The Morning Update

The USD eases, oil prices firm, equity markets are mixed, and US yields rise with mixed sentiment. The USD eases as China rolls out its stimulus packages, while AUD & NZD hit 2024 highs on expectations of fiscal support from China. European & Japanese equities slumped with declines from the auto sector, in contrast, China's CSI 300 index jumped the most since 2008 after the latest stimulus measures. "Right now we see an improvement in sentiment, which is driven by more stringent action that we see in China, that is good news for European equity markets," said Poppe in a Bloomberg TV interview. Geopolitical concerns remain a key focus for investors this week following Israel's killing of Hezbollah's leader in Beirut. Elsewhere, oil prices edged higher in early trading, with markets waiting to see how Iran will respond to the weekend attacks. Bitcoin tumbled 3.5%, while silver and gold hold steady within current trading ranges. In focus this week, Monday, is the German Inflation report, the Fed Chair Powell & ECB Lagarde Speeches, and the US Chicago PMI. Tuesday, the European inflation report, Canada Global Manufacturing PMI, US ISM Manufacturing PMI, Feds Beige Book, & Jolts Job Opening. Wednesday, US ADP Employment Change. Thursday, BoE Monetary Policy Report Hearing, US Initial Jobless Claims, US ISM Services PMI. Friday, US Average Hourly Earnings. US Nonfarm Payrolls and CAD Ivey PMI will help provide direction to currency markets this week.

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In other news. Israel strikes central Beirut as attacks escalate. Chinese stocks surged 8.5% on the best day since 2008. Stellantis & Aston Martin shares fall sharply on profit warnings. California governor vetoes a bill to regulate artificial intelligence. In France, Marine Le Pen goes on trial over EU expenses scandal. Mexico's first female president to take power under mentor's shadow. Death toll climbs as tropical storm Helene devastates south-east US. Austrian far-right secures historic election win. The Port of Montreal dockworkers threaten a three-day strike beginning Monday, Union Says. On the US East Coast, a port strike looms Tuesday with no talks scheduled.

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In currency markets, China's CNY is poised for its best quarter since 2020, while state banks try to slow its gains following the country's latest stimulus rollout. The USD slips as risk sentiment improves as China rolls out domestic stimulus measures, while EUR & GBP edge higher but remain cautious ahead of Friday's critical US Jobs data. CNY is flat, while Asian currencies ease by 0.1% on average against the USD. Trading currencies are mixed, with JPY, ZAR, NOK & CHF weakening 0.4%, SEK falling 0.2%, NZD up 0.15%, AUD firming 0.25%, and MXN strengthening by 0.5% against the USD.

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In commodity markets. Oil & Copper prices slipped by 0.2%. Natural gas prices are up by 0.2%. Gold prices are flat. Silver prices fell by 0.4%, Wheat prices firmed by 0.3%, and Soybean prices weakened by 1%.

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CAD holds steady in early trading, for September, the loonie gained 2% against the USD following the Fed cut of 50 bps and China's stimulus measures. Domestically, Friday's CAD GDP increased by 0.2% in July, beating expectations and helping to support the CAD. Elsewhere, Deloitte Canada's Chief Economist Dawn Desjardins joins other economists in calling for Canadian interest rates to fall to 2.75% by mid-2025. Our bias remains to buy USD on this dip, with increasing expectations of interest rate divergence between the Fed & the BoC.

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EURCAD continues to edge higher with the prospect of increased oil production from Saudi Arabia and diverging interest rates between the ECB & the BoC in Q4, which has seen the Euro rally 1.5% so far in September.

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EUR continues to straddle 1.1200 ahead of the key Germain inflation report. The German national inflation data will be in focus today, which will help provide some guidance to the ECB's next steps in October. Markets will be monitoring ECB President Lagarde's comments today to see if she will leave the door open for another rate cut in October. Intraday markets will be focused on Fed Chair Powell's and ECB President Lagarde's speeches to provide intraday direction to currency markets.

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GBPEUR extends gains as persistent UK inflation levels are expected to keep the BoE on the sidelines, while the ECB is expected to cut domestic interest rates again in October.

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GBP holds relatively steady in early trading, edging above 1.3400. The UK GDP for Q2 was revised down from 0.6% to 0.5%. While Nationwide Housing Prices rose y/y to 3.2% and M/M from -0.2% in August to up 0.7% in September. Signs of persistent domestic inflation levels are expected to see the BoE keep its domestic interest rates on hold, and the expected interest rate divergence between the Fed & BoE is expected to provide underlying support to the pound. Intraday, the primary focus will be on the Fed Chair's comments for further signs of US interest rate direction.

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