The Morning Update

The USD eases, oil prices firm, equity markets are down, and US yields ease on rates & tech concerns. The USD index eased after the US said it would not impose tariffs or sanctions after Columbia agreed to Trump's terms. The USD increased against EUR & CAD as investors increasingly expect the ECB & BoC to cut interest rates at their respective policy meetings this week. Equity markets tumbled, led by the tech sector, because of concern that a cheaper DeepSeek AI model from China could threaten the dominance of the US tech sector. Nasdaq futures are down 3%, Nvidia Corp down 8.3%, & ASML sank 9%, the biggest selloff in three months. DeepSeek emerged over the weekend, with tech analysts saying the company's AI model performance is comparable to the world's best Chatbots at a fraction of the price. Elsewhere, China's January manufacturing activity unexpectedly contracted, hitting a five-month low. Bitcoin tumbled 6%, falling towards $98k, Gold & Silver prices are down, while oil prices firmed in early trading. The focus this week is Monday, US New Home Sales Change. Tuesday, ECB Bank Lending Survey, US Durable Goods, & Consumer Confidence. Wednesday, BoC & Fed Interest rate decision. Thursday, German GDP, EU GDP, ECB Interest rate decision, and US GDP. Friday, German Retail Sales, German CPI, and the US Core PCE report.

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In other news. Columbia agrees to Trump's terms; the US will not impose tariffs or sanctions. Tech stocks fall sharply as China's DeepSeek sows doubts about AI spending. Tesla takes EU to court over tariffs on electric vehicles from China. Palestinians return to northern Gaza as Israel hostage deal holds. According to a former Trump official, Canada should start reviewing CUSMA with the US as soon as possible. Trump ridicules Denmark and insists the US will take Greenland. New Zealand loosens visitor visa rules to welcome digital nomads. American cruise vacations are expected to see slower growth in 2025, according to industry group forecasts.

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In currency markets. The USD eases in early trade as the threat of Columbia tariffs is removed. JPY advances as investors focus on Wednesday's Fed interest rate decision. CNY eased by 0.2% on weaker manufacturing reports, while Asian currencies were steady, up by 0.1% on average against the USD. Trading currencies are mixed, with ZAR & MXN tumbling 1.1%, SEK & NOK weakened by 0.6%, AUD down 0.15%, NZD flat, CHF strengthened by 075%, and JPY rallying 1.2% against the USD.

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In commodity markets. Oil prices up by 0.2%. Natural Gas prices tumbled by 6.8%. Gold prices down 0.2%. Silver & Copper prices weakened by 1%, while Wheat & Soybean prices eased by 0.55%.

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CAD eases in early trading despite the softer USD, as the investors remain cautious with the threat of US tariffs starting as early as Feb 1st. Adding further pressure on the loonie is the expectation of increasing divergence between the Fed & BoC at Wednesday's respective central bank's interest rate decisions. We anticipate the Loonie will hold within its current trading range today with the lack of any US or CAD economic releases to drive market direction.

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EURCAD continues to strengthen, up 1% in January as the looming threat of US tariffs on Canada continues to keep the loonie on the back foot.

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EUR firms, straddling 1.0500 amid a softer USD. Euro edges higher in early trading, following the German IFO, Business Climate, Current Assessment & Expectations all beat expectations. Further euro gains appear capped leading up to the ECB interest rate decision on Thursday, with the expectation that the ECB will cut by 25bps, while the Fed is expected to keep its rates on hold at its meeting on Wednesday.

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GBPEUR edges higher in early trading, with the pound finding support from the expectation that the ECB will cut interest rates on Thursday.

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GBP edges through 1.2500 amid a softening USD. Despite increasing concerns of stagflation in the UK economy, the pound continues to rebound from its multi-month lows against its G10 peers. The Bank of England is expected to cut interest rates at its Feb 6th policy meeting by 25bps to 4.5%, which is still significantly higher than the majority of other major central banks. The fact that the UK has avoided US tariff threats to date, is providing some underlying support for the pound by investors. Intraday, we expect the pound to hold steady ahead of Wednesday's Fed rate decision and the critical US inflation report on Friday.