The Morning Update

The USD steadies, oil prices are flat, equity markets are up, and US yields are mixed after Tuesday's US inflation jolt. The USD steadies near three-month highs, while equities regain footing after the DOW suffered its worst session since March 2023. US yields retraced some of Tuesday's surge, holding above 4.2% as investors trimmed their bets for an early Fed rate cut. The stronger-than-forecasted US inflation data gave credence to the wait-and-see approach by the Fed. At the same time, markets expect the Fed won't cut its rates before July, and the volatility index closed above 15 for the first time since November. Elsewhere, oil prices are flat as markets balance a stronger USD against a tight supply. Gold prices hold within a tight trading range, straddling $2,000 an ounce for the first time in 2024, and Bitcoin hits a 2024 high of $51,600. Today sees a light economic docket, so the focus will be on Feds Barr & Goolsbee, BoE Bailey & ECB Cipollone speeches to help provide intraday direction to currency markets.

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In other news. UK inflation holds steady at 4%, British Columbia launches a $2 billion loan plan to boost affordable homebuilding. Heineken shares slide on 2024 outlook. Germany hits the 2% NATO target for the first time since 1992. Nvidia market cap threatens Alphabet after overtaking Amazon. Indonesia election quick tallies indicate Prabowo is headed for a first-round win. Ukraine claims sinking of Russian ship off Crimea. Dutch court halts F-35 jet parts exports to Israel. Europe 'needs a decade to build up arm stocks' as Germany's biggest defense firm says Europe's ammunition stocks are currently empty.

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In currency markets. The pound weakens after the milder UK inflation numbers. JPY strengthens after Japan warns against its currency's rapid fall. Commodity currencies recoup some of Tuesday's lost ground as markets steady after the shock of the US inflation data on Tuesday. CNY holds steady, while Asian currencies firm by 0.1% on average vs USD. Trading currency's rebound after Tuesday's sell-off with SEK & CHF are flat, JPY & MXN up by 0.1%, NZD firms 0.25%, AUD strengthens by 0.35%, and NOK advances 0.45%, while outlier ZAR weakens 0.3% vs USD.

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In commodity markets. Oil prices are flat, Natural Gas prices weakened by 1.6%, Gold prices slipped by 0.15%, Silver prices eased by 0.3%, Copper prices edged higher by 0.15%, Wheat prices tumbled by 2%, and Soybean prices eased by 0.6%.

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CAD edges off 2-month lows vs USD as investors take stock after Tuesday's hotter-than-expected US inflation report. The loonie tumbled 1% on Tuesday, its biggest single-day fall in nearly a year, on worries that Canada's economy could be particularly impacted by a slow move to rate cuts with Canada's high borrowing levels. Canada is set to release its inflation report on Feb 20th. Finance Minister Freeland said that the government will prioritize creating the economic conditions in its next budget to allow interest rates to ease. Without any high-tier economic data releases today, we anticipate the loonie has room to strengthen towards 1.3500.

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EURCAD continues to ease, down nearly 3% over the last three months, as expectations are increasing that the ECB may be the first central bank to lower interest rates.

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EUR struggles to hold above 1.0700 after EU flat GDP data. Euro continues to struggle vs USD after the robust inflation data out of the UK, while the EU Q4 q/q GDP came in flat, while annual eurozone growth edged out a 0.1% growth. The single currency remains within a bearish trend and is vulnerable to breaking through 1.0700, towards November lows of 1.0570. The focus will be on ECB Cipollone's speech today for any signs of increasing bearish tones, which could add pressure to the Euro.

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GBPEUR weakened from an 18-month high after the UK inflation level surprised markets and held at 4%, coming better than the forecasted 4.2%.

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GBP breaches through 1.2550, dropping over 100 bps in the last 24 hours. The pound lost ground after the latest UK inflation levels held steady at 4%, while service level inflation rose by less than BoE had expected. Investors have added to their bets to roughly 70% that the BoE could cut its interest rates as soon as June; this is up from 40% on Tuesday. According to a Reuters poll, the weakening inflation outlook is expected to help the UK's economy to grow moderately in 2024. The focus will be on BoE Governor Bailey's comments before the Lord's Economic Affairs Committee today as markets will monitor the Governor's tone to help provide intraday direction to the pound.