The Morning Update

Wednesday February 28th, 2024

Written by:
Paul Harrison

The USD strengthens, oil prices weaken, equity markets are down, and US yields ease as investors await fresh inflation data. The USD firmed ahead of a raft of global inflation data this week, while NZD tumbled over 1% after its central bank trimmed its forecast for a peak in interest rates. This week, Germany, France, and Spain published their inflation figures on Thursday. Global equity markets weakened as investors contend with fading expectations for how much the Fed and the ECB will lower rates in H1/24. "The concern remains that tangibility resilient economic activity could pull inflation higher or slow its descent; that's likely why expected rate cuts have been unwound so rapidly," said Rodda, senior market analyst at Elsewhere, oil prices fell 1% on Fed caution, and rising US crude stocks offset the prospect of extending OPEC+ supply curbs. Bitcoin extends its 5-day rally towards $60k, its highest level since November 2021. In focus today are the USD GDP, Personal Consumption Expenditures Prices, CAD Current Account, and BoE Mann's alongside a flurry of Fed speakers.

In other news. Swisscom is in advanced talks to buy Vodafone Italia for $8.7 billion. Biden and Republican Johnson hold 'intense' Ukraine talks at the White House. Macron's Ukraine troop talk shakes up NATO allies. Apple cancels a decade-long project to build an electric car. Leaked Russian military files reveal criteria for a nuclear strike. Use profits from frozen Russian assets to arm Ukraine, says EU Commission head von der Leyen. A winding-up petition hits Chinese developer Country Garden. Michigan's decisive 'Uncommitted' vote shows Israel's impact on Biden's support.

In currency markets. NZD tumbles over 1% as RBNZ keeps rates on hold. AUD hits weakest levels in a week as inflation data comes in softer-than-expected. CNY slips as China continues to tackle deflationary pressures. CNY is down 0.1%, while Asian currencies weaken by 0.2% on average vs USD. Trading currencies are under pressure, with NZD tumbling 1.2%, AUD, ZAR & NOK weakened by 0.75%, SEK dropping by 0.5%, CHF & MXN dipping by 0.2%, and JPY slipping by 0.1% vs USD.

In commodity markets. Oil, Wheat, and Silver prices tumbled by 1%, Natural Gas prices dropped by 0.5%, Copper prices weakened by 0.7%, Gold prices eased by 0.4%, and Soybean prices slipped by 0.1%.

CAD continues to weaken, testing a fresh 3-month low, down over 1% in February as commodity prices come under selling pressure and the USD extends gains ahead of crucial US inflation tomorrow. The focus will be on the CAD Current Account (Q4), expected at -1.25B, which is an improvement from -3.22B in Q3. Investors will be focused on US GDP, and a flurry of Fed speakers will help provide intraday direction for the loonie today.

EURCAD edges to a fresh monthly high as weakening commodity prices put additional pressure on the loonie vs the Euro.

EUR battles to hold 1.0800 as investors return to the USD. The USD rebounds as risk-on sentiment eases, as investors shift their focus to a flurry of crucial inflationary data releases this week. The Euro continues to find underlying support from the hawkish rhetoric from the ECB that interest are likely to hold steady through to the summer. Later today, the US GDP Q4 is expected to show the US economy expanded by 3.3%, which should support the USD ahead of Thursday's Core Personal Consumption Expenditures - Price Index.

GBPEUR holds steady as both currencies are impacted equally by the strengthening USD.

GBP holds above 1.2600 but looks vulnerable to further weakness amid increasing risk-off sentiment. The pound suffered its first daily drop vs USD in a week as investors opted for the sidelines ahead of crucial US inflation data. With the lack of any key UK data releases this week, investors are focusing on next week's Spring Budget, with expectations of modest fiscal loosening before a possible election later in the year. Domestically, the BoE is expected to keep its interest rates on hold until at least June. Intraday Fed comments and US GDP release will help provide intraday direction to the pound.