The Morning Update

The USD eases, oil prices slip, equity markets are mixed, and US yields ease as markets trade in narrow ranges ahead of the US inflation report. Currency and equity markets remain range-bound as investors stay on the sidelines ahead of Thursday's key US inflation report. The impact of disrupted supply chains is keeping risks elevated and could disappoint investors expecting the Fed will pivot to rate cuts as soon as March, warned Justin Onuekwusi, CIO at St James's Place Management. "What I'd look for is whether there are any signs of supply constraints coming back into the market because of geopolitical risks in the Mideast and the shipping traffic in the Red Sea not flowing like it used to." Elsewhere, oil prices gave up early gains despite falling US crude stockpiles and the ongoing risk to shipping in the Red Sea. Bitcoin volatility steadies after a watchdog X account was "compromised," the SEC is expected to decide on Bitcoin EFT this week. Intraday, there are no high-tier economic releases, but we will see speeches from BoE Governor Bailey and Fed Williams, which may guide markets today.

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In other news. Boeing Chief admits "our mistake" after 737 Max door panel mishap. The Eurozone economy is heading for another downturn, warns ECB Luis De Guindos. Chinese companies resort to repurposing Nvidia gaming chips for AI. Red Sea security fears cut container shipments through the Suez Canal. Global minimum tax will boost revenues for tax havens, says OECD. US and Chinese military officials will hold the first talks since 2021. CEOs of the country's big banks say Canadian mortgage holders can cope with loan renewals. The UK and US forces repel 21 drones and missiles in the 'largest attack' yet by Houthis.

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In currency markets. The USD gives us Tuesday's gains ahead of the US inflation report on Thursday. CNY edges lower, testing a fresh 1-month low. Commodity currencies rebound amid a weakening USD. CNY is flat, while Asian currencies slip by 0.1% on average vs USD. Trading currencies are mixed, with JPY down by 0.35%, MXN eased 0.1%, NZD & CHF flat, SEK firms 0.2%, NOK gains 0.25%, and AUD & ZAR strengthened by 0.35% vs USD.

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In commodity markets. Oil prices slipped by 0.1%, Natural Gas prices tumbled by 2.9%, Gold and silver prices gained by 0.4%, Copper prices strengthened by 0.7%, and Wheat and soybean prices weakened by 0.5%.

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CAD remains within its weekly trading range, rebounding from Tuesday's four-week low of 1.3414 as the USD adjusts ahead of Thursday's crucial US inflation report. Domestically, Canada's trade surplus narrowed to C$1.6 billion in November from C$3.2 billion, with precious metals leading the first decline in exports in 5-months. Canadian building permits fell by 3.9% from October to November. With no key economic releases today, we anticipate the Loonie will remain within a 1.3335-1.3415 trading range ahead of the US inflation report on Thursday.

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EURCAD remains steady as investors remain sidelined with the lack of key economic data releases ahead of Thursday's US CPI report.

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EUR rises to the higher side of the single currencies trading range amid the rebalancing of the USD. Euro swings to the higher end of its weekly range as the USD eases, with investors continuing to remain on the sidelines ahead of Thursday's US inflation report. ECB VP De Guindos said in a speech in Spain this morning that "soft indicators point to an economic contraction in December... confirming the possibility of a technical recession in the second half of 2023 and weak prospects for the near term." The Eurozone economy is heading for another downturn in the fourth quarter, but this will not be enough to avoid a "transitory pick-up in inflation." Intraday, we anticipate the Euro will remain capped at 1.1000 ahead of Thursday's US inflation report.

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GBPEUR continues to trade within tight ranges as investors remain focused on the US CPI report to provide fresh direction to the currency markets.

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GBP rebounds through 1.2700 amid a weakening USD as markets await BoC Governor Bailey's comments. Markets will be focused on BoC Governor Bailey's comments when he testifies before the Treasury Select Committee. The Governor is expected to respond to questions regarding the threat to financial stability posed by the high domestic interest rates. Markets will monitor the Governor's tone to see if he leaves the door open for further interest rate hikes or if he suggests that interest rates have peaked. If Bailey leaves the door open for additional rate hikes, we could see the pound extend gains towards 1.2760 vs USD.