The Morning Update

The USD strengthens, oil prices weaken, equity markets are up, and US yields ease as President Trump takes office. The USD holds on to Monday's gains after President Trump threatened to impose tariffs on Canada and Mexico imports as early as February 1st. Chinese equity markets rallied in the absence of tariff announcements on China, while European automakers declined as investors expect that the auto sector remains susceptible to US tariffs. Alongside caution of more executive orders from the White House as President Trump implements his "America First" agenda, investors will also be focused on fourth-quarter earnings season. Today, 3M, Netflix Inc., and United Airlines Holdings, among others, are set to report today. Elsewhere, oil prices fell on the prospect of boosting US domestic production, while Bitcoin dropped for a fourth day, testing $103k. While the US economic calendar has no high-tier economic releases, investors will be focused on the CAD BoC CPI, and CAD Consumer Price Index y/y will help provide intraday direction for the loonie.

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In other news. Trump vows new US 'golden age' as he moves to unwind Biden era. Malaysia ties fortune to Singapore as US-China tensions mount. Trump warns he'll drop the economic hammer on Canada next week. Panama begins audit of Hong Kong company in a nod to Trump. Trump links China tariffs to TikTok deal. Saudi Arabia is set to buy a stake in Pakistan's copper and gold mining project. UK wage growth elevated even as job markets cool. South Korea's Yoon defends actions at the impeachment hearing over martial law decree. Putin vows to further develop ties with Xi just hours after Trump's inauguration. EU's Von der Leyen warns against 'global race to the bottom' on tariffs in Davos.

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In currency markets. CAD & MXN gave back early gains against the USD following Trump's tariff threat. The JPY slips in early trading but remains the best-performing G10 currency against the USD, with the prospect of the BoJ hiking rates on Friday. CNY firms by 0.25%, while Asian currencies weaken by 0.35% on average against the USD. Trading currencies come under renewed pressure, with MXN tumbling by 1.2%, AUD, NOK & NZD weakening by 1%, ZAR & SEK falling 0.75%, and CHF easing by 0.55% against the USD.

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In commodity markets. Oil, Copper and Natural Gas prices tumbled by 2.2%. Gold prices weakened by 0.6%. Silver prices eased by 0.15%, while Wheat & Soybean prices rallied by 1.7%.

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CAD had a volatile start to the Trump presidency, with the loonie rallying over 1% with the absence of tariffs from President Trump's inauguration speech. The rally was short-lived after Trump told a reporter later that he expected to impose a 25% tariff on CAD imports as early as Feb 1st. Alongside the tariff threats, weakening commodity prices added additional pressures on the loonie. Intraday, alongside any updates on US tariffs, investors will be focused on the CAD inflation report, which is expected to hold steady at 1.9% y/y in Dec.

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EURCAD continued under pressure with weakening commodity prices and the prospect of US tariffs Feb 1st.

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EUR gives back Monday's gains, resting 1.0350 amid mixed EU sentiment data. Euro eased in early trading amid a firming USD following US President Trump's tariff threats, alongside mixed EU sentiment data. Domestically, the ZEW survey saw the current German situation improve, and the German economic sentiment eased in January, while the EU economic sentiment beat expectations. Euro has remained resilient against the US as Trump's focus appears to be contained to Mexico, Canada & China.

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GBPEUR eases in early trading after weaker jobs data increases the prospect of BoE action next month.

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GBP gives back Monday's gains, slipping below 1.2250 as the USD strengthens on tariff threats. The pound remains under pressure after President Trump threatened tariffs on Mexico and Canada, rallying the USD index. Domestically, the UK unemployment rate edged higher to 4.4% in the three months to November from 4.3%, while the average earnings rose to 5.6%, up from 5.2% previously. We expect the pound to remain on the back foot, with the unemployment rate testing its highest levels since 2021 it increases the prospect that the BoE will cut interest rates by 25bps to 4.5% at its next meeting in February.