The USD firms, oil prices weaken, equity markets are mixed, and US yields ease as risk sentiment wanes. The USD firms and European equity markets slumped over the latest escalation in Russia's war in Ukraine. Risk sentiment waned, and investors turned to safe-haven currencies after Ukraine fired a US long-range missile into Russia for the first time. President Putin issued a warning to the US today, lowering the threshold for a nuclear strike just days after President Biden reportedly allowed Ukraine to fire American missiles deep into Russia. Traditional safe-haven assets, including USD, JPY, and Gold, gained in early trading. Elsewhere, Bitcoin gained in early trading while oil prices eased, but markets remain cautious over the Russia-Ukraine concerns. With no high-tier data releases today, investors will be focused on Trump nominations, Russia/Ukraine updates, US Housing Starts, and the Fed's Schmid speech to help provide intraday direction to currency markets today.
In other news. Putin issued a warning to the United States with a new nuclear doctrine. Severing of undersea cable likely to be sabotage, Germany says.EU to demand technology transfers from Chinese companies. Bank of Italy governor calls for rapid ECB rate cuts. Hong Kong sentences 45 activists to prison in landmark security trial. G20's failure to explicitly back fossil fuel transition upsets COP29 talks. Forecasters issue 'bomb cyclone' warning for BC with 120km/h winds predicted. Canada Post says 'parties remain far apart' as strike continues. DOW futures drop 200 points after Putin's warning on the use of nuclear weapons.
In currency markets. Investors favor safe-haven currencies, while EUR & GBP come under selling pressure after Putin's warning., while CNY steadies at 3 1/2 month lows despite a stronger fix. CNY is flat, while Asian currencies ease by 0.1% on average against the USD. Trading currencies are mixed with SEK & ZAR tumbling 0.75%, NOK weakening 0.5%, AUD, MXN & NZD down 0.2%, CHF flat, and JPY strengthening by 0.6% against the USD.
In commodity markets. Oil and copper prices weakened by 0.5%. Natural Gas firmed by 0.4%, Gold & Wheat prices rallied by 0.8%. Silver prices strengthened by 0.7%, and Soybean prices eased by 0.35%.
CAD holds on to Monday's gains amid escalating concerns over the Russia/Ukraine war, and investors shift their focus on today's critical CAD inflation report. The CAD CPI is expected to rise slightly to 1.9% y/y Oct from 1.6% previously and m/m up to 0.4% vs -0.4%. With the lack of high-tier US economic data this week, we expect the Loonie to remain on the back foot, so we recommend looking for opportunities to buy USD on any dips below 1.4000. Intraday, the CAD inflation report will be the primary driver for the loonie.
EURCAD continues to weaken, down almost 2.5% in November, as the 'Trump Trade' and now escalating Russia/Ukraine concerns continue to keep the euro under pressure.
EUR remains heavy, retesting 1.0550 amid increasing tensions in the Russia/Ukraine conflict. Fresh USD demand on escalating tensions in Ukraine amid threats from the Kremlin after Ukraine fired its first US long-range missile into Russia. Domestically, ECB member/Central Bank of Ireland Governor Makhlouf said that overwhelming evidence would be needed to consider a 50 bps cut in December. While the Bank of Italy Governor called for rapid ECB rate cuts. Intraday, we expect the Euro to remain under pressure, with the prospect of a retest of 1.0500 this week.
GBPEUR is sidelined, with both currencies coming under selling pressure against the USD amid escalating tensions in Ukraine.
GBP softens below 1.2650 on rate concerns and risk aversion. The pound continues under pressure despite supporting comments from the BoE Governor Bailey, where he said a gradual approach to removing policy restraint and help them observe risks to the inflation outlook. Later today, BoE Governor Bailey and members of the MPC will respond to questions from the UK Treasury Select Committee. Markets will continue to monitor updates on the Russia/Ukraine war, Trump Picks, and US Housing Starts data, which will help provide intraday direction to the pound.
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