The Morning Update

Wednesday November 29th, 2023

Written by:
Paul Harrison

The USD firms, oil prices grain, while equity markets are mixed, and US yields ease as attention moves to Fed Chair Powell's speech on Friday. The USD bounces off five days of weakness, and oil prices extend their biggest gain in a week as markets await the delayed OPEC+ meeting. Hong Kong equities fell over 2% and are on their way to their lowest close in 2023, while European shares advanced as risk sentiment improved. "attention will now move to Chair Powell's speech on Friday to see if the tone points to a clear pivot towards easing," Maher head of FX strategy for the US at HSBC, wrote in a note. "if it materializes, this would clearly be a challenge to our bullish US dollar view." In focus today are the German Consumer Price Index, US GDP, US Core personal consumption expenditures, CAD Current Account (Q3), the Fed's Beige Book, and central bank speeches from UK BoE Governor Bailey and Fed's Mester.

In other news. Hamas, Israel considers new Gaza truce parameters including the release of men. Berkshire Hathaway's Charlie Munger dies aged 99. Global growth to slow but avoid a hard larding-OECD. The LME did not act unlawfully in the nickel trades case, the High Court rules. Sticky inflation could keep rates high into 2025 in the eurozone and UK warns OECD. Debt-laden China's local governments scramble to rescue small banks with $21 billion in special bonds. Saskatchewan invokes autonomy act over clean energy rules.

In currency markets. The USD bounces off 3-month lows ahead of Friday's Fed Chair's speech. Australia & NZD rally to 4-month highs, the NZ central bank stuns investors with its hawkish call. Chinese yuan firms on the prospect US rates have peaked, focus shifts to China PMI data. CNY gains 0.25%, while Asian currencies slip 0.1% on average vs USD. Trading currencies are mixed with AUD,  NOK, SEK & ZAR falling 0.4%, JPY slipping 0.2%, MXN easing 0.1%, while CHF is up 0.1%, NZD gaining 0.15% vs USD.

In commodity markets. Oil prices rallied by 1.3%, Natural gas prices weakened by 1.3%, Gold prices slipped 0.15%, while Silver and Copper prices are flat, Wheat prices edged higher by 0.15%, and Soybean prices fell 0.3%.

CAD holds steady near 8-week highs, finding support from increasing optimism that CAD interest rates have peaked, increasing the prospect of a soft landing, and found additional support as oil prices rebound. In focus today is the current account Q3 which is expected to rebound from -6.63B to a positive +1B, the higher reading would be seen as bullish for CAD. Also in focus today is the USD GDP which will be a key driver of markets today, as well as the Fed's Mester speech which may help set the stage for the Fed Chair's comment on Friday.

EURCAD holds steady below November highs, but month-to-date the loonie is still down 1.6% vs Euro as CAD continues to underperform versus its non-USD peers.

EUR gives back Tuesday's gains and slips below 1.1000 ahead of the German inflation report. Euro loses its strengthening momentum as the US edges off 3-month lows and markets focus on the key German and US economic releases out today. The German consumer inflation index is expected to ease to 3.5% y/y November, down from 3.8% in October. German Harmonized Index Consumer Prices y/y is expected to drop to 2.7% in November, down from 3% in October. Following the German releases focus will shift to the key US GDP report which is expected to increase to 5% in Q3, up slightly from 4.9% in Q2. Intraday the data results will drive the Euro direction today.

GBPEUR extended gains to its highest level in November up 0.6% for the month, and is up 2.2% in 2023 finding support from hawkish BoE Governor Bailey's comments.

GBP retreats from intraday highs, dropping below 1.2700 as the USD rebounds ahead of Fed Chair Powell's comments on Friday. The pound retreats from its multi-month highs in early trading vs USD, but maintains its strength vs its G10 peers as BoE Governor Bailey's comments continue to provide underlying support to the pound. BoE Bailey said on Monday that bringing inflation down to the 2% target will be hard work and acknowledged the negative impact higher rates have on households, but said it was too early to think about rate cuts. Today, the focus will be BoE Governor Bailey's speech and the US GDP to provide intraday direction to the pound.