The Morning Update

The USD is steady, oil prices weaken, equity markets are mixed, and US yields rise, with investors sidelined ahead of the US inflation report. Currency & equity markets are cautious today without high-tier economic reports, with investors preferring to be sidelined ahead of Wednesday's critical US inflation report. The S&P edged higher on Monday, rebounding from its worst start to the month since 1953. Treasury yields rose for a second day, with expectations that the Fed would likely cut only 25 bps on September 18th. In Europe, German inflation fell to the lowest level in over three years, increasing expectations that the ECB will deliver its 2nd interest rate cut at Thursday's policy meeting. Elsewhere, oil prices fall as China demand concerns offset US supply disruptions. China's exports grew for a 5th consecutive month, while imports fell amid a slowing Chinese economy. Bitcoin, silver, and gold prices hold steady in quiet trading markets. Today's focus, with the absence of any high-tier US economic releases, markets will focus on CAD BoC's Governor Macklem's speech and the US Presidential Debate to provide intraday direction to currency markets.

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In other news. Ukraine strikes Moscow in its biggest drone attack to date. Dozens killed, wounded in Israel strikes on Gaza tent camp, Gaza agency says. Apple's AI gap in the new iPhone disappoints Chinese users as Huawei's threat looms. Apple lost its fight against the $14.4 billion EU tax order to Ireland. Global hiring intentions hold steady in Q4, the ManpowerGroup survey shows. SpaceX launched a billionaire's private crew on a breakthrough spacewalk mission. Russia's birth rate slides to its lowest level in a quarter of a century in 2024. Trump escalates tariff threat in vow to protect the US Dollar. New Jersey Governor says the new pact could help boost trade with Ontario. CAMI Ingersoll workers vote 97% in favor of a strike if General Motors doesn't meet their demands.

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In currency markets, the USD holds steady ahead of tonight's US Presidential Debate and Wednesday's critical US Inflation report. CNY slips on a firmer USD but finds support with rising export data. GBP edges higher against the USD and Euro after better-than-expected jobs data. CNY slips by 0.1%, while Asian currencies are flat on average against the USD. Trading currencies are mixed, with MXN & ZAR weakening by 0.3%, JPY & SEK flat, AUD up 0.1%, NZD & CHF gaining 0.25%, and NOK strengthening by 0.4% against the USD.

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In commodity markets. Oil and soybean prices tumbled by 1.1%. Natural Gas prices eased by 0.35%. Gold, wheat, and silver prices are flat. Copper prices weakened by 0.5%.

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CAD slipped in early trading, remaining under selling pressure. CAD is down nearly 2% in September due to weaker commodity prices, domestic economic concerns, and speculation that the BoC will cut interest rates by 50bps at its next policy meeting. Investors will be focused on BoC Governor Macklem's speech today at the Canada-UK Chamber of Commerce for more signals of the bank's expected pace of easing in 2024. We anticipate the BoC Governor will remain guarded with his comments. Without any high-tier economic releases from the US, we anticipate the Loonie will stay in current ranges as investors remain sidelined ahead of tomorrow's US inflation report.

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EURCAD edges off September lows as weakening commodity prices offset the falling German inflation levels ahead of Thursday's ECB interest rate decision.

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EUR remains heavy below 1.1050 heading into the US inflation report and the ECB interest rate decision this week. Euro holding above 1.1100 as expectations are mixed on whether the ECB cuts 50 bps or 25 bps on Thursday. Domestically, German inflation levels fell to their lowest over three years, testing 2% in August, lower than its Eurozone peers at 2.6%. Morgan Stanley sees the euro returning towards parity against the USD within months as the ECB dials up policy easing. Morgan Stanley expects the Euro to tumble 7% to Euro 1.02 by the end of 2024. Intraday, we anticipate the Euro will remain within the 1.1000/1.1150 range heading into tomorrow's US inflation report.

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GBPEUR recoups all of its early losses in September, finding support on better-than-expected UK jobs data while falling inflation levels in Germany help set the stage for an ECB rate cut on Thursday.

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GBP retests 1.3100 following the UK employment data. The pound edges higher in early trading after the UK ILO employment rate edged lower to 4.1% in the three months to July, against the expected 4.2%. In other data today, the UK employment change came in at 265k, up sharply from 97k, while the average earnings, excluding bonuses, declined positively to 5.1% from 5.4%. The focus will be on the Bank of England monetary policy committee meeting on Wednesday & then on Thursday's Interest rate decision, with the majority of economists predicting the BoE will keep its rates on hold. Our bias remains bullish on GBP, with expectations of increasing interest divergence between the ECB, CAD & the Fed in September.

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