The Morning Update

The USD is flat, oil prices rally, equity markets are mixed, and US yields rise on rates & Mideast concerns. The USD holds on to Friday's gains following the stronger-than-expected US Jobs data, helping the USD index jump 1.6% last week. Asian equity markets gain, while European markets weaken following more signs of a weakening domestic economy, as German factory orders dropped the most in 2024. Investors remain wary about escalating Mideast tensions, which has helped rally Brent crude prices through $79 a barrel. Elsewhere, The yield on 10-year US Treasury bonds rose to 4%, its highest level since August, as expectations of a 50 bps cut by the Fed faded following Friday's US jobs report. Bitcoin strengthened by 0.75% through $63k, gold prices firmed, and silver prices weakened. This week, markets will continue to monitor escalating Mideast tensions, the US inflation data, and the earning season kicks off with reports from the big US banks. Key data releases this week, Monday. Fed's Bowman, Kashkari, Bostic & Musalem speeches. Tuesday, New Zealand Interest Rate Decision. Wednesday, FOMC Minutes. Thursday, US Inflation report. BoE Monetary Policy Report Hearing, US Initial Jobless Claims. Friday German Inflation report. UK GDP, CAD Net Change In Employment, CAD Unemployment Rate, US PPI report, US Michigan Consumer Sentiment Index, and CAD BoC Business Outlook Survey.

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In other news. Israel marks anniversary of Hamas attack as conflict escalates. Spain to propose mini-coalitions to break EU capital markets stalemate. BP drops oil output reduction target in strategy reset. German industrial orders slumped more than expected in August. Trump threatens a 200% tariff on vehicles imported from Mexico. Rio Tinto looks to snap up Arcadium before lithium prices recover. Hezbollah strikes Israel on Gaza war anniversary; fears grow over Middle East instability. Florida readies for major hurricane Milton while still reeling from Helene. Pfizer Inc. climbed more than 2% on reports Starboard Value has taken a $1 bn stake in the firm.

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In currency markets. The GBP remains under pressure after suffering its worst week in more than a year. Japan's finance minister warns against speculation after the JPY to its weakest level since mid-August. The USD holds on to its best gains in six months following Friday's stronger-than-expected US jobs data. CNY slipped by 0.1%, while Asian currencies firmed by 0.1% on average against the USD. Trading currencies are mixed, with NZD weakening by 0.25%, AUD slipping by 0.1%, MXN, SEK & NOK flat, CHF firmed 0.1%, JPY firmed by 0.2%, and ZAR strengthening by 0.4%.

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In commodity markets. Oil prices rallied by 2.7%. Natural Gas prices tumbled by 1%. Gold prices firmed by 0.35%. Silver and Wheat prices fell by 0.5%. Copper prices eased by 0.3%, and soybean prices weakened by 0.65%.

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CAD remains under pressure as the strengthening USD continues to offset rallying oil prices. The USD index holds at a seven-week high following the strong US jobs data eased expectations of a 50 bps point rate cut in November. Domestically, the Ivey Purchasing Managers Index showed that Canadian economic activity rebounded in September, rising to 53.1 from 48.2 in August. We anticipate the loonie will remain under pressure despite the strengthening oil prices on expectations that the BoC could cut a further 1% in interest rate cuts in Q4. This week, investors will be focused on the Canadian employment data to provide signals on the BoC's next steps.

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EURCAD holds steady in early trading, remaining down 1.2% in October as strengthening oil prices provide underlying support for the loonie.

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EUR remains under pressure, testing 1.0950 following EU data and increasing risk-off sentiment. Euro remains on the back foot against the USD as fading risk sentiment continues to support the safe-haven greenback as tensions in the Mideast remain high. Domestically, German factory orders m/m tumbled below expectations to -5.8%, down from up 3.9% in July. Elsewhere, eurozone retail sales y/y August missed expectations, printing at 0.8% vs the expected 1%. This week, investors will continue to monitor Mideast updates and will be focused on Thursday's US inflation report for direction.

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GBPEUR continues under pressure following last week's BoE Governor Bailey's dovish comments.

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GBP struggles below 1.3100 with negative risk sentiment and with Fed Speak in focus. The pound continues under pressure, falling 2.3% in October against the USD with Dovish BoE comments, stronger US Jobs, and continuing Mideast tensions combined are keeping negative pressure on the pound. Domestically, BoE Governor Bailey suggested a rate cut is imminent, while BoE chief economist Pill took a more cautious tone. In the US, following Friday's stronger-than-expected jobs data, investors will be monitoring a flurry of US Fed speakers today for signals on the Fed's next move on interest rates.

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