The Morning Update

The USD is steady, oil prices are flat, equity markets are up, and US yields rise on improving risk sentiment. The USD is steady, the Euro edges higher ahead of the ECB rate decision, and US yields improve after falling in the previous session. US futures are steady after the S&P 500 record close, while European equity markets surged to a new record, boosted by tech shares and anticipation that the ECB will cut 25 bps today. The ECB is expected to cut its deposit rate to 3.75% from 4%, joining Canada, Sweden, and Switzerland in cutting rates, but unlike its peers, the ECB is unlikely to commit to further rate reductions in 2024. Elsewhere, oil prices gained for a second session, while Gold steadied, Silver prices rallied, and Bitcoin eased below $71k. US employment remains the primary focus for investors after Wednesday's private payroll reading, which showed hiring grew at the slowest pace since 2024. Friday's key monthly payroll data is expected to increase job creation in May, following April's lower-than-expected results. Today's focus, the ECB's rate decision and monetary policy statement, US initial jobless claims, Nonfarm productivity, and CAD Ivey PMI will help provide intraday direction to currency markets.

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In other news. Nvidia passes Apple in market cap as the second-most valuable public US company. Flight attendant union rejects American Airlines' proposed 17% pay rise. The US antitrust enforcer says 'urgent' scrutiny is needed over Big Tech's control of AI. Dozens killed in Israeli strike on UN school in Gaza. The ANC considers a national unity government in South Africa. World leaders and veterans commemorate D-Day's 80th anniversary in Normandy. The Netherlands kick off a four-day European Parliament election. The IEA expects global clean energy investment to hit $2 trillion in 2024. The interest rate cut in Canada is unlikely to provide immediate relief for the housing market.

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In currency markets. The Euro edges higher ahead of the ECB decision as investors suspect the rate cut could be one and done, with persistent domestic inflation levels. Currency markets are steady ahead of tomorrow's crucial US Nonfarm Payrolls; if we see any weakness in the number, it will increase speculation of a Fed rate cut in Q4. CNY and Asian currencies gain 0.1% on average vs USD. Trading currencies are relatively calm, with NZD & MXN down 0.1%, AUD & ZAR flat, JPY, NOK & SEK up 0.1%, and CHF & IDR gaining 0.25% against the USD.

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In commodity markets. Oil and Natural Gas prices gained by 0.4%, Gold prices are up by 0.15%, Silver prices rallied by 1.2%, Copper prices strengthened by 0.55%, Wheat prices eased by 0.25%, and Soybean prices firmed by 0.25%.

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CAD holds steady below 1.3700 in early trading after the Bank of Canada 0.25% rate cut yesterday, which saw the loonie initially weaken to a two-week low of 1.3741. The BoC Governor Macklem said 'We've come a long way in the fight against inflation." and signaled that more cuts could come. The loonie looks vulnerable to further weakness, with financial markets still expecting three more interest rate cuts in 2024. Many expect that, with the US elections and strong economy, the Fed will keep its rates on hold in 2024. Intraday will focus on CAD Ivey PMI, which is expected to grow in May to 65 vs 63 in April.

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EURCAD holds steady, nearing seven-month highs ahead of the ECB rate decision, where the ECB President is expected to cut rates for the first time since 2019, but she is expected to take a hawkish stance on rates for the rest of 2024.

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EUR holds steady above 1.0850 ahead of the ECB rate decision. The ECB is widely expected to cut its deposit rate by 0.25%, but President Lagarde is expected to adopt a more hawkish tone at the press conference later in the day. If the ECB President takes a hawkish stance on future interest rates and Friday's nonfarm payroll data come in softer than expected, we could see a retest of 1.1000. Intraday, the ECB Monetary Policy Statement will be a crucial driver for the euro today.

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GBPEUR holds steady as investors are sidelined ahead of the ECB interest rate decision.

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GBP continues to straddle 1.2800 ahead of Friday's key employment report. The improving risk-on sentiment has continued to support the pound despite the lack of crucial supporting economic data for the UK. We expect the pound to be sidelined, looking for direction from the ECB interest rate decision and Friday's critical US employment report.

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