The Morning Update

Wednesday November 1st, 2023

Written by:
Paul Harrison

The USD edges higher, oil prices firm, equity markets are up, and US yields rise ahead of the Fed's interest rate decision. Currency markets are stable, while equity and treasury markets edged higher ahead of the US government's updated borrowing plan and the key market event, the Federal Reserve's interest rate decision. The Federal Reserve is expected to keep its interest rates on hold at 22-year highs for a second consecutive meeting. In his statement, economists expect Fed Chair Powell will leave the door open for another rate hike as soon as December with the US domestic economy staying resilient. Oil prices edged higher to start November on increasing expectations of an escalation in the Israel-Hamas war, while Gold prices dropped for a third straight session. Today, US ADP Employment Change, ISM Manufacturing PMI, CAD S&P Global Manufacturing PMI, and BOC Governor Macklem's speech are in focus. The Key focus will be the US interest rate decision, the Fed Monetary Policy Statement, and the FOMC press conference.

In other news. Egypt to allow first exits from Gaza, Palestinian officials say. Attacks on US interests in Iraq highlighted the threat of escalating conflict. Chinese AI scientists call for stronger regulation ahead of landmark summit in the UK. The UK rips up state guarantees on nearly 1 billion pounds of COVID loans. China's Evergrande proposes offshore creditors get a 30% equity stake in subsidiaries. Canada's economy is on track to enter a technical recession. Russian drones hit an oil refinery, and damaged railway power lines in Ukraine.

In currency markets. The JPY paused its sell-off after an official escalated intervention warning. Chinese Yuan holds steady as China sets its fixing with the strongest bias so far in 2023. Commodity currencies come under fresh pressure ahead of the FOMC interest rate decision. CNY is flat, while Asian currencies slip 0.15% on average vs USD. Trading currencies are mixed with NOK & ZAR weakened 0.4%, NZD & SEK down 0.2%, AUD dipped 0.1%, while MXN & CHF are up 0.1%, and JPY gains 0.3% vs USD.

In commodity markets. Oil prices strengthen by 1%, Natural Gas prices tumble by 1.5%, Gold prices slip by 0.25%, Silver prices weaken by 1%, Copper prices dip by 0.2%, Wheat prices strengthen by 0.85% and Soybean prices ease by 0.15%.

CAD holds near a 1-year low of 1.3892, ahead of the Federal Reserve interest rate decision today. On Tuesday the Canadian GDP m/m in August stalled at 0% growth putting Canada in a technical recession. We remain bearish CAD on expectations that the Fed will hike rates again in December, while it is expected that Canadian interest rates have spiked and the BoC will lower rates into Q2/24. Today, alongside the US data & rate decision focus will be on CAD Global Manufacturing PMI, which is expected to be below 50 which is perceived as bearish for the Canadian economy. A break of 1.3900 opens up for a test of the previous low of 1.3977 on 13th Oct 2022.

EURCAD slips off a 5-week high as rising oil prices helped support the loonie.

EUR retreats towards 1.0550 as investors shift their focus to the Federal Reserve interest rate decision. Euro weakened almost 100 basis points as caution returns to markets amid an expected increase in the Israel-Hamas conflict and expectations the Fed will keep the door open to further rate hikes. We anticipate the Euro will continue under pressure heading into Friday's key US jobs data. A break of 1.0520 opens up the potential of further Euro weakness towards 1.0450.

GBPEUR holds steady ahead of the FOMC rate decision and the BoE decision on Thursday.

GBP fails 1.2200 as risk sentiment wanes and caution returns to markets ahead of the FOMC interest rate decision and US jobs data. The USD rebounds markets turn cautious ahead of an anticipated increased ground offensive in Gaza and on expectations of hawkish comments from the Federal Reserve Chairman in his statement today. We anticipate the pound will steady heading into the BoE interest rate decision on Thursday but remains vulnerable to further weakness beyond 1.2000 into December.