The USD firms, oil prices strengthen, equity markets are mixed, and US yields rise as caution remains ahead of the crucial US inflation report. Currency markets remain range-bound, while equity markets start to retreat before key inflation readings from the US and China later this week, and the earnings season starts on Friday. Fed Governor Bowman said inflation could fall towards the Fed's target of 2% with current interest levels, saying that hikes are likely over but not ready to cut yet. Bowman said, "In my view, we are not yet at that point, and important upside inflation risk remains. Former bond king Bill Gross said that 10-year bond yields over 4% are overvalued, even after it surged 17 bps on robust labor markets last week. Elsewhere, oil prices rallied nearly 2% on signs of a weaker physical market and price cuts by Saudi Arabia. Bitcoin holds above $46k on bets that the US is poised to approve the first US ETF. Today sees another light day of economic releases, so we expect markets to remain on the sidelines ahead of Thursday's US Inflation report. Intraday markets will focus on speeches from Fed Barr and ECB's Villeroy to help provide some direction to currency markets.
In other news. Eurozone unemployment falls to a record low. Taiwan presidential candidate accuses China of election interference. Crypto and Fintech groups fined $5.8bn in global crackdown on illicit money. Blinken carries an Arab message to Israel: keep the Palestinian State hope alive. Nvidea rallies to record high as chipmaker announces AI-related components. Samsung flags a worse-than-expected drop in quarterly profit on weak demand. Oil tankers continue Red Sea movements despite Houthi attacks.
In currency markets. The prospect of a US CPI decline is keeping the USD in check. China's December new yuan loans seen higher, hitting a record in 2023 and keeping pressure on the CNY. Commodity currencies remain under pressure ahead of Thursday's key US inflation report. CNY slips 0.1%, while Asian currencies weaken 0.3% on average vs USD. Trading currencies are mixed, with AUD, ZAR & CHF dropping 0.35%, NZD, SEK & MXN slipping 0.15%, while NOK is flat and JPY firms 0.1% vs USD.
In commodity markets. Oil prices rallied by 1.75%, Natural Gas prices strengthened by 1.3%, Gold prices gained by 0.4%, Silver prices are flat, Copper prices dropped by 0.35%, Wheat prices are up by 0.7%, and Soybean prices firmed by 0.3%.
CAD continues to ease gradually, testing a fresh two-week low despite rallying commodity prices after the Fed Bowman suggested that the central bank isn't ready to cut interest rates soon. We anticipate the loonie to hold below 1.3410 without any high-tier economic releases ahead of Thursday's key US inflation report. We see several low-tier CAD economic releases today, including Exports and imports (NOV), Building Permits, and International Merchandise Trade. At the same time, markets will be focused on comments from the Fed's Barr comments.
EURCAD holds steady as investors appear sidelined ahead of Thursday's US CPI report, despite higher oil prices and Euro unemployment levels hitting record lows.
EUR continues to stall within a tight trading range as investors are sidelined and as the market mood sours. Investors remain on the sidelines amid increasing geo-political concerns and increasing Fed talk that it is too early for the Fed to ease interest rates. Domestically, the eurozone unemployment rate dropped to 6.4% in November, hitting a record low and underscoring that the EBC has no plans to start cutting interest rates in the short term. Intraday, we anticipate the euro will hold within its current 1.0900-1.0960 range as markets await fresh guidance from Thursday's US inflation report.
GBPEUR slips off two-week highs as record-low eurozone unemployment data provides underlying support to the Euro.
GBP retreats towards 1.2700 amid a USD rebound. The souring risk sentiment ahead of this week's US inflation report makes it difficult for the pound to hold on to Monday's gains. The CME Group Fed watch tool suggested that the probability of a 25bp Fed rate cut in March has dropped to 60%, down from nearly 80% a week ago. Technically, the pound is looking capped at 1.2750 and remains open for a retest of 1.2625 as Fed governors back off the prospect of US rate cuts.
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