The Morning Update

Tuesday January 30th, 2024

Written by:
Paul Harrison

The USD is steady, oil prices edge higher, equity markets are up, and US yields ease as markets remain cautious. Currency markets remain sidelined ahead of the FOMC, the Chinese property crisis, and escalating geopolitical tensions. European equity markets edge towards 2-year highs, while US futures steady after another record close on Wall Street as investors speculate the major central banks have pivoted their interest rate policies. The focus will be on Microsoft Corp. and Alphabet Inc., which are set to report today, followed by Apple, Amazon, and Meta platforms on Thursday; together, their combined market value exceeds $10 trillion. The critical event for the week remains the Fed's interest rate decision and the following statement for clues on the Fed's policy outlook. Today saw German Q4 GDP shrink, increasing economists warning of another technical recession for Europe's largest economy. In focus today, the US housing Price Index, Jolts Job Opening, and Consumer Confidence will help provide some intraday direction to currency markets.

In other news. The Middle East situation 'incredibly volatile' after deadly attack, Blinken warns. The UK mortgage approvals are at a six-month high. The Eurozone economy flatlines in Q4/23. The EU agrees to set aside profits from frozen Russian assets, marking the first steps to potentially handing over billions of Euros to Ukraine. South Korea's low birth rate has become a national emergency. Canada, trans mountain expansion runs into 'technical issues,' and a completion delay is possible. Evergrande's fate hinges on the recognition of Chinese authorities. DUP agrees to end boycott of Northern Ireland Government. Former Pakistan PM Imran Khan has been sentenced to 10 years in prison.

In currency news. Euro holds steady as markets ignore the shrinking German economy as investors focus on the Fed statement on Wednesday, while the Chinese yuan stalls on expectations of domestic policy easing. CNY is flat, while Asian currencies edge higher by 0.1% on average vs USD. Trading currencies are mixed, with ZAR falling 0.5%, AUD, CHF & NOK weakened by 0.2%, NZD slipping by 0.1%, JPY firms by 0.15%, and SEK & MXN strengthened by 0.3% vs USD.

In commodity news. Oil and Copper prices are up by 0.2%, Natural gas prices firmed by 0.75%, Gold Prices gained by 0.5%, Silver and Soybean prices slipped by 0.1%, and Wheat prices tumbled by 1.25%.

CAD extends gains, hitting a fresh two-week high versus the USD as the greenback consolidates ahead of Wednesday's Fed interest rate decision. The improving risk sentiment that has helped the equity and commodity markets strengthen has been a prime driver for the loonie's gains. With no high-tier Canadian data releases this week, we expect the US Fed rate decision and Friday's US jobs data to be critical drivers for direction.

EURCAD holds at four-month lows as markets steady ahead of the FOMC tomorrow.

EUR finds support at 1.0800 as investors focus on the Fed's interest rate decision. Investors anticipate that the Fed will hold interest rates on Wednesday, as speculation is growing that the Fed may take a more dovish tone on interest rates, providing an underlying support for the Euro. Domestically, the Eurozone GDP grew at an annual rate of 0.1% in Q4, while the German economy contracted by 0.2% over the same period. ECB policymakers' comments confuse investors, with Mario Centeno arguing that rates should be cut sooner. At the same time, Peter Kazimir said that a rate cut in June is more probable than in April. Intraday, we expect the Euro to remain sidelined ahead of Wednesday's Fed statement.

GBPEUR weakens from 4-month highs as the pound weakens ahead of the Fed's policy decision.

GBP drops below 1.2700 as investors unwind long pound positions. The pound came under selling pressure after some positive UK inflation data and uncertainty ahead of Wednesday's FOMC interest rate decision. Domestically, UK January shop prices have risen at their slowest pace in more than 18 months, dropping to 2.9% in January, down from 4.3% in December. In January, the annual UK non-food price fell to 1.3%, down from over 3% in December. The decrease in shop prices is a positive sign for the BoE and increases speculation that interest rates could be eased earlier than expected. We anticipate the pound will find support at 1.2650 ahead of the Fed rate decision tomorrow.