The Morning Update

Wednesday November 15th, 2023

Written by:
Paul Harrison

The USD inches higher, oil prices slip, equity markets are up, and US Treasury yields rise on rate relief optimism. The USD firms after tumbling 1.2%, its worst trading day in a year, while global equities hit two-month highs, and the S&P 500 and Nasdaq on Tuesday posted their best day since April. Risk-on sentiment returns as investors welcomed lower-than-expected inflation readings in the US and the UK as evidence that the central banks may have peaked with their aggressive interest-rate increases. Oil prices dip on signs that the US is at peak production, offsetting positive crude demand signals from China. In focus today, are the Xi-Biden meeting, US Target earnings, US Retail Sales, US PPI, NY Empire State Manufacturing Index, Speeches from Fed's Barkin and BoE's Haskel, and lower-tier CAD Manufacturing and wholesale Sales.

In other news. EU Commission cut its eurozone 2023 growth forecast to 0.6% from 0.8%, but see a rebound in growth in 2024. China's factory output and consumption beat forecasts, but property remains a drag on the economy. UK PM suffers a major blow after the top court upholds the ruling that the UK's Rwanda migrant plan is unlawful. The US House passes a spending bill to avert a government shutdown. Israeli military enters Gaza's al-Shifa hospital. The UK house prices chalk up their first annual fall since 2012. Ukraine reaches a deal with insurers for grain shipments. UK inflation slows sharply to 4.6%.

In commodity markets. Oil prices slipped by 0.4%, Natural Gas prices rallied by 1.8%. Gold prices firmed by 0.5%, Silver prices strengthened by 1.4%, Copper prices gained by 0.7%, Wheat prices jumped by 1% and Soybean prices firmed by 0.5%.

CAD holds on to its biggest rally in 5 months, sitting a weekly highs after Tuesday's US inflation data slowed more than expected which bolstered investor risk sentiment. We are seeing the USD attempting to bounce off its lows and oil prices have eased so heading into the US Retail Sales we could see a pullback towards 1.3750 as markets possibly correct. Today sees US retail sales and a mixture of mid-tier US data releases which will help provide some direction to markets today. On the CAD front, the low-tier Manufacturing Sales and Wholesale Sales are not expected to have an impact on Loonie's direction today.

EURCAD slips off 6-month highs after rallying 0.9% on Tuesday following the US CPI report. CAD remains vulnerable vs. Euro as fears of a slowdown in the US will have a greater impact on the Loonie in the longer term.

EUR appears to be consolidating after Tuesday's 1.7% rally vs. USD. The Euro is consolidating after posting its strongest day of gains vs. USD in over a year after investors' confidence returned following the lower-than-expected US inflation data. The Euro is stalling below its highest level since August, capped at 1.0900, but holding above 1.0850 as investors look to the US Retail Sales today for guidance. Fed's Barkin is speaking at the end of the business day, if we see any hawkish tone in the speech we could see some pressure return to the Euro.

GBPEUR slips after soft UK inflation data and the prospect that UK interest rates have peaked.

GBP stalls below 1.2500 after UK inflation falls towards 2-year lows. UK annual CPI softened to 4.6% in October, significantly lower than 6.7% in September, causing the pound to weaken on the prospect the BoE interest rates have peaked. BoE Chief Economist Pill said on Tuesday that the expected fall in inflation to just under 5% would still leave it "much too high" even if it represented a more than halving in price growth over the past year. Domestically, British house prices fell in annual terms in September for the first time since 2012, while rents rose sharply at the same time. The focus will be on the US data releases to provide intraday direction to the pound.