The Morning Update

Tuesday May 16th, 2023

Written by:
Paul Harrison

The US$ weakens, oil prices slip, equity markets are mixed , while US yields ease ahead of US Retail Sales & US debt talks. Markets are mixed after US House Speaker McCarthy said Monday there's been "no progress" on debt ceiling talks ahead of today's critical meeting at the White House with President Biden. Treasury Secretary Yellen warned that the US is already paying the price for its failure to raise the federal debt limit and reiterated her department may run out of cash as soon as June 1st. Also in focus today, China's industrial output & retail sales data missed estimates disappointing markets and investors shift their focus to the US Retail Sales which is expected to edge 0.7% higher in April. In Europe eurozone Q1 GDP growth 0.1%, while Q1 exports jump. In a recent poll economists anticipate the ECB will hike twice more in coming meetings and could hike more as EU inflation levels remain hot. Today US Debt talks, US Retail Sales, CAD inflation report, Fed Mester, Fed Bostic & ECB President Lagarde's are also speaking today.

In other news. Ford to scale back China investments amid EV competition from local rivals. Sale of VW's Russian assets receives Kremlin approval. Russian oil exports hit post-invasion high. China's economic recovery in doubt as industrial output falls short. Japan's stock index hits 33-year high as investors warm to Tokyo story. EU urged to crack down on imports of India fuels made from Russian oil. Erdogan's "unsustainable" policy risks Lira sell-off, warn rating agencies FT. In first, Kyiv says it shoots down volley of Russian Hypersonic missiles.

In currency news. GBP under pressure after data showed a rise in UK unemployment rate. Mexican Peso hits 7-year high vs US$ on higher interest rate levels. AUD drifts lower on weak China data. Turkish lira extend losses on political uncertainty and weak China data. CNY weakens 0.2%, while Asian currencies are down 0.15% on average vs US$. Trading currencies are mixed with NOK & ZAR weaken 0.3%, AUD down 0.2%, MXN slips 0.1%, while SEK is flat, NZD is up 0.15%, JPY firms 0.25, CHF strengthens 0.35% vs US$.

Oil prices slip in early trading on increasingly weaker Chinese economic data and offsetting the IEA turning more bullish on oil demand with the outlook of falling future supply. C$ holds on to Monday's gains heading into the key CAD inflation report. Economists expect CAD Consumer Price Index y/y Apr to continue to ease to 4.1% vs 4.3% in March. Intraday alongside the CAD inflation report markets will be focused on the US debt ceiling talks and US Retail Sales to help provide direction to currency markets today.

EURCAD edges higher as CAD markets are sidelined ahead of key inflation report, while Euro finds supports after a poll showed economists expect at least two more interest rate hike by the ECB.

EUR firms, but remains capped after EU GDP data. Euro holds within a tight trading range after data from the Euro area showed that the GDP in Q1 expanded by 0.1% quarterly and 1.3% annually. Forecasters expect the ECB to hike interest rates a further 2x's in 2023 as the EU Commission revised its 2023 inflation forecast higher to 5.8% from 5.6% previously. Investors remain on the sideline as concerns continue to rise after House Speaker McCarthy commented "no progress" has been made on debt ceiling talks. Intraday US Retail Sales & US Debt-Ceiling talks will dominate intraday direction to currency markets.

GBPEUR slips after positive EU GDP data and disappointing increasing UK unemployment levels. Today US data & debt talks will drive intraday direction.

GBP sees a volatile start to Tuesday's trading session amid a weaker US$ and ahead of US data releases. The pound rebounds from intraday lows after weaker UK unemployment data and regains lost ground on the weaker US$. The UK's office for National Statistics showed that claimant count changed came in at +46.7k in April vs expectations of -10.8K. The unemployment rate ticked higher to 3.9% from 3.8%, but wage inflation still remains a concern for the BoE after average earnings rose by 5.8% in Q1/23 higher than the expected 5.1%. Intraday US debt ceiling talks and and US Retail Sales will be the prime focus for investors today.