The Morning Update

Tuesday March 26th, 2024

Written by:
Paul Harrison

The USD weakens, oil prices hold steady, while equities and US yield markets remain cautious ahead of Friday's PCE data. Currency markets regain ground against the USD, while equity markets and US yields ease as investors focus on Friday's critical Core PCE report. The PCE measure of inflation is significant because it is seen as a preferred reading on the trajectory of inflation over the CPI. The FT cited CIO Andrew Balls saying that PIMCO believes inflationary pressures may lead the Fed to cut interest rates more slowly than other major central banks. Elsewhere, Bitcoin tops $70k as investors shrug off last week's sell-off. Cocoa is more expensive than copper as it tops near $10k, with prices climbing 60% in March as supply shortages grip the market. In focus today, US Durable Goods Orders, Nondefense Capital Goods Orders ex Aircraft, Housing Price Index, Consumer Confidence, and ECB Lane's speech will help provide intraday direction to currency markets.

In other news. The UN Security Council demands an immediate Gaza ceasefire after the US abstains. Baltimore's key bridge collapses after a ship crash. China calls hacking allegations by the US and UK 'political maneuvering.' SWIFT plans to launch a new central bank digital currency platform in 12-24 months. New Zealand accuses China of hacking parliament and condemns the activity. Tesla offers US customers a month's trial of its driver-assist technology. British farmers protest outside parliament over food imports. Ontario will unveil the provincial budget today as the province faces growing economic uncertainty. McDonald's is to sell Krispy Kreme doughnuts nationwide by the end of 2026.

In currency markets. The JPY holds near 34-year lows, with the Finance Minister saying the government will take appropriate steps against excessive currency moves. Funds and asset managers see bullish bets on the MXN hit their highest levels in a year, defying calls that the MXN is overvalued. CNY slips 0.1%, while Asian currencies weaken 0.2% on average vs USD. Trading currencies remain mixed, with CHF & ZAR down 0.2%, NOK slipping 0.1%, while MXN is flat, JPY is up by 0.1%, AUD firms 0.2%, SEK gaining 0.3%, and NZD strengthening 0.4% vs USD.

In commodity markets, oil, Wheat, and Copper prices slipped by 0.1%, Natural Gas prices rallied by 1.9%, Gold prices firmed by 0.8%, and Soybean prices weakened by 0.5%.

CAD edges off three-month lows as the USD weakens, and investors consolidate positions in a quiet holiday week, heading into the critical US PCE report on Friday. Domestically, Canadian investors will keep their powder dry heading into Thursday's CAD GDP report, which is expected to show 0.4% growth m/m in January. Intraday, we anticipate the CAD will hold within a tight trading range as the loonie awaits direction from this week's CAD GDP and US PCE report.

EURCAD continues to stagnate within a tight trading range, heading into a flurry of data releases and the Easter long weekend.

EUR bounces off 1.0800 through 1.0850 amid a weakening USD. The USD is giving up gains ahead of Friday's critical PCE report, allowing the Euro to rebound towards 1.0900. Fed Goolsbee aided the Euro after his comments on Monday that three rate cuts in 2024 align with his thinking. Markets will monitor several mid-tier US economic data releases and ECB Lane's comments to help provide intraday direction to currency markets.

GBPEUR holds static with the lack of high-tier economic releases and thinning holiday markets.

GBP strengthens from weekly lows amid a weaker USD and less dovish BoE comments. The pound strengthens through 1.2650 amid a weakening USD as risk sentiment improves. The pound received a small boost from BoE Mann's comments today when she said, "Markets are pricing in too many cuts in rates." Investors will focus on Thursday's important UK GDP, which will help guide the BoE assistance in timing rate cuts. Intraday, investors will be monitoring a flurry of mid-tier data releases, but we expect the pound to remain capped heading into Friday's key PCE report.