The Morning Update

The USD rebounds, oil prices edge higher, equity markets are mixed, and US yields rise as calm returns to markets. The USD index rebounds from a five-month low, and equity markets return to some normalcy as recent declines present some buying opportunities. On Monday, investor sentiment nose-dived on the combination of the softer-than-expected US Jobs data and the disappointing earnings, increasing US recession fears. Japanese shares rallied 10.2% today, the index's best day since 2008, rebounding from Monday's biggest sell-off since 1987 when the index plunged by 12.4%. The volatility index continues to hold near a four-year high, while the USD has steadied as speculation of an interest rate cut by the Fed ahead of its September meeting has faded. Markets are now pricing in an 80% chance of a 50bps rate cut in September and are anticipating a further 50bps cut in 2024. Elsewhere, oil prices edge off a 7-month low on production concerns in Libya and continuing Middle East tensions. Bitcoin rebounds +3%, and gold edges higher after Monday's rout by investors. Today sees a light economic calendar for the US & Canada, so we anticipate markets will continue consolidating.

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In other news, Fed officials move to reassure markets that the US is not in a recession and signal rate cuts ahead. Bangladesh protesters back Nobel laureate Muhammad Yunus for a government role. A Fed survey shows that US banks report the best loan demand in two years. US judge finds Google has an illegal monopoly on search. Chinese firms stockpile high-end Samsung chips as they await new US curbs. Chinese state media says China will launch its first constellation of satellites to rival Starlink. Aftershocks of carry trade at the heart of the market rout could still have reverberations-Reuters. Harris clinches the Democratic nomination.

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In currency markets. The Japanese yen weakens off eight-month highs against the USD as markets look to unwind the "carry trade." The Chinese yuan eased from its 7-month highs as markets focused on trade data on Wednesday and the domestic inflation report on Thursday. The USD rebounds after Fed policymakers ease investors' fears after tumbling from 1.04.50 on Friday to a low of 102.10 on Monday. CNY weakens by 0.3%, while Asian currencies ease by 0.15% on average against the USD. Trading currencies come under pressure, with MXN tumbling 0.6%, JPY & NZD weakening 0.4%, AUD, SEK & CHF falling 0.25%, ZAR dipping 0.1%, and NOK is flat against the USD.

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In commodity markets. Oil, Gold, & Natural Gas prices firmed by 0.4%. Silver prices eased by 0.4%, Copper and Wheat prices weakened by 0.5%, and Soybean prices tumbled by 1.7%.

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CAD weakens off August highs in early trading as the USD rebounds from two days of selling pressure on US recession fears. Domestically, we remain bearish for the loonie into Q4 as investors speculate that the Bank of Canada will cut interest at its September, October, and December meetings, potentially taking rates to 3.75% to close 2024. We expect the loonie to remain within its current range with the lack of any high-tier economic data releases. Investors will be focused on Wednesday's Ivey Purchasing Manager Index, the BoC Summary of Deliberations, and then Friday's unemployment data to help drive direction for CAD.

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EURCAD slips off three-year highs of 1.5227 on improving oil prices and profit-taking in early trading. We remain bullish on the Euro against the CAD as we anticipate increasing interest rate divergence between the ECB and BoC, with the BoC taking a more aggressive stance on lower domestic interest rates in 2024.

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EUR gave back Monday's gains as the USD recovery gained traction. The Euro weakened in early trading after testing an 8-month high of 1.1008 on Monday, as investors favored the Euro over its G7 peers. Domestically, EU Retail Sales printed below expectations, coming in at -0.3% vs the previous +0.5 and increasing expectations that the ECB will cut domestic interest rates in September. Intraday, with the lack of high-tier US economic data, we anticipate the Euro will steady, straddling 1.0900 today.

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GBPEUR continues to be under pressure, falling 2% in August and testing a fresh three-month low as recession fears increase in the UK and following the Bank of England's decision to cut interest rates last week.

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GBP continues under selling pressure, breaching through 1.2700 on risk-off sentiment. The pound gives back Monday's gains as the USD rebounds as Fed policymakers settle investors' concerns of a US recession. Domestically, UK Construction PMI came in at 55.3, which is better than expected, remaining in bullish territory. With the lack of high-tier economic data from the UK or US this week, we anticipate the pound will remain under pressure as markets speculate another rate cut by the BoE at its next meeting.

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