The Morning Update

Tuesday May 9th, 2023

Written by:
Paul Harrison

The US$ edges higher, oil prices slip, while equity markets & US Yields are down as investors await Wednesday's US inflation report. Currencies, equities and oil prices fell broadly on weak Chinese data and disappointing corporate earnings. Paypal Holdings Inc dropped after lowering its guidance, PacWest bancorp sank 12%, Swedish SBB has lost 25% this week as increasing concerns about the effects of a funding squeeze across multiple corporate sectors. Market sentiment was also hurt by a report showing a steep drop in Chinese imports in April, investors are taking this as a sign that China's recovery from covid lockdowns isn't as strong as markets had hoped. Today sees a light US economic docket so focus will be Biden/McCarthy meeting, as well as  Fed Speakers Jefferson, Williams & ECB Schnabel speeches to help provide intraday direction.

In other news. President Biden & House Speaker McCarthy to meet over debt ceiling as markets grow anxious. China orders Canadian diplomat to leave in a tit-for-tat move with Canada after it expelled a Chinese diplomat on Monday. Fed Chair Powell faces lowest public confidence for a Fed Chairman on Record-Gallup says. China's imports fall in April as clouds gather for economic outlook-FT. Turkey's President Erdogan faces his toughest political challenge yet when the nation votes this month. Russia fires missiles at Ukraine before Putin presides over the anniversary of victory over the Nazis. Former Pakistan PM Imran Khan arrested-GEO TV. Lower oil prices push Saudi oil giant Aramaco's first quarter profit down 19%.

In currency news. CNY weakens on disappointing trade data, commodity currencies slip while the US$ edges up as market looks to US debt ceiling talks & Wednesday's key US inflation data. CNy slips 0.15%, while Asian currencies are down 0.2% on average vs US$. Trading currencies are mixed as ZAR falls 0.6%, NOK weakens 0.45%, AUD is down 0.3%, NZD SEK & CHF slip 0.15% while MXN is up 0.1%, JPY firms 0.15% vs US$.

Oil prices weakens 1% on a combination of weaker than expected Chinese imports data and as investors step to the sidelines ahead of Wednesday's key US inflation report. C$ retraces from Monday's 3-week highs at 1.3316 as oil prices ease and the US$ edges higher heading into Wednesday's key US CPI report. This week see's no key Canadian economic releases, so expect the loonie responds to reacting to US$ data this week. Intraday we expect the potential to see the loonie slip back over 1.3400 heading into the US inflation report. Support sets at 1.3320 and resistance rises to 1.3440.

EURCAD continues under selling pressure, falling 1.65% in May as the single currencies consolidates heading into Wednesday's US inflation report. Support resets to 1.4620 while resistance lowers to 1.472.

EUR remains on the back-foot dropping below 1.1000 amid a firmer US$. The ECB continues their hawkish tones, but their comments are failing to inspire investors to return to the single currency. Investors have stepped to the sidelines head of Wednesday's key US inflation report, but intraday speeches from Fed Jefferson & Williams will be monitored closely for signs of possible Fed stalling. Support lowers to 1.0940 while resistance resets to 1.1030.

GBPEUR gains as Euro weakens while the pound holds steady heading into Thursday BoE interest rate decision. Support rises to 1.140 while resistance resets to 1.1560.

GBP holds above 1.2600 despite increasing risk aversion heading into Wednesday's US CPI report. The pound holds near its 1-year highs, finding support ahead of Thursday's Bank of England policy decision. The BoE has hiked rates 11 times since December 2021 is it continues to battle double digit inflation levels. Markets are predicting a 98% chance of a 25bps hike this week. Domestically growth is virtually flat, ongoing strikes and political concerns are expected to cap the pounds longer term capability to rally. Support holds at 1.2570 while resistance remains at 1.2680.