The USD firms, oil prices strengthen, equity markets are mixed, and US yields rise as Mideast tensions increase. The USD extended gains in October after suffering its worst quarterly performance in Q3 since 2022, as increased geopolitical concerns saw a return to safe-haven USD buying. European equities and US futures weakened as the risk of escalating conflict in the Mideast dampened the risk sentiment ahead of Friday's critical US unemployment data. Global equity markets look set for their first weekly loss in a month as investors await Israel's response to Iran's missile attack. Oil prices strengthen on Mideast concerns, but a large buildup in US inventories capped gains. Elsewhere, Bitcoin strengthens towards $61k, up 0.7%, while gold and silver prices weaken in early trading. In focus today, US ISM Service PMI, Initial Jobless Claims, Global Composite & Services PMI, and Fed's Bostic & Kashkari speeches will help provide intraday director to currency markets.
In other news Seven were killed in an Israeli air strike on central Beirut. The White House deploys troops in vast hurricane recovery efforts. Former Singapore transport minister is sentenced to a year in jail over gifts. Ship queue grows at US ports as dockworkers' strike enters a third day. Tesla to recall over 27,000 Cybertruck vehicles, NHTSA says. Russia launches major drone attack on Ukraine, damages energy infrastructure. Argentina budget cuts spark student protests. Biden exempts some semiconductor factories from environmental services. Russian court freezes funds of US banks JP Morgan & BNY. The ongoing strike at the Port of Montreal is forcing vessels to move elsewhere.
In currency markets. The USD extends gains, hitting a six-week high against the JPY, as stronger US jobs data is expected to temper US Fed rate cuts. GBP comes under pressure on dovish BoE comments. The Malaysian Ringgit and the Indonesian Rupiah drag the FX currency basket lower on increasing Mideast tensions. CNY eases by 0.1%, while Asian currencies weaken by 0.4% on average against the USD. Trading currencies come under pressure, with NZD & ZAR tumbling 0.7%, AUD & NOK weakening by 0.55%, MXN & SEK falling 0.4%, JPY easing 0.25%, and CHF slipping 0.15% against the USD.
In commodity markets. Oil prices rallied 2%. Natural Gas prices strengthened by 1.1%. Gold prices slipped 0.2%. Silver and Soybean prices weakened by 0.6%. Copper prices tumbled by 1.1%, and Wheat prices eased by 0.5%.
CAD weakens in early trading despite strengthening oil prices, as investors favor the USD for both its safe-haven status and Wednesday's stronger ADP jobs data, which eased expectations of a 50 bps rate cut by the Fed in November. We expect the CAD will remain on the back foot today with the Mideast uncertainty and market caution ahead of Friday's critical US Nonfarm payroll.
EURCAD edges off 5-week lows, but further gains appear capped with the strengthening oil prices providing underlying support to the loonie.
EUR steadies at near four-week lows as global risk sentiment eases. The euro continues under pressure on the combination of escalating Mideast tensions, the increasing expectation of a 50 bps cut by the ECB in October, and the prospect of a less dovish Fed as domestic jobs data improves. Markets will continue to monitor Israel's response to the Iranian missile attack and be cautious ahead of Friday's US NFP report.
GBPEUR tumbled, testing a fresh five-week low following the BoE Governor's dovish comments, increasing expectations of an October rate cut.
GBP looks set for its biggest daily fall against the USD in over a year as the pound tumbles from near 1.3250 towards 1.3100. The pound tumbled against its G10 peers following BoE Governor Andrew Bailey when he said the central bank could become 'more activist' on rate cuts as inflation levels ease. The pound's weakness as investors shifted to the safe-haven USD amid increasing tensions in the Middle East. We expect the pound to remain under pressure heading into Friday's critical US jobs report.
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