The USD eases, oil prices are weak, equity markets are up, and US yields are mixed as rates continue to take center stage. The USD eases in early trading but remains on track for its third weekly gains, with the greenback finding support from a less dovish Fed and on the potential of a Trump win. US Treasury yields climbed following the strong US retail sales report, which increased doubts over how quickly the Fed will ease policy. European equity markets advanced following the ECB 25 bps rate cut on Thursday and on expectations that the ECB could cut another 50 bps in December. Elsewhere, China's Q3 GDP hit its weakest pace since early 2023, which has increased calls for more economic stimulus. Oil prices are down and remain on track for their biggest weekly loss in over a month, while Bitcoin, Gold & Silver all strengthen. With no high-tier economic data releases, investors will be focused on US Building Permits & Housing Starts, and a flurry of Fed speakers will help provide intraday direction to the currency markets.
In other news. Hezbollah vows escalation after Hamas chief Yahya Sinwar is killed. China's new home prices fall at their fastest pace since 2015. Pepsi & coke bottlers face can and sugar shortages in the West Bank. Netflix shares jumped 5% in premarket after the third-quarter earnings beat. Japan's biggest union group targets 5% wage hikes in 2025. BAT's Canadian unit moves closer to settling class action tobacco litigation. China rolls out $112 bln funding schemes to bolster the stock market. UN food agency failed to act as US aid was looted in Ethiopia. Traders bet the ECB's rate-cut floodgates are open. CVS names David Joyner as the new CEO.
In currency markets. Currency markets are relatively steady, with the pound, CNY & euro edging higher as the USD consolidates after another week of gains on stronger domestic economic growth and increasing expectations of more stimulus support. CNY strengthens by 0.25%, while Asian currencies gain 0.1% on average against the USD. Trading currencies improved, with CHF flat, AUD, SEK, NOK & NZD up 0.15%, JPY & MXN firmed by 0.25%, and ZAR rallied 0.6% against the USD.
In commodity markets. Oil prices weakened by 0.4%. Natural Gas, Soybean & Wheat prices are flat. Gold prices firmed by 0.7%. Copper prices strengthened by 1%, and Silver prices rallied by 1.6%.
CAD is flat in early trading but remains on the back foot as domestic inflation levels continue to cool while the US economy continues to beat expectations. The combination of weakening oil prices, expectations of a 50 bps point cut by the BoC next week, and the prospect that the Fed will only cut by 25 bps in November continues to keep the loonie under pressure. With the absence of high-tier economic data releases today, we expect the loonie to trade within a tight trading range.
EURCAD edges higher, but month to date remains down almost 1% as investors wait to see if the BoC goes 25bps or 50bps at its Oct 23rd meeting.
EUR stalls below 1.0850 ahead of a flurry of Fed speakers today. The euro found some early support amid a softer USD and fresh China stimulus optimism after facing selling pressure on the back of the ECB rate cut and the prospect of a possible 50 bps rate cut in December. Thursday saw the ECB cut rates by 0.25%, with President Lagarde highlighting several key factors that drove the decision. "The incoming information on inflation shows that the disinflationary process is well on track." With the prospect of a less dovish Fed and speculation of a 50bps rate cut by the ECB in December, we expect the Euro could come under further selling pressure towards 1.0700 in Q4.
GBPEUR edges higher in early trading, with the pound benefitting from a stronger-than-expected UK retail sales report.
GBP retests 1.3050 after an upbeat retail sales report. The pound is finishing a volatile trading week off the lows at 1.2971, retesting 1.3050 led by the stronger UK retail sales data, which was forecasted at -0.3%, coming in at +0.3% for September. Intraday, we expect the pound to hold on to its early gains with China stimulus news, a softer USD, and the absence of high-tier economic data releases.
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