The Morning Update

The USD eases, oil prices weaken, equity markets are up, while US yields ease as risk sentiment improves. Currency markets edge higher, while equity markets break a four-day losing streak as investors come to terms with the timing of Fed rate cuts and strong corporate earnings. Money markets have adjusted their expectations to just two Fed rate cuts in 2024, with the first cut expected in Q3 after recent US hot inflation levels. Bank of America economists said there is a 'real risk' that the Fed won't cut interest rates until March 2025, although the BoA forecast remains for a first-rate cut in December. Elsewhere, oil prices ease on weaker Chinese industrial data and higher US crude inventories, gold prices stall below $2,400, and bitcoin steadies near $61,500. In focus today, the IMF Spring meeting, US Initial Jobless Claims, Philadelphia Fed Manufacturing Survey, Existing Home Sales, and speeches from Fed's Bostic, Williams & Bowmans, ECB's Schnabel, and German Buba President Nagel will help provide direction to currency markets.

‍

In other news. Iran's oil exports hit a 6-year high as the West prepared for sanctions. Qatar reconsiders its mediator role between Hamas and Israel. The US House moves closer to vote over aid for Ukraine and Israel. The US deficit poses 'significant risks' to the global economy, warns IMF. Germany urges dozens of allies to send air defense systems to Ukraine. TSMC's first quarter profits rose 9%, beating the forecast. Venezuela's oil sector was hit by losing its widest US license. Boeing's safety culture is under fire as US Senate hearings. Deadly heat in West Africa warns of climate change-driven scorchers to come, says report.

‍

In currency markets. On Wednesday, the US, S.Korea & Japan agreed to "consult closely" on foreign exchange markets in their first trilateral finance dialogue. The USD eases for the 2nd, but investors are expected to remain long-term USD bullish with the solid domestic US economy, geopolitical concerns, and the prospect of higher US rates for longer. CNY holds steady, while Asian currencies are firm at 0.1% on average compared to USD. Trading currencies are mixed, with NOK weakening by 0.15%, ZAR slipping by 0.1%, JPY & MXN flat, AUD & NZD firmed by 0.15%, CHF gaining by 0.25%, and SEK strengthening by 0.5% vs USD.

‍

In commodity markets. Oil prices are weakening by 1%, Natural Gas prices are rallying by 2.9%, Gold prices are up by 0.25%, silver prices are firming by 0.4, Copper prices are strengthening by 1.8%, Wheat prices are gaining 0.6%, and Soybean prices are slipping by 0.4%.

CAD extends its rebound to a second day as the USD consolidates its gains, but the loonie remains vulnerable to more weakness as oil prices ease. The loonie is also susceptible to longer-term weakness as markets adjust bets that the Fed may not cut interest rates until 2025, while the BoC is anticipated to cut its domestic interest rates by June. We expect the loonie to stall above 1.3720 with the lack of high-tier economic data releases in the US or CAD to help give fresh market direction.

‍

EURCAD holds steady as investors are somewhat sidelined by the prospect of both central banks looking set to ease domestic interest rates in June.

‍

EUR consolidates below 1.0700 amid an upbeat mood but is capped by dovish ECB comments. The European Central Bank has made it "crystal clear" that interest rates could be cut in June, but we have been firm that policy decisions beyond June remain up in the air, EBC VP Luis de Guindos said today. De Guindos said, "I would say there are some risks with the evolution of wages, productivity, unit labor costs, profit margins, and geopolitical risks." Intraday US Initial Jobless Claims and the flurry of Fed speakers will help provide direction to the single currency.

‍

GBPEUR gains in early trading following ECB De Guindos's dovish comments about a rate cut in June, while the BoE could delay rate cuts to Q4.

‍

GBP fails to breach 1.2500 despite improving market sentiment and a weakening USD. The pound holds on to weekly gains but fails to advance through 1.2500 as investors adjust bets on the timing of a Fed interest rate cut. Domestically, the pound is finding underlying support with rising expectations that the BoE may delay rate cuts until its November meeting, following February's average earnings, including bonuses, which grew by 5.6%, higher than the 5.5% forecasted. In the UK, the focus will be on Friday's UK Retail Sales, which is expected to rise to 0.3% in March vs Flat in February. Today, the jobs data and Fed Speak will help drive the direction for the pound.