The Morning Update

Wednesday September 6th, 2023

Written by:
Paul Harrison

The USD steadies, oil prices test $90, equity markets are down, and US yields are mixed on weak German data. Currency markets hold steady, equity markets fall for a sixth straight session, and oil prices remain volatile on deepening signs of an economic slowdown in Europe and China. German factory orders tumbled in July as woes of Europe's biggest economy continued into Q3, increasing fears that the Eurozone is heading towards a recession. Markets are increasingly expecting the European Central Bank will hold off raising interest rates at its meeting next week. Today sees a busy economic docket with US trade, ISM services index, Canada interest rate decision, BoE Bailey testifies to the UK parliament's Treasury Select Committee, Fed issues Beige Book economic survey, Fed Collins & Logan speak.

In other news. Eurozone housebuilding has declined at the fastest pace since the start of the pandemic. Oil prices hit $90 for the first time in 2023 as Saudi Arabia and Russia extended cuts. North Korea leans on Russia to bolster weapons trade. China bans govt officials from using iPhones for works-WSJ. Blinken visits Ukraine in a gesture of support as the counteroffensive grinds on. UK air traffic meltdown 'one in 15 million' event-NATS. US Senate races ahead of House on spending bid to avoid shutdown. Poland said its army will soon be the strongest in Europe.

In currency news. Japan issued its strongest warning in weeks against rapid declines in the JPY. China's central bank offered the most forceful guidance on record with its daily fixing for CNY, as the currency weakens towards 17-year lows. The USD holds a near 6-month peak on global growth fears. AUD steadies near 10-month lows. CNY and Asian currencies slipped 0.1% on average vs. USD. Trading currencies are mixed with MXN tumbling 0.8%, CHF & SEK slipped 0.1%, while NZD is flat, NOK & ZAR are up 0.1%, and AUD & JPY firm 0.25% vs. USD.

Oil prices slipped off their highs after testing $90 for the first time in 2023 as Saudi Arabia and Russia continue to restrict supply. CAD remains on the back foot holding near 5-month lows from ongoing weak Chinese data and as investors remain sidelined heading into the BoC interest rate decision today. The key focus for CAD today will be the BoC rate decision with investors expecting the central bank to hold interest rates at 5% while leaving the door open for a 25bps hike in October. Alongside the BoC rate decision, the focus will also be on the US ISM Services PMI, Fed speeches, and the Fed's Beige Book to help provide intraday direction.

EURCAD firms in early trading as investors remain cautious ahead of the BoC interest rate decision, while the ECB's hawkish comments supported the Euro.

EUR steadies below 1.0750 after EU Retail Sales and as US ISM PMI comes into focus. Euro holds in a relatively tight trading range after mixed Eurozone & German economic data. Domestically Retail Sales in the eurozone declined in July, directly related to reduced auto fuel purchases, while June registered an increase. In Germany factor orders in July m/m tumbled -11.7% vs. +7.6% previously, increasing fears of recession as Europe's biggest economy continues under pressure in Q3. Euro has found support from comments today from the ECB Knot telling Bloomberg that market bets against an interest rate increase next week are 'possibly underestimating the likelihood of it happening'. Today's focus will be on US economic releases to help provide intraday direction to markets.

GBPEUR weakens in early trading as hawkish ECB comments help support the Euro, while investors remain cautious ahead of the BoE Bailey testimony in front of the treasury select committee.

GBP retests 2-month lows vs. USD amid risk aversion and caution ahead of the BoE rate decision. The pound dropped 1% vs. USD in September as pressure grew as risk aversion increased on global growth fears amid rising oil prices. The focus will be on BoE Governor Bailey as he testifies to the UK Parliament's Treasury Select Committee, as it could give guidance to the Bank's September 21st interest rate decision. We expect the pound to remain under short-term selling pressure with the potential of seeing a retest of 1.2480 next.