The Morning Update

Tuesday September 12th, 2023

Written by:
Paul Harrison

The USD firms, oil prices are higher, equity markets are mixed and US yields are lower as markets remain cautious ahead of the US inflation report. The USD firms as investors remain cautious heading into the US CPI on Wednesday. Oil prices break above $91 as supply levels remain tight. Equity markets are mixed as Tech stocks fall after disappointing Oracle results and investors are cautious ahead of Apple Inc's announcement of their new product lineup. China's economic recovery remains in focus as the GDP growth forecast is cut to 5% in 2023, and then to 4.5% in 2024 with a Reuters poll of economists saying the risk is skewed to further downgrades. Today sees a light US economic docket as investors remain focused on Wednesday's key US inflation report.

In other news. World at the 'beginning of the end" of the fossil fuel era, the IEA says that global demand is expected to peak before the end of 2023. China's navy started the largest-ever exercises in the Pacific Ocean. North Korea's Kim Jong Un in Russia amid US warning not to sell arms. UK wage growth points to another rate hike but the jobless rate rises. A quarter of the Libyan city of Derna was wiped out by a burst dam, with over 1000 bodies recovered so far, with reports of +10k people missing across Libya. Apple's iPhone 15 launch clouded by China problems.

In currency news. JPY gives back some gains as the USD rebounds before US CPI. China CNY holds steady as policymakers' steps are seen as fostering near-term stability. The pound weakened after the labor market weakened which paints an unclear picture ahead of the BoE decision next week. CNY is flat, while Asian currencies are down 0.2% on average vs. USD. Trading currencies are under pressure with NOK weakening 0.4%, NZD, MXN & ZAR falling 0.25%, JPY, SEK & AUD down 0.15% and CHF slipping 0.1% vs USD.

Oil prices spike in early trading, gaining 1% boosted by a tighter supply outlook. CAD steadies after strengthening from 5-month lows on Monday as it finds support from improving commodity prices. The loonie is finding additional support after Friday's stronger-than-expected jobs data that supports the prospect of another interest rate hike by the Bank of Canada in 2023. Intraday sees a light economic docket, so we expect investors to be sidelined today ahead of Wednesday's key US inflation report.

EURCAD weakened in early trading as stronger oil prices helped support the CAD in early trading.

EUR slipped below 1.0750 after weak ZEW data. Euro slips after disappointing ZEW survey which saw EUR economic sentiment and German current situation both falling below expectations. The single currency is consolidating ahead of Wednesday's US CPI report and Thursday's ECB interest rate decision, with the central bank expected to hike by 25%. Intraday with a quiet US economic docket we anticipate the Euro to stall at current levels as investors remain on the sidelined.

GBPEUR holds steady as investors are sidelined with a flurry of key events over the next week culminating with the BoE interest rate decision on the 21st of September.

GBP drops through 1.2500 to reset to 1.2450 as the USD rebounds and on mixed UK data. The pound came under selling pressure after mixed UK employment data which saw unemployment edge higher to 4.3% from 4.2%, while average earnings including bonuses rose 8.5% over the 3-months to July. The BoE appears to be maintaining its hawkish comments despite the unemployment rate rising. BoE Mann said it was too soon to stop raising rates, while Governor Bailey said that borrowing costs might still have further to rise because of stubbornly high inflation levels. Intraday we expect the pound to hold near its current lows ahead of the US inflation report Wednesday.