The Morning Update

The USD strengthens, oil prices steady, equity markets are mixed, and US yields rise as markets remain cautious ahead of the Fed. The USD strengthens in anticipation that the Fed will keep interest rates on hold on Wednesday and that the Fed Chair will maintain his hawkish rhetoric. Equity markets are mixed amid a combination of caution heading into the FOMC tomorrow and a flurry of corporate news and mixed earnings reports. The eurozone inflation results saw levels held steady at 2.4%, giving the ECB the option of a June interest rate cut or keeping rates on hold and monitoring the data as the EU economy returns to growth. Elsewhere, oil prices steadied after their most significant drop in almost two weeks as cease-fire talks continued. Gold is set for its third straight gain in three months. Bitcoin prices eased despite the debut of its first Bitcoin ETF in Hong Kong. The focus will be on the US Employment Cost Index, Housing Price Index, Chicago PMI, Consumer Confidence, and CAD GDP to help provide some direction to the markets today, ahead of Wednesday's FOMC meeting.

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In other news. Tesla's share price soars 15% on Monday on tentative China approval for the driving system. Diplomats are hopeful of a hostage breakthrough as Israel softens its stance. Europe's leading economies grew faster than expected in Q1. Ukraine's energy chief calls on the EU to help protect gas storage from Russia. China's high-tech output drives growth in factory activity. HSBC's CEO steps down unexpectedly after five years. UK mortgage approvals are at their highest levels in 18 months. SNP John Swinney emerges as the frontrunner to replace Humza Yousaf. Canada's London Drugs keeps stores closed after cyber issues.

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In currency markets. JPY remains under pressure but is off Monday's 160.24, 34-year low vs the USD. China's CNY looks set for its fourth monthly decline vs. USD. Currency markets are expected to be sidelined ahead of tomorrow's Fed Interest Rate decision and the Fed Chair's comments. CNY and Asia currencies are steady, down just 0.1% on average against the USD. Trading currencies are under pressure, with AUD & NZD weakening by 0.5%, JPY, ZAR & SEK dropping 0.4%, NOK down 0.25%, CHF & IDR flat, and MXN up 0.1% vs. USD.

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In commodity markets. Oil prices are up by 0.2%, natural gas prices rally by 2.%, gold & wheat prices weaken by 1.3%, silver prices tumble by 2.7%, copper prices fall by 0.5%, and soybean prices slip by 0.15%.

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CAD weakened from near three-week highs on Monday as commodity prices eased, and investors returned to the USD ahead of tomorrow's FOMC meeting. Domestically, the focus will be on the Canadian Gross Domestic Product (m/m) for February, which is forecast to grow by just 0.3%, down from 0.6% in January. RBC is forecasting that the Canadian economy grew at just 0.1% in February; if the GDP comes in under forecasted levels, it will put pressure on the loonie and heighten expectations of a BoC rate cut as early as June.

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EURCAD continues strengthening because of weakening commodity prices, more robust growth signals in Europe, and the possibility that the BoC will cut first in June

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EUR extends gains through 1.0700 amid more robust growth and steady inflation. Domestically, German retail sales came in much stronger m/m at 1.8%, and y/y turned positive to up 0.3%, vs. down 2.7% previously. Eurozone, Spanish, Italian & German GDPs were stronger than expected. At the same time, eurozone inflation levels held steady, which gives the ECB some flexibility to keep interest rates on hold or cut in June. The possibility that the ECB could opt to wait with its interest rate decision provided the Euro a boost in support as the focus shifts to the US economic releases today and the FOMC tomorrow.

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GBPEUR weakens off April highs following the strong Eurozone growth and steady inflation data.

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GBP holds within a relatively tight trading range as investors remain sidelined ahead of the Fed's interest rate decision tomorrow. The pound is expected to remain capped below 1.2570 amid an easing risk tone heading into the FOMC meeting on Wednesday. With the light economic data released out of the UK, the focus will remain on the US data to help provide intraday direction to the pound. Domestically, in a positive sign for the UK economy, the number of mortgages approved to home buyers in March was the highest since September 2022, hitting 61,300 in March and up from 60,500 in February.