The Morning Update

Tuesday November 14th, 2023

Written by:
Paul Harrison

The USD is steady, oil prices inch higher, equity markets are mixed, and US yields ease ahead of the US CPI data. The USD steadies, while equity markets are mixed as investors remain cautious heading into the critical US inflation report which is anticipated to have slowed in October, increasing optimism that US interest rates have peaked. The US inflation is forecasted to ease to an annual rate of 3.3% in October down from 3.7% in September, according to surveys from economists. UBS in an interview with CNBC, sees slower growth, rising unemployment, and disinflation to lead the Fed to cut its benchmark rate to a target range ending 2024 between 2.5% and 2.75%. Oil prices hold steady despite both the IEA & OPEC lifting their demand growth forecast. This week sees US retailers report earnings this week starting with Home Depot today. In focus today, the US CPI report, BoE's Pill & Dhingra, and Fed's Goolsbee speeches will help provide intraday direction to currency markets.

In other news. Eurozone Q3 GDP shrinks, but employment rises. China orders local governments to cut exposure to public-private projects as debt risks rise. IEA raises oil demand growth forecasts, despite economic gloom ahead. European equity markets near one-month highs ahead of the US CPI report. Apple supplier Foxconn books surprise rise in quarterly profit. Almost no Russian oil is sold below the $60 cap, says Western officials-FT. China and the US agreed to crack down on the fentanyl trade. RBC's City National names new CFO as management shakeup continues. China mulls $137 billion of new funds to aid the housing market.

In currency markets. Japanese Yen sitting at 33-year lows keeps markets on intervention watch. China's yuan slips as China's central bank eases expectations of widening interest yield gap with the US. The Russian rouble tested its highest level versus USD since late July. Commodity currencies come under selling pressure on increasing rhetoric of a US recession in 2024. CNY slips 0.1%, while Asian currencies dip 0.15% on average vs USD. Trading currencies are mixed with NOK easing 0.2%, AUD & NZD down 0.15%, SEK slipping 0.1%, while JPY, ZAR & CHF are flat and MXN firms 0.2% vs USD.

In commodity markets. Gold and Copper prices are flat, Silver prices strengthened by 0.55%, Wheat prices dropped by 0.5%, and Soybean prices fell by 0.8%.

CAD continues to hold in a tight trading range as investors appear to remain sidelined heading into the key US inflation report later in the morning. The Canadian dollar sentiment remains weak which is reflected by increasing short speculative positions building as investors anticipate another test of CAD through 1.4000 into year end. Growing speculation of a mild recession in the US in 2024 will have a knock-on negative impact on the loonie as the US is Canada's largest trading partner. This week sees no high-tier CAD data releases, so the CAD will be reliant on the US data releases to provide direction.

EURCAD extends its gains vs the loonie, rallying to 1% in November to a fresh 5-month high as sluggish commodity markets keep pressure on the loonie.

EUR breaches 1.0700 and holds onto modest gains ahead of the US inflation report. The Eurozone economy contracted marginally q/q in Q3 but within expectations, while y/y Q3 the economy held positive and staved off a technical recession. On a positive note q/q and y/y Q3 employment both rose, which was seen as positive to investors. The US Consumer Price Index will be the key event today and a print outside of the 3.3% anticipated has the potential to increase market volatility.

GBPEUR slips in early trading after the Eurozone holds steady and domestic employment improves.

GBP fails to hold above 1.2300 as markets consolidate ahead of the US inflation report. The improving risk sentiment has helped the pound gradually strengthen off the 1.2100 lows in early November. The pound failed to continue its advance after mixed UK employment data. The UK ILO unemployment rate held steady at 4.2% in 3 months - September, while people claiming jobless benefits climbed by 17.8k in September vs 20.4k in August. Investors have stepped to the sidelines ahead of the US CPI report today and the UK's key inflation data out on Wednesday. Investors will be patient ahead of the UK inflation report which is expected to see inflation levels tumble from 6.7% in September to an expected 4.8% in October. Intraday the US inflation report and comments from BOE's policymakers will help drive direction to the pound today.