading as economists are split on whether the ECB will hike rates or not. The ECB needs to balance persistently high inflation levels vs. the prospect of driving the EU into recession. We anticipate no matter the ECB's decision on rates today, the Euro is vulnerable to further weakness and has the potential to retest 1.0635 vs. USD.

GBPEUR weakens testing 4-week lows as markets focus on the ECB interest rate decision.

GBP remains under pressure ahead of key US data releases. The pound continues to slip vs. its peers as markets scaled back their expectations of future interest rate hikes as growth and employment continue to slide. The UK economy shrank at its quickest pace in seven months, by 0.5% in July, reviving recession fears. The growth concern coupled with signs that the UK labor market is cooling, is increasing the pressure on the BoE to pause its rate-hiking cycle. Today's US data releases will help provide intraday direction to the pound.