The USD holds steady, oil prices are flat, equity markets are up, and US yields ease amid Red Sea concerns and BoJ maintaining rates. Currency markets are mixed after the BoJ kept rates on hold, signaling it is not likely to hike rates in the medium term. Oil prices continue to be choppy, slipping off two-week highs as more companies shun the Red Sea after the spike in vessel attacks along the critical shipping lanes. Global equity markets extended gains, while US futures held steady after the Nasdaq 100 hit a record high on Monday for a 2nd consecutive session. The US policymakers continue to walk back Fed Chair Powell's rate cut comments, with Fed Mester and Goolbee commenting that rate cut expectations are premature; the focus will be on Fed Bostic comments. Today, we see US Building Permits, US Housing Permits, and the CAD Consumer Price Index to help provide intraday direction to the currency markets.
In other news. Expanded US-led task force to protect Red Sea shipping as attacks mount. Sisi won a third term as Egypt's president. The Ukraine economy heads for tough 2024 as Western aid concerns grow. Apple will halt US sales of Series 9 and Ultra 2 smartwatches over a patent dispute. The BoJ keeps its ultra-loose interest rate policy and offers few hints on the timing to raise its interest rates. Homes collapse as earthquake kills over 100 in China's rural Gansu. Icelandic volcano erupts, missing local town for now. Israel pounds Gaza, Houthis vow more Red Sea attacks.
In currency markets. The Japanese yen tumbled after the BOJ stuck to its ultra-loose policy. China's yuan falls to a one-week low as the dollar rebounds. The USD holds steady with the lack of US high-tier data releases and increasing tensions in the Red Sea. CNY slips 0.1%, while Asian currencies are flat on average vs USD. Trading currencies are mixed, with JPY tumbling 1.5%, SEK weakening 0.2%, CHF up by 0.1%, AUD, NOK, MXN & NZD firming 0.3%, and ZAR strengthened by 0.45% vs USD.
In commodity markets. Oil and Gold prices are flat, Natural Gas prices tumbled by 2.25%, Silver and Wheat prices firmed by 0.4%, Copper prices strengthened by 0.75%, and Soybean prices dropped by 0.6%.
CAD is trading cautiously, weakening off its 4-month highs as investors focus on today's consumer price index report. Economists predict inflation pressures in Canada will ease to 2.9% in November, down from 3.1% in October. In an interview with Bloomberg, BoC Governor Macklem said he expects to start cutting interest rates next year but needs to see several months of sustained downward momentum in core inflation first. A print below the expected could put further selling pressure on the loonie on expectations that the BoC will take a dovish stance on interest rates in 2024.
EURCAD holds steady as EU inflation levels hold static, and markets appear sidelined ahead of the BoC monetary decision.
EUR continues trading in a tight range as markets remain sidelined ahead of high-tier US data releases. The Euro holds above 1.0900 as US policymakers walk back Fed rate cut comments, and the ECB maintains its cautious tone. ECB officials continue to push back against investor expectations for interest rate cuts in Q1/24. ECB Kazimir said yesterday that a drop in inflation in the last few months was insufficient to declare victory and prompt interest rate cuts. Today, the Core Harmonized Index of Consumer Prices y/y remains static at 3.6%. Today, we anticipate the Euro will hold within its current range ahead of Thursday's US GDP report.
GBPEUR strengthens in early trading as investors shift their focus to the UK inflation report on Wednesday.
GBP extends gains as the USD holds steady and investors shift focus to Wednesday's UK inflation report. The pound gains against a subdued USD as investors focus on the UK inflation report on Wednesday, which is expected to see the UK inflation levels remain the highest amongst its G10 peers at 5.6% in November. The UK's ongoing struggles with high inflation levels are expected to see the BoE be the slowest of the major central banks to lower interest rates in 2024. Intraday, we anticipate the pound will be capped at 1.2730 ahead of Wednesday's inflation report.
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