The Morning Update

The USD is steady, oil prices slip, equity markets are mixed, and US yields ease as China concerns weigh on sentiment. The USD index steadies near a two-year high against its G10 peers as investors bet on greater growth out of the USA in 2025. Equity markets are mixed over concerns over China's struggling economy impacts risk sentiment. Chinese equities had their worst start since 2019, while European equities are down within mining, sliding on demand concerns from China, and automakers came under pressure as EV cars lost US tax credits under tougher rules. Markets will be focused on the US House Speaker vote today to see if Mike Johnson will retain his position, which could bode concern for Trump's agenda. Elsewhere, oil prices slip but remain on track for weekly gains, while Bitcoin weakens 1% to $96.4k and gold prices are flat. In focus today, the US ISM Manufacturing PMI, ECB's Lane & Fed's Barkin speech will help provide intraday direction to currency markets.

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In other news. China's central bank plans policy overhaul as pressure mounts on economy. President Biden is expected to block a $15bn takeover of US Steel. South Korean officials abandon a bid to arrest the impeached president after a stand-off. China's COMAC, maker of the C919 jet, aims for South Asian flights by 2026. Warren Buffett's Berkshire Hathaway beats the S&P 500 in 2024, posting 9th straight up year. Pickering pausing in-person meeting due to alt-right threats, mayor says.

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In currency markets. The Indian Rupee logs its 9th straight week of losses, and analysts expect more weakness. China lets CNY weaken after defending 7.3 vs USD for weeks. CNY weakens by 0.25%, while Asian currencies ease by 0.1% on average against the USD. Trading currencies are mixed, with ZAR falling 0.3%, MXN & NOK flat, NZD & SEK firming 0.2%, and AUD & CHF strengthening 0.3% against the USD.

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In commodity markets. Oil prices are down 0.4%. Natural Gas prices tumbled by 4%. Gold & Copper prices are flat. Silver prices strengthened by 0.9%. Wheat prices eased by 0.2%, and Soybean prices weakened by 0.5%.

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CAD steadies near 1.4400 as oil prices slip and the USD stalls ahead of today's US manufacturing PMI data and US House Speakers' re-election vote. Domestically, the global manufacturing PMI rose to 52.2 in December, its highest level since Feb 2023 and the fourth above the key 50 level. The Manufacturing data got a boost as inventories grew ahead of the anticipated US trade tariffs. We expect the loonie to remain under pressure in Q1/25 with the ongoing political uncertainty in Canada, the threat of tariffs and the prospect of increased interest rate divergence between the Fed & BoC.

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EURCAD heads higher in early trading as weakening oil prices added pressure to the CAD, and investors await ECB Lane's comments.

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EUR firms off Thursday's lows but fails to breach 1.0300 with investors sidelined ahead of US PMI data. The euro manages to bounce off two-year lows as the USD Index eases off two-year highs ahead of the US PMI report later today. We anticipate the euro will remain under pressure amid ongoing geopolitical risks and anticipation of tariffs in Q1 from the US. Intraday, the US PMI report and comments from ECB Lane will help provide direction to the euro.

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GBPEUR holds steady in quiet post-holiday trading, and the absence of any high-tier economic releases.

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GBP edges above 1.2400 but struggles to shake off bearish pressure. The pound bounces off multi-month lows, benefiting from a weaker USD vs improving confidence in the pound. The pound tested a near 9-month low at 1.2352 on Thursday with the increasing prospect of an increasingly more dovish BoE and increasing concern by the lack of recovery momentum. Markets remain thin, with many investors extending their holidays this week, and we expect the pound to hold within its current trading range today. Intraday US PMI data and Fed comments will help drive the direction of the pound.