The Morning Update

The USD eases, oil prices weaken, equity markets & US yields are mixed on earnings and rate uncertainty. The USD eases off its two-month highs in early trading after signs of weakness in the US labor market, but the USD remains on track for a second straight weekly advance. Equity markets slipped after Thursday's hotter-than-expected US inflation reading increased uncertainty about the US interest-rate outlook. Investors are also cautious as markets await the start of the earning seasons, with JPMorgan Chase, Wells Fargo & BNY Mellon releases today. Feds Williams, Goolsbee, & Barken were unfazed by the hotter US inflation report and the swaps marketing pricing in approximately 80% of a 25 bps cut in November. Elsewhere, oil prices weaken but remain on track for weekly gains with the potential of Mideast supply disruptions supporting crude prices. Bitcoin rallies 2 1/2%, retesting $61k, while Silver & Gold edge higher on waning global risk sentiment. In focus today, the US Producer Price Index, ex Food & Energy, Michigan Consumer Sentiment Index, UoM 5-year Consumer Inflation Expectation, BoC Business Outlook Survey, CAD Net Change in Employment, and CAD Unemployment Rate will help drive direction for currency markets.

‍

In other news. Iran warns of potential change in nuclear doctrine if Israel targets facilities. French PM Michel Barnier unveils shock therapy in 2025 budget. Israeli air strikes on central Beirut kill 22. The chief economist said that the ECB will need to step up rate cuts if the outlook darkens. BlackRock hits record high $11.5 trillion in assets on market rally, ETF boost. Tesla CEO Musk unveils 'Cybercab" robo taxi as focus shifts to automation. The UK economy returns to growth in August after two months of stagnation. TD was fined US$3.09 Bln and pleaded guilty to US charges related to money laundering. Air Canada pilots vote in favour of new contract, dousing strike fears.

‍

In currency markets. The USD steadies near two-month highs, CNY edges higher on fresh stimulus hopes, and commodity currencies AUD, NZD & CAD remain under pressure. CNY firms by 0.2%, while Asian currencies ease by 0.1% on average against the USD. Trading currencies come under pressure, with JPY & CHF weakening 0.25%, AUD, SEK, NOK & NZD down 0.1%, and ZAR & MXN firms 0.2% against the USD.

‍

In commodity markets. Oil prices weakened by 0.8%. Natural Gas prices rallied by 0.95%. Gold & Copper prices strengthened by 0.6%. Silver, Wheat & Soybean prices by 0.4%.

‍

CAD continues under pressure, weakening for an 8th straight day, testing fresh two-month lows following hotter-than-expected US inflation data, which decreased the prospect of a 50 bps cut in November. Markets expect the BoC to cut rates for a 4th straight meeting on Oct 23rd, with markets increasingly expecting the BoC to cut by up to 50 bps. The anticipation of increasing interest divergence between the Fed & BoC is expected to keep the loonie under selling pressure in Q4. Intraday, investors will be focused on the Canadian Net Change in Employment, the unemployment rate, and the BoC business outlook survey to help drive direction for the loonie.

‍

EURCAD extends to 6 straight days of gains as the loonie remains under pressure with increasing expectations that the BoC will take a more aggressive stance on interest rate cuts at its meeting in October.

‍

EUR consolidates at monthly lows above 1.0900 as investors focus on the US PPI report. The euro lacks momentum amid souring risk sentiment, anticipation that the Fed will take a less dovish stance on rates in November, and the ECB is increasingly expected to cut rates more aggressively in Q4. ECB chief economist Lane said the ECB will need to step up rate cuts if the outlook darkens. The ECB is expected to lower borrowing costs again in October by 25 bps on growing concerns about the feeble state of the bloc's economy. Intraday, the flurry of US data releases will drive the euro direction.

‍

GBPEUR edges higher, finding support after the UK returns to growth in August and better than expected manufacturing data.

‍

GBP finds support above 1.3050 following positive UK growth data. The pound holds steady, sitting on a stronger footing after the UK economy turned positive, up by 0.2% in August. On another positive note, manufacturing and Industrial production both beat expectations in August, but the prospect of a more dovish Bank of England is capping the pound's ability to rally. Intraday markets will be focused on the US data to help provide direction for the pound.