The Morning Update

The USD eases, oil prices extend losses, while equity markets and US yields are mixed on European recession risk. Euro gains in early trading, while equity markets struggle for traction after Eurozone business activity fell again in November, stoking concerns of a recession. The S&P Globals Purchasing Managers index was in contraction in November, its sixth consecutive month below 50 level at 47.1 which is close to the October 46.5, a 3-year low. Oil prices extended losses as discord within OPEC+ forced the group to delay its upcoming meeting. Today we anticipate markets to consolidate with markets closed in the US with the Thanksgiving holiday.

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In other news. Far-rights Geert Wilders wins big in Dutch election. Israel-Hamas hostage deal and truce delayed. EU and Canada preparing a show of friendship at the joint summit. German parliament cancels 2024 budget vote amid political crises. Switzerland agrees to sales of tanks to backfill NATO stocks. North Korea scraps agreement with Seoul as tensions rise. Net migration to the UK hit record 745k in 2022, says ONS. UK energy price cap to rise by 5% in January. Turkey tells NATO that Sweden won't join by next week's meeting.

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In currency news. The USD remains under pressure, while China's Yuan retests 4-month highs. Euro firms as the downturn in the Eurozone may be shallower than first anticipated. CNY firms 0.3%, while Asian currencies gain 0.15% on average vs USD. Trading currencies improved with MXN & SEK flat, JPY & CHF up 0.2%, NOK, AUD & NZD firmed 0.35%, and ZAR rallied by 0.65% vs USD.

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In commodity news. Oil prices dropped by 0.9%, Gold and Silver prices firmed by 0.1%, Copper prices gained by 0.5%, while Wheat and Soybean prices are flat.

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CAD holds steady below 1.3700, finding support from a weakening USD. We remain cautious about CAD's ability to extend gains beyond 1.36000 as commodity prices remain under pressure with the increasing prospect of global recession and lower CAD interest rates into Q1/24. BoC Governor in his speech suggested that interest rates may be at their peak, and said interest rates may now be restrictive enough to return inflation to a 2% target given that excess demand has vanished and weak growth is expected to persist for many months. With the US Thanksgiving holiday today, we anticipate the CAD will be steady within its current range.

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EURCAD firms in early trading as the Euro benefit from expectations that a recession within the Eurozone will be shallower than first anticipated.

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EUR steadies around 1.0900 on better-than-expected German PMI data. Euro benefited from the upbeat German and Eurozone PMI data which remain in "Contraction" but showed a slowdown in the pace of contraction in the private sector. "The November PMI numbers validate our assessment that Germany is currently in a recession, starting from the 3rd Quarter", said Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, but noted that the recession may be shallower than expected.

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GBPEUR extends gains retesting 1.1500 after strong UK PMI data.

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GBP retests 1.2550 amid a weaker USD and strong UK business PMI. The pound strengthened after UK preliminary business PMI data surprised markets by showing that the service sector returned to expansion in November. The combination of a weak USD and the upbeat market mood helped the pound rebound from 1.2450 to briefly touch 1.2573. Dr Glen CIPS Chief Economist said November's data reveals welcome signs of calmer waters ahead for the UK economy, albeit with indications that there is still a little way to go before we completely out of the inflationary storm. We expect the pound to be subdued for the rest of the day with the Thanksgiving holiday in the US.