The Morning Update

The USD holds steady, oil prices slip, equity markets are mixed, and US yields rise as risk sentiment wanes. Currency markets remain cautious ahead of the ECB interest rate decision and the US inflation data releases later in the week. Chinese equity markets were up on the prospect of a government rescue package, while European equity markets slipped on earning concerns. Equity strategists surveyed by Bloomberg predict that dull economic and earnings growth will limit gains in 2024, recommending that investors look to buy on dips. Elsewhere, the Bank of Japan kept interest rates on hold but left the door open for future interest rate hikes. Oil prices slipped as increasing output offset the ongoing Red Sea concerns. We anticipate markets remain sidelined without any high-tier economic releases today, ahead of Wednesday's US, German, UK & EU PMI reports and the BoC Interest Rate Decision.

‍

In other news. Israel says 24 soldiers were killed in Gaza on the deadliest day for IDF since the war began. The US and UK launch new strikes at Iran-backed Houthi rebels in Yemen. Industry chief warns that the EU's Euro 800 billion recovery fund is held back by red tape. NATO strikes a Euro 1.1 billion ammunition deal to support Ukraine. United Airlines forecasted a first-quarter loss due to Boeing 737 Max 9 grounding. Canada sets a two-year cap on foreign students. In Scotland, train service is suspended as Storm Jocelyn sweeps the UK.

‍

In currency markets. Chinese yuan rebounds from two-month lows after reports that the Chinese authorities are considering moves to support the domestic equity markets. JPY firms on hints of policy change from the BoJ. The USD holds steady with the absence of high-tier data releases. CNY gains 0.3%, while Asian currencies are up by 0.1% on average vs USD. Trading currencies are mixed, with MXN tumbling 0.7%, NOK weakening 0.3%, CHF and SEK are Flat, NZD up 0.1%, AUD & JPY gaining 0.2%, and ZAR strengthening 0.3%.

‍

In commodity markets. Oil prices eased by 0.6%, Natural Gas prices slipped by 0.3%, Gold prices are up by 0.2%, Silver and Soybean prices firmed by 0.2%, Copper prices strengthened by 0.65%, and Wheat prices gained by 0.45%.

‍

CAD holds steady within a tight trading range as investors are sidelined ahead of Wednesday's BoC interest rate decision. The BoC is expected to leave interest rate unchanged on Wednesday at 22-year highs of 5%, with investors anticipating policymakers will adopt a more dovish tone in their statement. Speculators have increased their bearish wagers on the CAD, with data from the US CFTC showing net shorts have increased nearly 50% to 13,388 contracts. We anticipate the loonie will hold within its current range ahead of Wednesday's BoC interest rate decision and statement.

‍

EURCAD slips in early trading as the single currency loses traction after its economy struggles, and investors remain cautious ahead of Wednesday's ECB interest rate decision.

‍

EUR weakness continues towards 1.0850 ahead of Wednesday's PMI data and ECB rate decision. The euro continues its bearish trend as the domestic economy struggles to rebound with persistent inflation and slowing growth. The ECB says Eurozone credit demand is bottoming out after hitting a 2-year low. Recent data showed a drop in business and consumer loans, which were smaller in Q4 than in Q3. Investors are mostly sidelined ahead of tomorrow's German and EU PMI data, which are all forecasted to improve marginally month over month. Alongside the PMI results, the primary focus will be on the ECB's interest rate decision, with investors expecting the ECB to hold rates steady until June. Intraday, we expect the euro to remain vulnerable to further weakness through 1.0850.

‍

GBPEUR edges higher, testing a fresh 4-month high as investors increasingly expect the ECB to be the first major central bank to ease its interest rates.

‍

GBP gives up early gains and reverses vs USD to retest 1.2700 as risk sentiment eases. The increasingly cautious market stance increases support for the greenback with the absence of any high-tier to help provide direction to markets. The escalating tensions in the Middle East, caution ahead of the UK PMI, and general thin trading ahead of the US inflation data later in the week see investors remaining on the sidelines. Intraday, we expect the pound to remain vulnerable to slip towards 1.2670 next.