The Morning Update

The USD is up, oil prices strengthened, equity markets are mixed, and US yields rise as risk sentiment improves. The USD edges higher against its G7 peers ahead of this week's key US inflation report as investors remain uncertain on the size of a likely Fed rate cut on September 18th. Asian equity markets are down, while European equity markets advance, with investors expecting the ECB to cut by 25 bps when it meets on Thursday. In Asia, China's core inflation eased to its weakest level since 2021, increasing deflation risk as signs of economic weakness mount. China's CSI 300 Index weakened for a second day, with the index weakening 13% since its high in May, and further weakness could cause the index to drop to 2019 lows. Elsewhere, oil prices rallied over $1.00 on US Gulf Coast hurricane concerns and as risk sentiment improved after last week's sell-off. Iron ore sank below $90 a ton for the first time since 2022, while Bitcoin rallied by 1.5%, and gold prices are flat. In focus this week, Monday sees no key economic releases. Tuesday, UK Employment report, German Inflation & BoC Governor speech. Wednesday, US CPI report. Thursday, ECB Monetary Policy Statement, ECB Press Conference, US PPI, BoE Monetary Policy Report. Friday, US Michigan Consumer Sentiment Index China's Industrial Production and Retail Sales will help direct markets this week.

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In other news, Boeing's shares rose after a tentative labor deal that could avert a major strike. The UN rights chief called on the states to challenge Israel over occupation. Mexico's contested judicial reform cleared the commission stage and moved to a full Senate vote. Draghi urges reform and massive investment to revive the lagging EU Economy. Couche-Tard asks the 7-Eleven owner for talks after the $38.5 billion offer was rejected. Venezuela opposition leader Gonzalez lands in Spain seeking asylum. Typhoon Yagi pounds infrastructure and leaves dozens dead in Vietnam. Economist says Trump's vow of 100% tariffs on nations that snub the USD is a lose-lose for China & US (CNBC)

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In currency markets. The USD edges higher as investors speculate the Fed will limit its interest rate cut by 25 bps on September 18th. China's yuan weakens as its long-term yield falls further amid deflation worries. CNY weakens by 0.4%, while Asian currencies drop by 0.3% on average against the USD. Trading currencies come under pressure, with JPY & NOK tumbling by 1%, NZD, CHF & SEK weakening by 0.75%, and AUD dropping by 0.3%, while outlier MXN strengthens by 0.4% against the USD.

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In commodity markets. Oil and silver prices strengthened by 1.1%. Natural Gas prices tumbled by 3.25%. Gold & Wheat prices are flat. Copper prices rallied by 1.95%, and Soybean prices firmed by 0.6%.

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CAD remains at two-week lows amid a strengthening USD and increasing expectations that the BoC could cut 50bps at its next meeting following Friday's weaker-than-expected jobs data. Canada added just 22.1k jobs in August, which took the unemployment rate to 6.6%, up from 6.4% in July, its weakest level in seven years (excluding COVID-19). The focus will be on the UK & ECB  interest rate decisions this week and the Fed's next week to help provide direction to the loonie. Intraday, we expect the loonie to trade within current ranges, with the lack of economic data releases to provide guidance.

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EURCAD weakens amid increasing expectations of an ECB rate cut on Thursday and strengthening commodity prices, further supporting CAD.

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EUR edges lower amid increasing USD demand and growing expectations of an ECB rate cut on Thursday. Euro slipped below 1.1050 amid a strengthening USD as investors tame expectations of a Fed rate cut to just 25 bps next week. Domestically, the Sentix Investor Confidence, a monthly survey that shows the market's opinion about the current economic situation and expectations for the next semester, increased its bearish outlook, falling to -15.4. We expect the Euro to remain on the back foot heading into the ECB interest rate decision this week.

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GBPEUR edges higher in early trading as markets increasingly expect the BoE to keep its interest rates on hold, while the EBC is expected to cut its domestic interest rates by 25 bps on Thursday.

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GBP weakens below 1.3100 ahead of the BoE rate decision and caution ahead of a crucial US inflation report this week. The pound has lost momentum as investors increasingly expect the Fed to cut just 25bps despite weakening US jobs data. Domestically, we expect investors to remain cautious heading into several key UK economic data releases this week, which include UK Jobs data on Tuesday, manufacturing data on Wednesday, and the BoE interest rate decision on Thursday. Intraday, we expect the pound to hold within its current trading range without significant economic data releases today.

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