The Morning Update

The USD eases, oil prices rally, equity markets are down, and US yields are mixed amid higher oil prices and AI earnings in focus. The U.S. dollar remains under pressure as falling Treasury yields and fading expectations for an October Fed hike continue to erode its recent rate advantage. Renewed weakness in AI-related equities is also driving demand into Treasuries rather than the dollar, while markets now place a very high probability on the Fed holding rates steady next week despite still-elevated inflation. Global equity markets are broadly lower as renewed concerns over the sustainability of AI-related spending weigh on risk sentiment, with weakness across Asian, European and U.S. technology shares. Investors are now focused on upcoming earnings from major AI spenders, including SpaceX and Meta, for evidence that heavy capital investment is translating into stronger returns. Elsewhere, oil prices rally on renewed Strait of Hormuz supply concerns, while gold and Bitcoin retreat amid broader market caution. Today’s economic calendar includes U.S. ADP Weekly Employment Change, Housing Starts, Building Permits and Pending Home Sales, alongside a speech from the ECB’s Escrivá.

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News headlines. Alberta voters reject separation from Canada, early results show. AI fears roar back with data centre firms Elice's 33% debut flop. Stock futures are mixed as chipmakers come under pressure. France curfews calm unrest as Macron faces criticism over Gulf trip. US Treasury yields move lower as investors await housing data. Zelensky goes to Oslo for US talks as Trump tensions mount. French bond sell-off intensifies after riots and looting. Romania to form a government after six months of crisis. Brent crude hits five-month high as attacks on ships, Saudi sites fuel supply worries. Google outage hits websites and apps as some bank customers report issues.

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In currency markets. Against the USD, JPY, CHF and NOK outperform their peers as a softer greenback and renewed risk aversion support defensive currencies. JPY and CHF benefit from safe-haven demand as global equities weaken and geopolitical risks remain elevated, while NOK is additionally supported by the sharp rally in oil prices, improving Norway’s terms-of-trade backdrop.

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In commodity markets. WTI +4.77% | Nat Gas -1.96% | Gold -0.57% | Silver -0.01% | Copper Flat | Palladium -1.26% | Coffee -0.82% | Cocoa -0.70% | Soybeans +0.28% | Wheat +0.46%

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CAD extends gains against the USD, holding near four-week highs as hawkish comments from BoC Governor Macklem sharply lift expectations for an October 28 rate hike, with markets now pricing roughly an 80% chance of a move. Oil prices have also rallied strongly on renewed Middle East supply concerns, providing an additional tailwind for the commodity-linked loonie and helping narrow Canada-U.S. yield differentials. Attention also remains on the Alberta separation referendum, where a decisive rejection of secession would remove a potential source of domestic political uncertainty.

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EURCAD remains under pressure as escalating political unrest and fiscal uncertainty in France continue to undermine confidence in the euro, while sharply higher oil prices provide support to the commodity-linked CAD. Concerns over rising European borrowing costs and the impact of elevated energy prices on Eurozone growth are adding to the selling pressure. Attention now turns to today's French budget vote and Friday's Moody's credit rating review, both of which could determine whether the cross extends its recent decline.

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EUR is broadly unchanged against the USD, with expectations for a Fed hold in October offset by escalating political and fiscal concerns in France. Violent protests, partial curfews and widening French-German bond spreads continue to weigh on the single currency, while concerns that political gridlock could delay meaningful deficit reduction are keeping investors cautious toward French assets. Today’s German ZEW survey and U.S. ADP employment report provide the next near-term catalysts.

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GBPEUR firms toward recent highs as stronger-than-expected UK labour data supports GBP, with unemployment falling and employment growth accelerating, reinforcing expectations that the BoE can keep policy relatively tight. The euro remains constrained by France’s fiscal and political uncertainty, with French-German bond spreads still elevated despite some easing in overnight unrest.

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GBP extends gains against the USD, supported by a surprise decline in UK unemployment and further weakness in the greenback as markets scale back expectations for an October Fed hike. The labour report was not uniformly strong, however, with jobless claims rising and vacancies falling sharply, suggesting hiring demand remains soft. Attention now turns to Wednesday’s UK CPI report, which will be important in shaping expectations for the next BoE move.

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