The Morning Update

The USD is steady, oil prices strengthen, equity markets are mixed, and US yields ease ahead of the US inflation report. Currency markets are steady, while equity markets and US yields dipped ahead of the release of the US Core Personal Consumption Expenditures  (PCE)- Price Index y/y Nov. The PCE price Index measures changes in the prices of goods and services purchased by consumers in the US and is also the Federal Reserve's preferred gauge of inflation. The PCE is expected to ease to 3.3% in Nov, down from 3.5% in October. Elsewhere, oil prices extended their biggest weekly gain in two months as Red Sea tensions increased, and Angola's exit from OPEC after 16 years spotlighted the group's unity. In focus today, alongside the US PCE, markets will be focused on CAD GDP, US Durable Goods, Michigan Consumer Sentiment Index, and US New Home sales.

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In other news. Nike's shares fell more than 10% in late trading after it announced cost-saving measures. Morgan Stanley's Gorman sees markets 'taking off' as Fed turns to rate cuts-FT. Biden orders top aides to Mexico for border talks amid migrant crisis. Economists warn of a fiscal squeeze to the eurozone next year. Mass drone attack hits Kyiv districts. UK recession might be underway after the economy shrinks in Q3. RBC's $13.5 billion deal for HSBC Canada is said to win approval - Bloomberg sources. Hamas refuses to discuss a new hostage deal before a ceasefire. Chinese state banks cut deposit rates in a bid to stimulate growth.

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In currency markets. The USD steadies near 4-month lows as investors focus on the US inflation report. CNY bounces after rate cuts are expected to help stimulate the domestic economy. AUD & NZD slip from 5-month highs, while EUR & GBP hold steady ahead of the US PCE data release. CNY and Asian currencies strengthened by 0.2% on average vs USD. Trading currencies are mixed, with ZAR weakening by 0.3%, AUD & NZD are down 0.15%, while JPY & MXN are flat, CHF & SEK are up 0.1%, and NOK strengthened by 0.3% vs USD.

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In commodity markets. Oil prices rallied by 1.1%, Natural Gas prices gained by 0.5%, Gold and Silver prices strengthened by 0.7%, Copper prices are flat, While Wheat and Soybean prices are up 0.1%.

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CAD breached the key 1.3333 (75 cents) on Thursday and rallied to a fresh 5-month high, with the loonie finding support from strengthening commodity prices and a weakening USD. The loonie is holding near its 5-month high, but investors are cautious heading into the last critical economic data releases of 2023. Out of the US, the PCE price index will be the key focus of global investors, while in Canada, the focus will be on the CAD GDP, which is expected to be higher by 0.2% in October vs 0.1% in September. In thinner holiday markets, if we see a print outside of expectations, we could see a spike in volatility for the CAD.

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EURCAD holds steady above 1.4600 ahead of the US and CAD data releases.

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EUR stalls at weekly highs near 1.1000 ahead of the US Core Personal Consumption Expenditures Price Index release. Euro continues to extend gains on the back of the weakening USD but steadies at weekly highs at 1.1000 ahead of the key US inflation report. If we see the PCE print outside of expectations, we could see volatility increase as markets become thinner with the start of the Christmas holidays.

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GBPEUR firms in early trading after better than expected UK Retail Sales data.

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GBP holds near 1.2700 after mixed UK data. The pound initially gained on stronger-than-expected Retail Sales which jumped to 1.3% in November, vs expectations of just 0.4% growth. Elsewhere, UK GDP dropped to -0.1% in Q3, suggesting that the UK has slipped into a recession, which prompted the finance minister Jeremy Hunt to take the rare step of suggesting that the BoE could cut interest rates to boost growth. The pound is holding near its intraday high which has been primarily driven by a weakening USD ahead of the key US inflation report.

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