The Morning Update

The USD weakens, oil prices steady, equity markets rally, and US yields ease ahead of the US inflation report. US treasury yields and the USD are down while equity markets rally as risk sentiment improves before the crucial US inflation report. Today's US consumer price index will give investors a sense of whether the disinflation trend persists, heading into the Federal Reserve's last interest rate decision of 2023. Bloomberg Economics forecasted that CPI core goods prices will decline in November for a 6th straight month to 3.1%, benefiting from the decline in core goods and energy prices. Elsewhere, The US small business sentiment edged down in November to its lowest level in six months on struggles to hire skilled labor and inflation concerns. France's CAC 40 index is headed for a record close. Oracle slumps as much as 8.8% after disappointing Q2 sales. Oil prices are steady despite Yemen's Houthis' claimed attack on a Norwegian tanker. Bitcoin settles after worst selloff in 9 months. In focus today, US CPI, Monthly Budget Statement, and US Redbook Index which will help provide intraday direction to currency markets.

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In other news. Xi reinforced China's ties to Vietnam after the US push. EU explores emergency Ukraine funding outside the bloc's shared budget. COP28 draft agreement drops phaseout of fossil fuels. UK mortgage arrears at highest level in six years, fresh data shows. Israel pummels southern Gaza as hunger tightens grip. Renault to sell 5% of Nissan stake, to book 1.5 bln euro loss. Ukraine Zelensky to meet President Biden to press for an additional aid package. Pressure mounts on Hungary to unblock EU membership talks and funds for Ukraine.

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In currency markets. The USD eased as US yields weakened and currency markets strengthened ahead of the key US inflation report. CNY is up 0.1%, while Asian currencies firm 0.2% on average vs USD. Trading currencies firm with MXN edges higher by 0.1%, CHF up 0.3%, AUD & SEK firming 0.4%, NZD & NOK gains 0.5%, JPY strengthens 0.65% and ZAR rallies 0.9% vs USD.

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In commodity markets. Oil prices weakened by 0.35%, Natural Gas, and Gold prices firmed by 0.5%, Silver prices rallied by 0.95%, Copper and Wheat prices gained by 0.7%, and Soybean prices are up by 0.3%.

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CAD holds steady, consolidating ahead of the US inflation report, heading into Wednesday's key US Federal Reserve's interest rate decision. We have seen speculators cut their bearish bets on CAD on the US CFTC by 10% week over week. With the lack of any fresh CAD economic releases this week, the loonie will be at the mercy of commodity prices and US data releases to help drive direction this week. Intraday if CPI comes in as predicted, we anticipate the loonie will hold within its current range ahead of the Fed on Wednesday.

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EURCAD firms in early trading as CAD underperforms its peers as oil prices slip and the Euro finds support from the upbeat ZEW economic sentiment index.

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EUR firms, but remains capped at 1.0800 ahead of the US CPI report. Euro edges higher as risk sentiment improves on expectations of slowing US inflation levels will lead to the Fed adopting a more dovish tone at its meeting tomorrow. Domestically the ZEW Economic Sentiment Index for the eurozone beat expectations, improving to 23 in December, vs 13.8 in November. We anticipate investors will remain cautious with a busy week with both the Fed and ECB announcing their interest rate decisions this week. Today, the focus will be on the US inflation report to help provide intraday direction.

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GBPEUR slips from three-month highs after UK wage growth slows before BoE rates decision this week.

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GBP struggles to hold above 1.2550 after the UK jobs data despite improving risk-on sentiment. Domestically, the slowdown in regular pay growth from the summer peak of 7.9% to 7.2% its sharpest fall in 3 months since Nov 2021, while annual growth in earnings remains high in cash terms. Economists commented that the UK's economy is stagnating and some analysts have said it could go into a shallow recession in Q1/24. The focus remains on the ECB. the Fed and BoE interest rate decisions this week. The BoE is widely expected to hold interest rates steady, the softer wage inflation reading could be encouraging for policymakers that inflation pressures are starting to ease. Intraday the US inflation report will be the primary driver for markets today.