The Morning Update

The USD eases, oil prices firm, equity markets are higher, and US yields rise as the focus shifts to US Jobs data on Friday. The USD eases as the Fed minutes offer few clues on the rate cut timeline, while equity markets rebound after two days of weakness, and US yields continue to rise. Elsewhere, geopolitics remain in focus, with escalating tensions in the Red Sea, attacks in Iran, and supply disruptions in Libya, which saw oil prices strengthening by 1% today. Chinese government bond yields dropped to their lowest levels in over three years. Chinese equities remain the biggest drag in Asia following a report that showed wages offered to Chinese workers in major cities declined by the most on record. Today, we focus on Eurozone S&P services PMI, US Initial Jobless Claims, and ADP Employment. Investors will likely be somewhat sidelined ahead of Friday's key US nonfarm payrolls, factory orders, the ISM services index, and Europe's CPI & PPI data release.

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In other news. Israel focuses on assault on southern Gaza amid concern over the spread of war. Eurozone business activity shrank again in Dec, pointing to recession-PMI. Russian hackers were inside Ukraine's telecoms giant for months- Cyber spy chief. In the UK, clothing retailer Next increased its profit outlook again on a strong Christmas performance. Iran vows revenge after the most significant attack since the 1979 revolution. Fed officials said rates could remain high 'for some time'. Polish truckers defy Donald Tusk by continuing the Ukraine border blockade. The killing of Senior Hamas leader in Beirut raises stakes in Israel war - FT.

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In currency markets. Currency markets rebounded after the Fed minutes provided no clear guidelines on rate cuts in 2024. CNY is flat, while Asian currencies firm 0.1% on average vs USD. Trading currencies improve are mixed with JPY down 0.6%, MXN & CHF slip 0.1%, while AUD & NZD firm 0.1%, NOK strengthens 0.25%, ZAR gains 0.35% and SEK strengthens 0.5% vs USD.

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In commodity markets. Oil prices strengthened by 1%, Natural Gas prices rallied by 2.9%, Gold prices firmed by 0.6%, Silver prices gained by 0.2%, Copper and Soybean prices slipped by 0.25%, and Wheat prices dropped by 0.6%.

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CAD rebounds from Wednesday's two-week lows, dipping below the key 1.3333 (75 cents) as oil prices strengthen on increasing Middle East tensions and supply disruptions. The Fed minutes provided no significant guidance on interest rate cuts in the US on Wednesday, so investors are shifting their focus to Friday's key US Nonfarm Payroll data for clues on interest rate direction. Domestically, CAD has no data releases today, so the focus will be on Friday's key Unemployment Rate and Net Change in Employment to help provide clues for CAD's interest rate direction. Intraday the US jobs data will help provide intraday direction to the loonie.

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EURCAD edges off three-week lows as focus shifts to the key German inflation report to help guide the Euro today.

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EUR edges higher amid a weaker USD ahead of key data releases. Inflation data from Germany and the private sector employment report from the US will be monitored closely by markets today. Domestically, eurozone business activity shrank again in December due to a persistent downturn in the dominant services industry, indicating that the EU is in recession. Countering the slowdown in demand, the composite output prices have increased at their fastest pace since Q2, signaling that inflation remains above the ECB's target of 2% in the near term. The focus will be on today's German inflation data releases ahead of Friday's critical eurozone inflation report, which will help set the stage for the ECB's stance on its interest rate policy in 2024.

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GBPEUR holds flat at two-week highs heading into a flurry of US and German data today.

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GBP slips from intraday highs and finds support at 1.2700 ahead of US data releases. The pound gained on the combination of a weakening USD and received a boost from the UK S&P Global/CIPS services PMI after it was revised higher for December. The pound will be at the mercy of US and Eurozone data for guidance heading into Friday's critical US nonfarm payroll data. We anticipate the pound will hold within a 1.2670-1.2750 range ahead of Friday's data releases.