The Morning Update

The USD eases, oil prices weaken, equity markets are up, and US yields are mixed amid Gulf tensions & ongoing US inflation.The U.S. dollar eases off 18-month highs but remains resilient amid elevated Middle East tensions, persistent inflation concerns and continued safe-haven demand. Bullish USD positioning has also risen sharply, while markets remain cautious ahead of Wednesday’s U.S. CPI report, which could be pivotal for expectations around the Fed’s next move. Global equity markets are up despite continued weakness in chipmakers, as lower oil prices and easing bond yields improve broader sentiment. European shares lead gains, while U.S. futures are mixed ahead of the start of bank earnings, with investors looking for strong corporate results to offset concerns around elevated rates and stretched technology valuations. Elsewhere, oil prices weaken as traders weigh the prospect of additional Russian diesel supply against ongoing Gulf risks, while gold firms as the USD and Treasury yields ease. Bitcoin also strengthens, rebounding alongside the broader improvement in risk appetite. Today's focus will be on US ADP Employment Change 4-week Average, Existing Home Sales Change, Monthly Budget Statement and comments from ECB's Lane speech to help provide intraday guidance to investors.

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News Headlines. Top economies heading for biggest budget deficits since Covid, warns the IMF. Goldman and JPMorgan to report on trading slowdown as earnings season kicks off. Chip stocks slide in the wake of 'casino' comment by Broadcom boss. Investors brave US Treasury rout to lock in highest yields in decades. Saudi Arabia intercepts new Houthi attacks. BOJ is said to lean against back-to-back hike in October. Carney calls for unity as Alberta prepares for secession vote. Canadian AI company turns away from the US government work amid trade tensions. UnitedHealth group tops estimates, hikes profit outlook as the insurer manages higher medical costs.

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In currency markets. Against the USD, NZD, SEK and ZAR outperform their peers as the greenback eases from recent highs. NZD is supported by the RBNZ’s relatively hawkish stance following September’s rate hike, while SEK benefits from expectations for further Riksbank tightening and ZAR gains alongside firmer precious metals and improved risk appetite.

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In commodity markets. WTI -2.05% | Nat Gas -1.42% | Gold +0.52% | Silver +0.42% | Copper +0.31% | Palladium +0.45% | Coffee +0.31% | Cocoa +3.72% | Soybeans -0.49% | Wheat -0.56%

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CAD edges off 18-month lows against the greenback after Friday’s sharp employment-driven selloff, while the TSX’s strong rebound suggests investors are increasingly pricing a less aggressive BoC path following the weak jobs report. The broader backdrop remains challenging, with Canada’s labour market softening and the U.S.-Canada yield spread still heavily favouring the USD. This week’s focus will be on BoC Governor Macklem’s speech and Wednesday’s U.S. CPI report for further direction on relative rate expectations.

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EURCAD holds broadly steady, with the euro stabilising while the Canadian dollar remains constrained by softer domestic momentum and weaker oil prices. This week’s focus will be on BoC Governor Macklem and a series of ECB speakers for further guidance on the respective policy outlooks, but weaker Canadian growth and renewed pressure on crude could prove the greater headwind for the loonie and provide underlying support for EURCAD.

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EUR trims recent losses against the USD as the greenback softens, but the broader bearish tone remains intact with France’s fiscal problems and still-elevated energy costs continuing to weigh on the single currency. German inflation accelerated in September, reinforcing stagflation concerns across the euro area, while Fed’s Hammack has reiterated the need for tighter policy in the U.S. Attention now turns to Wednesday’s U.S. CPI report, which is expected to show a further pickup in headline inflation and could be pivotal for the next leg in EUR/USD.

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GBPEUR is broadly flat in early trading, holding close to recent 16-month highs after a strong run for GBP over the past two weeks. France’s fiscal and political uncertainty continues to weigh on the euro, while relatively hawkish BoE expectations remain supportive for GBP; attention this week turns to UK GDP data and ECB commentary for the next directional catalyst.

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GBP firms against the USD as BoE’s Greene argues that policymakers need to act proactively against persistent inflation, warning that waiting for second-round effects to appear could be too late and adding that UK monetary policy is “not that restrictive.” A softer USD is also providing support, although the broader GBP recovery remains constrained by lingering UK fiscal concerns and expectations that August GDP on Thursday could show a modest contraction. Investors are likely to remain cautious ahead of Wednesday’s U.S. CPI report, which is expected to show firmer headline inflation and could materially shift expectations for the Fed’s next move.