The Morning Update

The USD is flat, oil prices firmed, equity markets are down, and US yields ease as earnings and rates weigh on sentiment. The USD is flat, on pace for its best month in two years, heading into today's key US inflation report and Friday's Nonfarm Payrolls release. Equity markets extended declines after Microsoft & Meta Platforms earnings disappointed investors and, following recent US economic data releases, blurred the prospect of Fed rate cuts in December. "Sentiment is shakier this morning as fallout from rather disappointing Microsoft & Meta earnings continues," said Brown of Pepperstone Group Ltd. "Yesterday's US GDP data once more evidenced the continued US exceptionalism, a theme which still underpins much of the USD's recent strength. Elsewhere, edged higher on US stockpiles drawdown, Bitcoin firms up 0.6% to $72.3k, while silver & gold prices both fall. In focus today, Apple, Amazon & Intel to report earnings, the US core Personal Consumption Expenditures - Price Index, Initial Jobless Claims, and CAD GDP will help provide direction to currency markets.

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In other news. Businesses and the wealthy bear the brunt of the GBP 40 billion tax increase in the UK budget. Microsoft Cloud revenue rises on AI boom, but softer outlook weighs on shares. Chinese sanctions hit US drone maker supplying Ukraine. North Korea conducts its longest-ever intercontinental ballistic missile test. The US draws up a draft Israel-Lebanon ceasefire plan. The Bank of Japan holds rates, but signals normalization is still on track. Chinese factory activity expands for the first time in six months. IKEA is to pay Eur 6 million to compensate for forced labour by ex-prisoners in East Germany. VW demands 10% wage cuts to save jobs as profits plunge. Spanish flood death toll is expected to rise as dozens missing. Trudeau's allies dismiss leadership challenge as "utter silliness" despite grumblings.

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In currency markets. The JPY strengthens despite rates being kept on hold after comments on the normalization of rates. The USD is set for its strongest month of gains since 2022, while the opposite applied for AUD & NZD, which are set for their biggest fall in nearly two years. CNY is flat, while Asian currencies firmed by 0.1% on average against the USD. Trading currencies are mixed, with ZAR weakening by 0.45%, AUD, NOK & SEK down 0.1%, NZD flat, MXN up 0.1%, CHF firmed 0.2%, and JPY rallied 0.65% against the USD.

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In commodity markets. Oil and Soybean prices strengthened by 0.4%. Natural Gas prices tumbled by 1.8%. Gold prices fell 0.45%. Silver prices weakened by 1%. Copper prices are flat, and Wheat prices eased by 0.2%.

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CAD continues to hold near 12-week lows; month to date, the loonie has weakened 3% against the USD as investors increasingly expect further interest rate divergence between the Fed & BoC in Q4. Bank of Canada Governor Macklem continues to project further interest rate cuts if the economy evolves as the central bank expects. Intraday, the CAD GDP is expected to show flat growth in August, down from 0.2% in July, and the US Core PCE will be monitored closely to help provide direction to the loonie today.

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EURCAD extended gains to a fresh monthly high after eurozone inflation levels picked up, which could cause the ECB to pause rate cuts in November.

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EUR breached 1.0850 after eurozone inflation accelerated in October. Inflation in the 20 countries sharing the single currency increased to 2%, up from 1.7% in September, which was due to higher fuel and food costs. The increasing inflation levels and uncertainty over the US election, which could have far-reaching implications on trade, growth, and inflation, may cause the ECB to keep rates on hold in November. Intraday, the US inflation and jobs data will be a primary driver to markets.

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GBPEUR ends October down just 0.5% as the currency pair remains stable ahead of uncertainty from the US elections and the respective central banks both appearing to be sidelined heading into November.

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GBP steadies below 1.3000 ahead of US inflation and US election caution. The pound has traded within a 1.2950-1.3050 range over the last 5 days as investors remain cautious heading into next week's US election. Domestically, the UK budget targeted businesses and the wealthy and has didn't impact the pound. Elsewhere, investors are mixed if the Bank of England will cut interest rates by 25bps in November, with markets mixed that the BoE could wait until December to cut 25bps. We expect the pound to remain steady ahead of today's key US inflation report and Friday's critical Nonfarm Payrolls report.