The Morning Update

The USD is steady, oil prices firm, equity markets are up, and US yields are mixed as markets as risk sentiment improves. The USD stalls, while the offshore Chinese yuan drops to 13 month lows over domestic economic woes and US tariff concerns. S&P 500 futures are steady after the index closes at its 54th record closing in 2024. European equity markets gained despite caution ahead of France's no-confidence vote, while Germany's main equity benchmark rising above 20,000 points for the first time. "The underlying momentum in the US economy is very strong." Luke Bars of Goldman Sachs Asset Management said on Bloomberg TV. The broadening out of growth is positive for equities beyond the tech mega-caps, he said. "If we get the domestic growth story coupled with the normalization of rates, that's a very favorable cycle for the small caps." Elsewhere, oil prices gained ahead of OPEC+ meeting, Bitcoin eased slipped 1/2% to $95.4k, while silver and gold both advanced. Today sees a light economic calendar, with focus on US Jolts data, and flurry of Fed speakers to help provide intraday direction to currency markets.

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In other news. French government faces collapse as left and far-right submit no-confidence motions. NATO chief warns Trump of 'dire threat' to US if Ukraine pushed into bad deal. China retaliates against the latest US chip restrictions. Fears the fragile ceasefire in Lebanon could collapse, amid ceasefire violations. Trump warns of 'hell to pay' if Israeli hostage not released by January. Fuel oil smuggling network rakes in $1 billion for Iran and its proxies. As sabotage allegations swirl, NATO struggles to secure the Baltic Sea. Delaware judge rejects Musk's $56 billion Tesla pay, again. UK retailer report its weakest sales since April, BRC survey shows. Canada Post strike has cost small businesses C$765 million, CFIB.

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In currency markets. The USD dips ahead of US jobs data as investors refocus on the Fed's interest rate direction. The CNY weakens by 0.2%, while Asian currencies are down 0.1% on average against the USD. Trading currencies are mixed with JPY weakening 0.35%, SEK easing 0.1%, NZD, ZAR & MXN flat, CHF & NOK firming 0.2%, AUD gaining 0.3% against the USD.

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In commodity markets. Oil and Wheat prices firming 0.85%. Natural Gas prices tumbling 1.4%. Gold prices are up 0.3%. Silver prices rallying by 1.8%. Copper prices strengthening 1.2%, and Soybean prices gaining by 0.6%.

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CAD holds steady, finding support from strengthening commodity prices amid the back drop of ongoing threats of tariffs from the incoming US administration. We expect the loonie to hold steady within its current range today with the absence of any US or Canadian key data releases. Investors will be focused on the US & Canadian jobs data releases later in the week to provide insight to the Fed & BoC interest rate policy direction.

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EURCAD recovers slightly, with investors sidelined ahead of the expected French no-confidence vote on Wednesday.

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EUR edges above 1.0500 amid improved global risk sentiment. The euro edged off December lows, but further strengthening appears capped amid political uncertainty in France and expectations of divergence between the Fed & the ECB. Focus will be on the US Jolts Job Opening data for October, which will help set the stage for Friday critical US Nonfarm payrolls report. Intraday, we anticipate the markets will be relatively subdued unless we see significant print in the Jolts data outside of forecasted 7.480M.

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GBPEUR slips slightly after disappointing UK retailers reported their weakest sales in eight months.

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GBP fails to breach 1.2700 as caution remains ahead of key US jobs data this week. The pound lost early momentum following disappointing UK Retailers report, alongside increasing caution from investors await a flurry of US Fed speakers and the US Jolts Jobs report. Domestically, the pound should find support on dips with increasing expectations that the BoE will keep UK rates on changed at its December 19th monetary meeting. Additionally, the UK has political stability and is also less likely to be targeted by the US for tariffs, so we anticipate the GBP will out perform its none US, G10 peers in 2025.