The Morning Update

The USD is steady, oil prices edge higher, equity markets are down, and US yields rise heading into the US GDP report. Currency markets are sidelined, and equity markets are down as risk assets stall after December's rally that saw equity markets climb to their highest levels in 2023. Investors are dialing back optimism over how much the Federal Reserve will cut interest rates in 2024. "The dovish tone by the Fed in December has been grossly exaggerated in terms of its impact on asset prices," Konya, CIO at AIA Co. In Hong Kong, "the market will be disappointed in terms of when those cuts start to take effect." Elsewhere, oil prices are stable after three days of gains as traders balance surging US production against the ongoing threats of Houthi attacks on ships in one of the world's busiest waterways. In focus today, the US 3Q GDP, initial Jobless Claims, Personal Consumption Expenditures Prices, Philadelphia Consumption Expenditures Prices, and CAD Retail Sales to help provide intraday direction to currency markets.

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In other news. Beijing home price slide fans China property sector alarm. Argentina's Milei unveils sweeping decree to deregulate the economy. Russia battles to curb inflation ahead of Putin's re-election bid. Tesla faces an inquiry by Norway's safety regulator over suspension failures. Toyota shares slump on safety scandal at Daihatsu vehicle recall. Social Media platform X is back up after a global outage. Egypt seeks to broker a Gaza ceasefire as Hamas and Israel assert demands. Taiwan accuses China of economic coercion after tariff cut removals. Canada's Trudeau sees shift in India relations after US plot revealed.

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In currency markets. The USD holds steady, while the GBP remains under pressure in thin holiday markets ahead of today's US GDP and Friday's key US inflation report. AUD sits at 6-month highs, CAD holds near 5-month highs, and CNY weakens off 5-month highs. CNY slips 0.2%, while Asian currencies are up 0.1% on average vs USD. Trading currencies remain primarily firm, with NOK, ZAR, CHF & NZD up 0.1%, AUD & MXN gaining 0.3%, JPY strengthening 0.4%, and outlier SEK slipping 0.1% vs. USD.

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In commodity markets. Oil prices are up 0.1%, Natural Gas prices firmed by 0.2%, Gold prices are flat, Silver and Soybean prices dropped 0.4%, Copper Prices weakened by 0.55%, and Wheat prices firmed by 0.6%.

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CAD is sitting near 5-month highs, holding above the key pivot of .75 cents (1.3333) as long-term borrowing costs ease and investor optimism grows for a recovery in the domestic housing market. Minutes from the BoC showed that policymakers were concerned about high housing prices, which continue to elevate inflation levels. Alongside the US data releases today, the focus will be on Canadian Retail sales, which are expected to rise from 0.6% to 0.8% in October, with ex-Autos expected to increase from 0.2% to 0.5%. We expect CAD to hold within its current range as investors remain sidelined ahead of Friday's critical US Core Personal Consumption Expenditures and CAD GDP data.

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EURCAD is sidelined ahead of CAD and USD data releases today.

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EUR continues to stall at 1.0950 as investors focus on US GDP to help break the deadlock. The euro appears to have lost its upward momentum, but within the thinning holiday markets, it continues to find support from ongoing hawkish comments from the ECB. Intraday, the US data releases will help provide direction to currency markets, with the US Q3 GDP expected to expand to 5.2%, but a downward review could add pressure on the USD.

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GBPEUR continues to edge lower, testing a 4-week low as softer UK inflation data keeps pressure on the pound.

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GBP stalls below 1.2650 as investors shift their focus to US GDP data. The pound is starting to find support after Wednesday's softer-than-expected UK inflation data. Investors' sentiment has changed for an earlier than anticipated shift for a BoE policy pivot after the UK CPI reading for November came in below analysts forecasts on Wednesday. The USD is sidelined as investors await the last essential US data release of 2024 on Friday, the Core Personal Consumption Expenditures - Price Index, a Fed favorite and will help provide insight into the Feds for 2024. Also, the UK will release the Q3 GDP and UK Retail Sales data on Friday, which will be a good guide for the pound heading into 2024.