The Morning Update

The USD firms oil prices rally, equity markets are mixed, and US yields ease in a cautious start to 2025. Currency markets start the year looking vulnerable to further weakness, with the CAD, EUR, and GBP under pressure, near multi-month lows. Equity markets are mixed, with US futures firming while Chinese equities led declines as data points to a slowing economy and the prospect of higher tariffs. European gas prices tested their highest levels since Oct 2023 as the EU braced for winter without Russian gas supplies delivered via Ukraine after a transit contract expired on January 1st. Elsewhere, oil prices rallied after an industry report showed US crude stockpiles continued to fall. Gold & Silver strengthened while Bitcoin rallied 2.3% to $96.7. In focus today, US Initial jobless claims, US Challenger job cuts & CAD Global manufacturing PMI will help provide intraday direction to currency markets.

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In other news. China's President Xi signals growth is a priority in a speech acknowledging China's strains. Police probe motive in New Orleans truck rampage. South Korea's Yoon, facing arrest over martial law, vows to 'fight until the end.' World equity markets start 2025 with a wobble on "Trump" trepidation. Asia's factories end 2024 on weak footing as Trump 2.0 risk mounts. Apple offers iPhone discounts in China as competition intensifies. Chinese EV makers extend buying incentives as the price war enters a third year. The number of employed Germans reached a new high in 2024. Russian gas era in Europe ends as Ukraine stops transit. Quebec Liberal caucus calling for Trudeau to resign.

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In currency markets. Currency markets are mixed, with the USD edging higher in early trading while the euro and pound eased in early trading. CNY holds steady, while Asian currencies slip on average against the USD. Trading currencies are mixed, with SEK easing 0.2%, NZD flat, CHF & NOK up 0.1%, AUD Firmed 0.3%, MXN strengthening 0.4%, and ZAR rallying 1% against USD.

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In commodity markets. Oil prices strengthened by 1.5%. Natural Gas prices gained by 0.8%. Gold prices are up by 0.5%. Silver prices rallied by 2%. Copper prices weakened by 0.4%, while Wheat & Soybean prices are flat.

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CAD continues under pressure against the USD amid ongoing political uncertainty, continuing tariff concerns, and the prospect of widening Fed/BoC interest rate divergence in 2025. Markets will be focused on S&P Global Manufacturing PMI data (Dec), which is expected to hold steady at 51.9. We anticipate the loonie to remain on the back foot heading into President-elect Trump's inauguration.

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EURCAD holds steady as political uncertainty continues, with more caucuses calling for Trudeau to resign, offsetting the benefits of rallying oil prices.

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EUR tests fresh two-year lows as risk-on sentiment fades. The euro slipped below 1.0350 amid a strengthening USD and deteriorating market sentiment, driven by the increasing prospect of US tariffs and widening interest rate divergence between the Fed and ECB in 2025. Domestically, ECB President Lagarde reiterated that they have made significant progress in reducing inflation in 2024. Intraday, US jobs data will be the primary driver for the euro.

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GBPEUR weakened in early trading as ECB President Lagarde's comments provided underlying support for the euro, while the pound struggles to find support.

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GBP slumps to multi-year lows below 1.2450. The pound slumped to fresh 8-month lows amid weakening global risk sentiment and uncertainty ahead of the President-Elect's inauguration. Safe-haven USD flows dominate markets in early trading, while the pound struggles to find support with a lack of high-tier data releases. The focus will be on the US Initial Jobless Claims data, which is forecast to rise to 224k from 219k. A stronger increase could put some selling pressure on the USD and provide the pound some repreive.