The Morning Update

The USD drops, oil prices are steady, equity markets are up, and US yields ease ahead of the Fed Chair's speech. The USD has weakened in early trading, while equity markets have strengthened ahead of comments from Federal Reserve Chair Jerome Powell, which may provide clues about the path of US interest rates into 2024. After inflation data in both the US and the eurozone on Thursday reinforced expectations that both central bank rates have peaked, investors bet on earlier rate cuts in 2024. Goldman Sachs said on Friday it now expects the ECB to deliver its first rate cut in the 2nd quarter of 2024, compared to an earlier forecast of a cut in Q3/24. Oil prices hold steady, following the OPEC+ meeting that promised approximately 900k barrels a day of fresh output cuts in January, but OPEC wasn't clear on the details. Gold prices remain on track for a third weekly gain. In focus today, CAD Net Change in Employment, CAD S&P Global Manufacturing PMI. US ISM Manufacturing PMI, and the key Fed Chair Powell to speak twice today.

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In other news. The S&P 500 rallied 8.9% in November, its second-biggest November rally since 1980. War resumes in Gaza after the truce collapses. COP28 spotlights global warning about the pain of climate change. Zelensky pushes to 'accelerate' military fortifications on Ukraine frontline. Tesla reveals Cybertruck pricing as it begins deliveries. Venezuela to hold a referendum on seizing part of Guyana - and its oil. Chinese factory activity contracts in a sign of the economy losing momentum. The Philippines is building a new coast guard station on an island in the South China Sea.

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In currency markets. The USD slips, the Euro is flat, the ZAR rallies near 1%, and commodity currencies firm ahead of the two speeches from the Fed Chair Powell today. The CNY slips 0.1%, while Asian currencies firm 0.1 on average vs USD. Trading currencies rebounded with JPY & CHF up 0.1%, AUD firming 0.2%, NZD gaining 0.3%, MXN, SEK & NOK strengthening 0.5%, and ZAR rallying 1% vs USD.

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In commodity markets. Oil prices are up by 0.2%, Natural Gas prices weakened by 0.95%, Gold prices firmed by 0.5%, while Silver prices are flat, Copper prices rallied by 0.95%, Wheat prices slipped by 0.2%, and Soybean prices tumbled by 1.15%.

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CAD firms in early trading as speculators unwind short-CAD positions after recent domestic data doesn't yet support the need for the BoC to cut interest rates earlier than expected. "Canada's economy dodged a bullet by putting up better numbers and better details than feared, especially upon controlling for temporary factors". said Derek Holt, head of capital markets economics at Scotiabank. "The Bank of Canada won't see enough in here to guide easing any time soon." Today sees several high-tier CAD & US economic data releases, plus two speeches from the Fed Chair, so we anticipate there is plenty of room for increased volatility intraday.

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EURCAD continues to weaken, dropping to a three-week low as speculators anticipate BoC will keep rates on hold, while many expect the ECB has room to cut its interest rates into Q2/24.

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EUR steadies around the 1.0900 level vs USD despite a weaker USD. The Euro is finding support but fails to make any upward momentum after we saw eurozone inflation levels fall, while the EU economy continues to stagnate, which is fueling anticipation of an earlier ECB rate cut. ECB officials continue to stress it may be too early to reduce interest rates, but their comments failed to rally the Euro. With a heavy day of key US data and two speeches by the Fed Chair, markets are stalled looking for fresh direction.

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GBPEUR extends gains, rallying to a fresh 3-month high as investors see BoE holding firm with interest rates and anticipate the ECB will be the first key central bank to ease interest rates.

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GBP edges off 3-day lows vs USD, on a weakening USD and a hawkish BoE. The pound bounces off 1.2600 lows amid a weakening USD heading into the Fed Chair's speeches. BoE Greene said, "I continue to put my focus on inflation persistence". her comments helped explain why she was in the minority of three who voted to raise rates to 5.5% at this month's meeting when the committee held them at 5.25%. Intraday we expect markets to hold on the sidelines ahead of the high-tier data releases from the US and two Fed Chair speeches which will help provide direction to currency markets today.