The Morning Update

Thursday March 21st, 2024

Written by:
Paul Harrison

The USD weakens, oil prices slip, equity markets are up, and US yields ease as confidence grows for lower global interest rates in 2024. On Wednesday, the Federal Reserve policymakers kept their outlook open to three interest rate cuts in 2024 despite the rebound in price pressures. Chairman Powell reiterated in his statement yesterday that policymakers would like to see more evidence that prices are coming down to signal the starting point for Fed easing. The Swiss National Bank surprised markets today when it became the first G10 country to cut its interest rates. The SNB cut rates by 25 basis points, lowering their benchmark to 1.5%, which caused the CHF to fall 0.7% on average vs. its peers. Global equity markets rallied towards all-time highs, with tech and commodity companies rallying in Europe as investor confidence grew that central banks are on the path to lower interest rates in 2024. Elsewhere, Gold rallied above $2,200 for the first time; Bitcoin stalled around $67,000, and oil prices steadied after an unexpected drop in US crude stock levels. Today's focus is the BoE interest rate decision, US PMI, Existing home sales, & Initial Jobless claims, which will help provide intraday direction to currency markets.

In other news. The SNB surprises with a rate cut, moving ahead of the ECB and Fed. Australia and the UK signed a defense pact in the face of rising Chinese power. China's bumper steel exports fuel oversupply concerns. The US DOJ to sue Apple for antitrust violations. Somali pirates' return adds to the global shipping companies crisis. Reddit IPO prices are at the top of the range to raise US$ 748 million. Canadian provinces will borrow 22% more this year as deficits rise. Portugal is set for a centre-right minority government. The US adopts new vehicle emissions rules preferred by automakers and labor unions.

In currency markets. The JPY finds some support from increasing expectations of more domestic interest rate hikes. The USD remains under pressure after the Fed statement reiterated it expects three interest rate cuts in 2024. AUD finds support after stronger-than-expected jobs data. CNY is flat, while Asian currencies are firm at 0.1% on average compared to USD. Trading currencies remain mixed, with CHF tumbling 0.75%, MXN, ZAR & SEK down 0.15%, NOK, NZD & JPY up by 0.2%, and AUD strengthening 0.45% against the USD.

In commodity markets. Oil and Natural Gas prices eased by 0.25%, Gold & Silver prices rallied by 2.2%, Copper prices firmed by 0.9%, Wheat prices strengthened by 0.1.2%, and Soybean prices increased by 0.6%.

CAD extends its gains towards two-week highs following the Fed's dovish comments on future interest rate cuts, which put the USD Index back into negative territory for March. Domestically, according to the BoC summary of deliberations detailing discussions governing council members, policymakers expect it will be able to cut interest rates sometime in 2024, while officials remain split on timing. The loonie can extend its gains as risk sentiment improves, oil prices stabilize, and other commodity prices rally. The USD PMI data will be the primary focus today, while the CAD New Housing Price Index and Employment Insurance Beneficiaries Change are not expected to impact the loonie today.

EURCAD continues to trend within a tight trading range as both central banks appear to be on track for their first interest rate cut in Q2/24.

EUR slips in early trading after EU PMI data fail to impress investors. The euro has weakened from intraday highs following mixed PMI data from the EU, Germany, and France. The French PMI data fell below expectations, while Germany's and the EU's Composite & Services PMI beat expectations. The Manufacturing In Germany and the EU PMI disappointed investors as they fell below expectations. With the prospect that the ECB will cut interest rates ahead of the Fed, the Euro is expected to remain capped below 1.1000. Intraday, the US PMI data will be a primary driver for Euro volatility today.

GBPEUR slips below 1.1700 as markets remain cautious heading into the BoE interest rate decision.

GBP remains capped at 1.2800 as investors remain cautious ahead of the Bank of England's interest rate decision and statement. The pound eased after mixed PMI data, which saw its Composite and Services PMI continuing to lag. On a positive note, the manufacturing PMI beat expectations, encouraging investors. The BoE is forecast to maintain its benchmark rate at 5.25%, with investors focused on any changes in the statement language. Analysts expect the BoE will be the last central bank to reduce its interest rates as domestic inflation levels remain the highest amongst its G7 peers. Intraday, the BoE statement and US PMI data will drive the pound's direction.