The Morning Update

The USD is flat, oil prices strengthen, equity markets are mixed, and US yields rise as markets await key US inflation data. The USD holds on to 8 days of gains and tests a 10-week high against the JPY ahead of today's US CPI report. US futures are little changed, while European equity markets retreated and yields edged higher as investors suspect the US inflation report could signal that the Fed may opt for a slower pace of interest rate cuts. The ten-year treasury yield held above 4%, near its highest level since July. The US consumer price report is expected to show that inflation has eased to 2.3%, down from 2.5% in August, supporting the view that the Fed will ease in November. But the strong jobs report for September has caused investors to scale back their rate-cut bets, with many expecting the Fed to cut by 25 bps next month. Elsewhere, Bitcoin weakened, commodity markets are rebounding, and oil prices strengthened above $ 77 per barrel as investors fear Israeli retaliation against Iran, which could trigger a significant escalation war in the Middle East. In focus today, ECB Monetary Policy Meeting Accounts, US CPI, Initial Jobless Claims, BoE Monetary Policy Report Hearing, and Fed's Williams & Cook speeches will help provide intraday direction to currency markets.

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In other news. Hurricane Milton weakens as it marches across central Florida, homes destroyed. TD Bank is expected to pay around $3 billion in fines and have limits on its US business. China kicks off 500 bln yuan swap facility to aid stock market. Israel says it eliminates Hezbollah 'Golan Heights' member, Syrian media report Israeli airstrikes. BMW & Mercedes quarterly sales drop on weak China. Hundreds gather to pay last respects to India's iconic business tycoon Ratan Tata. The French government is to present a 2025 belt-tightening budget. Japan's Seven & i, is facing a $47 bln Couche-Tard bid to separate some assets. Biden-Netanyahu call fails to dispel doubts over US sway. Argentina's Milei says his 'regime of freedom' is not ready to drop currency controls. Rafa Nadal announces retirement from professional tennis.

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In currency markets. The USD index and G10 currencies hold steady in early trading ahead of today's US inflation report. CNY is up 0.1%, while Asian currencies are flat on average against the USD. Trading currencies improved, with MXN down 0.1%, SEK & NOK flat, AUD & CHF up 0.1%, JPY & NZD firmed by 0.25%, and ZAR strengthened by 0.45% against USD.

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In commodity markets. Oil prices rallied by 1.65%. Natural Gas Prices weakened by 0.7%. Gold and copper prices are up by 0.2%. Silver prices firmed by 0.5%. Wheat prices strengthened by 1.3%, and soybean prices are flat.

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CAD continues to weaken, testing a fresh eight-week low, falling over 1.5% in October despite strengthening oil prices, as investors continue to focus on the prospect of the increasing interest rate divergence between the Fed and BoC in Q4. Investors will be focused on today's US inflation report and Friday's US employment report to give the loonie direction. Investors expect the Bank of Canada to ease interest rates as much as 50 bps at its Oct 23rd meeting, with further cuts expected in November and December.

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EURCAD continues to rise in early trading, testing above 1.5000 as investors increasingly expect the BoC to take a more aggressive stance on easing rates in October.

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EUR continues its downward momentum, slipping below 1.0950 ahead of the US inflation report. The combination of escalating tensions in the Mideast and the prospect of a 25bps rate cut by the Fed in November provides underlying support to the USD. The German economy is likely to contract by 0.2% in 2024, the economy ministry said on Wednesday, which would be its second consecutive year of shrinking output. We anticipate the Euro will steady at current levels ahead of today's US Inflation Report and the ECB Monetary Policy Meeting Accounts.

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GBPEUR holds steady, with the pound down 1/2% in October, but year to date, the pound is still up over 3.5% against the Euro. The pound is fairing better than the euro, which is a reflection of the relative strength of the UK economy compared with the eurozone.

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GBP continues to stall below 1.3100 as investors focus on today's US CPI report. The pound continues to stall near one-month lows as markets remain cautious and await the US CPI report to provide possible future rate guidance by the Fed. Friday sees a flurry of UK data releases, which includes the UK GDP, manufacturing, and industrial production, to give an overview of the UK economic growth. We expect the pound to hold above 1.3000, with markets expecting the BoE to keep interest rates on hold in October.

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