The Morning Update

The USD steadies, oil prices strengthen, equity markets are down, and US yields rise on Trump's tariff threat. The USD advanced, while CAD, MXN & CNY weakened in late trading on Monday after President-Elect Trump said he would impose tariffs on products coming into the US from Mexico, Canada, and China. The equity market rally stalled as investors turned cautious after President-Elect Trump said he would impose an extra 10% tariff on Chinese imports and 25% levies on all products from Mexico and Canada. "We're just seeing the start of the volatility, and the volatility is going continue as the rhetoric continues," said Onuekwuisi, CIO at St. James Place. "It is very difficult to assess if it is a threat, promise or negotiation tool." Elsewhere, Oil prices gained on tariff concerns and the prospect OPEC could leave output cuts in place beyond Jan 1. Bitcoin dropped 2.3% to $92.7k, while silver & gold both gained in early trading. Today sees a light US economic docket with US Consumer Confidence & US New Home Sales, with markets focusing on the FOMC minutes. We expect to see investors sidelined ahead of Wednesday's critical US Core PCE inflation report.

‍

In other news. Trump says he will hit China, Canada & Mexico with new tariffs. Intel secures $7.9 billion of US funding under the Chips Act. Apple hits hurdles in China with AI rollout for iPhones. Israeli far-right minister criticizes Hizbollah ceasefire plan. Canada's on 'clear path' to reach NATO's 2% target, Trudeau says. "Devastating," Ford warns of the impact of new tariffs promised by Donald Trump. EU top diplomat says Israel has 'no excuse' to refuse a ceasefire with Hezbollah in US-French deal. Ukraine says Russian attack sets a new record for the number of drones used. Imran Kahn supporters breached the lockdown in the Pakistani capital, and at least six people were killed in the violence.

‍

In currency markets. The USD steadies after jumping more than 2% against the MXN and 1% against CAD in late Monday trading after Trump's tariff vows against Canada and Mexico. NZD, AUD, ZAR & CNY all slipped to multi-month lows as Trump steps up tariff threat. CNY slipped 0.2%, while Asian currencies eased by 0.1% on average against the USD. Trading currencies are mixed with MXN tumbling 1.2%, NOK weakening by 0.5%, ZAR falling 0.3%, AUD down 0.2%, NZD, SEK & CHF up 0.1%, and JPY strengthening by 0.3% against the USD.

‍

In commodity markets. Oil, Silver & Wheat prices rallied by 0.9%. Natural Gas prices tumbled by 1.1%. Gold prices strengthened by 0.5%. Copper prices slipped by 0.1%, and Soybean prices firmed by 0.3%.

‍

CAD spiked to a fresh four 1/2-year low in overnight trading, touching 1.4177, following President-Elect Trump's comments of 25% levies on all products from Canada. Referring to Mexico and Canada, the measures are needed to clamp down on migrants and illegal drugs flowing across the US border, he said on his Truth Social Network. Ontario Premier Ford is warning that Donald Trump's promise to impose a 25% tariff on goods arriving in the US from Canada could have a "devastating" effect on the province. CAD rebounded in early trading, breaching 1.4100 in early European trading, but the loonie remains vulnerable to further volatility on tariff comments.

‍

EURCAD rallied on tariff threats from the US, but month to date, the euro remains down 2.3% against the loonie.

‍

EUR edges through 1.0500, sitting up slightly against the USD in early European trading. The euro firmed, with the single currency shielded from the threats of tariffs against China, Mexico, and Canada. The USD is steady ahead of today's US FOMC meeting and ahead of tomorrow's critical US inflation report. Fed Goolsbee indicated that the Fed is likely to continue lowering interest rates toward a neutral stance that neither stimulates nor restricts economic activity. We anticipate the euro's upside is limited in the short term, and our bias is to sell on any tests towards 1.0550 for a retest of the 1.0300 level.

‍

GBPEUR is flat, with both currencies sidelined against a flat USD.

‍

GBP holds steady off multi-month lows as markets await the Fed minutes & BoE Pill's comments. The pound recovered from overnight lows of 1.2500 as investors looked beyond tariff threats and focused on the upcoming US Fed minutes and BoE Pill's speech today. Previously, the BoE chief economist Pill has been at odds with the BoE Governor Bailey about the pace of rate cuts, saying that the bank should move only gradually with cutting interest rates. With the ongoing geopolitical concerns and threats of new tariffs from the US, we expect the pound's upside to be limited against the USD.