The Morning Update

The USD is flat, crude eases, equity markets are down, and US yields ease on rates and earnings. The USD holds steady on a less dovish Fed, while the pound weakens after the UK inflation levels fell more than forecast, increasing the prospect of BoE easing. The USD is holding near its two-month high after former President Trump defended proposals to raise tariffs on imports. Equity markets came under pressure on weak earnings in the luxury and semiconductor sectors, while US treasuries edged lower. Fed's Bostic said he expects the US economy to slow in 2024 but to remain robust, adding that the downward pressure for inflation could see some bumps. Elsewhere, oil prices steadied from Tuesday's volatility as Mideast uncertainties persist, while Bitcoin, silver, and gold strengthened. Today sees a light economic calendar with no high-tier releases, so markets will be focused on the US Monthly Budget Statement and ECB's President Lagarde's speech to help provide intraday direction to currency markets.

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In other news. Musk gives $75m boost to Trump's presidential run. Shares in luxury and consumer brands fall on LVMH warning. The EU sticks to its 2035 deadline for a ban on the sale of new petrol-driven cars. The US warned Israel that the humanitarian crisis in Gaza could threaten military aid. EU markets watchdog pushes for extra cyber defenses in new crypto rules. UK inflation tumbles to 1.7%, spurring BoE rate cut bets. ASML's lowered outlook suggests factory overcapacity, not chip doom. China won't renounce the use of force over Taiwan; Xi visits the frontline island. 5 out of 6 big Canadian banks see a jumbo rate cut after a surprisingly soft inflation report. London Underground workers are set to hold a series of strikes in November.

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In currency markets. The pound falls after a softer UK inflation report, and the USD holds near 8-week highs on the Fed outlook and a potential Trump win. The Thai central bank keeps interest rates on hold. NZD hits a 2-month low on expectations of an outsized rate cut, while CNY edges higher on more stimulus hopes. CNY is up 0.1%, while Asian currencies are flat on average against the USD. Trading currencies come under fresh pressure, with NOK weakening by 0.45%, SEK, MXN, AUD & NZD  down 0.25%, JPY & CHF flat, and ZAR strengthened by 0.3% against the USD.

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In commodity markets. Oil and natural gas prices are down 0.3%. Gold & Soybean prices gained by 0.7%. Copper & Silver prices strengthened by 1.1%. Wheat prices weakened by 0.6%.

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CAD edged off its 10-week low of 1.3838 but remained under pressure after Canada's annual inflation rate slowed to 1.6%, which increased the chances of a 50 bps cut increasing to 74%. Charles St-Arnaud, former economist of BoC, said, "I think the inflation number has really solidified the case for the Bank of Canada to cut by 50 bps next week. The prospect of falling oil demand, easing Mideast pressure, and increasing Saudi supply coming online in 2025 is expected to keep further pressure on the loonie. Intraday, with the lack of high-tier data releases, we expect markets to remain focused on Mideast updates to help provide some direction to the loonie.

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EURCAD edges higher, but markets are stable ahead of ECB President Lagarde's speech today.

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EUR continues under pressure, hovering below 1.0900 amid ongoing risk aversion. The euro continues under pressure amid consistent USD strength, ongoing concerns for China's economic outlook, and an increasingly dovish tone from the ECB. Markets will be focused on ECB Lagarde's comments today, ahead of tomorrow's European Central Bank's monetary policy announcement. Investors expect the ECB to lower its key rates by 25 bps after recent economic data for the eurozone showed continuing disinflation combined with a slowdown in activity-related data.

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GBPEUR tumbled through 1.2000 after UK inflation levels fell to their lowest levels in three and half years. The pound weakened against the USD after softer-than-expected UK inflation data. The pound dropped towards 1.3000 after the UK showed that its annual inflation declined to 1.7% in September from 2.2% in August. The reading came in below market expectations of 1.9%, taking the UK inflation levels to their lowest levels since 2021. According to Reuters, markets are currently pricing in a 70% probability of the BoE now opting for 25 bps in November and December. Focus will now switch to Thursday's US Retail Sales and Friday's UK Retail Sales to provide further direction to the pound.