The Morning Update

The USD is flat, oil is steady, equity markets are up, and US yields ease on month-end demand, with US growth in focus. The USD extended its gains on month-end demand, while the euro came under pressure on increasing speculation of an ECB cut in September. Global equity markets steadied in early trading, recovering from Nvidia's disappointing sales forecast, as investors shifted their focus to the prospect of a Fed & ECB interest rate cut in September. Money markets are speculating about a 100 bps cut from the Fed in 2024, but investors remain skeptical of a 50 bps cut in September based on cautious Fed policymakers' comments. Spanish inflation levels slowed to a one-year low, with markets expecting the retreat will be mirrored across the eurozone, supporting an ECB rate cut in September. Elsewhere, Gold & silver both rebounded, and Bitcoin strengthened toward $60k. Today, the focus will be on German Inflation data, CAD Current Account Q2, US GDP, Pending home sales, and US Initial Jobless Claims, which will help drive direction to currency markets today.

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In other news. Nvidia's forecast dampens AI enthusiasm in chip stocks. Sullivan meets Xi as wide-ranging China-US talks near an end in Beijing, setting up a Biden & Xi phone call amid an effort to boost Sino/US relations. At least five were killed as Israel's West Bank operation enters a second day. Investors shift to US government bond ETFs ahead of an anticipated Fed rate cut. Inflation levels are down in six German states, pointing to a national decline. Borrell asks the EU members about possible sanctions on some Israeli ministers. Hong Kong court convicts editors of sedition. Ukraine says it downed two missiles and 60 drones during Russia's overnight attack.

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In currency markets. The euro is under pressure as domestic inflation levels slip, increasing anticipation of an ECB interest rate cut in September. CNY extends gains against the USD on Fed rate cut speculation ahead of the Chinese PMI data. Commodity currencies extend days to fresh multi-month highs supported by metals strength. CNY strengthened by 0.4%, while Asian currencies increased by 0.2% on average against the USD. Trading currencies are mixed, with SEK weakened by 0.3%, CHF easing by 0.15%, JPY flat, MXN & NOK firmed by 0.15%, AUD & NZD strengthened by 0.55%, and ZAR rallying 0.65% against the USD.

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In commodity markets. Oil prices are flat, natural gas prices up by 0.35, gold prices firmed by 0.7%, silver prices rallied by 1.3%, copper prices eased by 0.5%, wheat prices weakened by 0.9%, and soybean prices strengthened by 0.9%.

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CAD recoups some of Wednesday's losses but remains off the 5-month highs as oil prices steady and precious metal prices strengthen, while the USD remains supported by month-end demand. Domestically, Greater Toronto's new home sales reached another all-time low in July, hitting 70% below the 10-year average. Canada's Q2 GDP, due Friday, is expected to show the economy is growing at an annualized rate of 1.6%, below the 2.4% BoC estimates for potential growth. In focus today, CAD Q2 Current Account is expected to drop to -5.9B from -5.37Billion previously. Intraday, the primary market driver will be the US Initial Jobless Claims and the US GDP report.

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EURCAD continues under pressure, tumbling towards 1.4900 and giving up all of its August gains, which has seen the currency fall from 1.5227 to today's August low of 1.4915. The euro is expected to remain under pressure with the increasing speculation of an ECB interest rate cut in September.

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EUR breaks through 1.1100 on falling inflation levels across the EU. The euro continues under selling pressure due to the combination of USD month-end buying and easing inflation levels in Spain and Germany, increasing speculation of an ECB interest rate cut in September. EBC board member Knot on Tuesday suggested that the ECB might gradually reduce interest rates if inflation levels continue to decline but advocated for a cautious approach to easing interest rates. Intraday, the US Jobs & Growth data will guide the euro.

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GBPEUR continues to rally, wiping out all of August's losses and retesting near multi-year highs as increasing expectations of the BoE & ECB divergence of interest rates, with the ECB expected to cut rates in September.

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GBP stalls its multi-week rally as month-end USD demand pushes the pound below 1.3200. A cautious market sentiment has helped the pound rebound from its worst monthly losses of 2024. Investors have stepped to the sidelines ahead of a flurry of US data releases today, with a focus on the initial jobless claims and the GDP, and then followed tomorrow by the preferred US inflation (PCE) report. Our bias remains optimistic for the pound, with the prospect of BoE keeping domestic interest rates on hold and expecting only one further rate cut in November.