The Morning Update

The USD is steady, oil prices rally, equity markets are up, and US yields rise as risk appetite improves. Currency markets advanced, and global equity markets gained after China announced a broad stimulus package to revive the world's second-largest economy. The stimulus announcement from China helped many national equity indexes have their best trading day since July 2020. In the US, Fed Goolsbee said that, with inflation approaching the central bank's target, the focus should turn to the labor market, and "that likely means more rate cuts over the next year." Feds Kashkari also pointed to the weakness in the Job market, saying he backs lower interest rates by another 50 bps by year-end. Elsewhere, oil prices rallied on escalating Mideast concerns; gold prices hit a fresh record of $2,636.16 per ounce in Asian market hours, and Bitcoin extended gains over $63,500. In focus today, Fed's Bowman speech, US Consumer Confidence, and BoC's Governor Macklem's speech will help provide intraday direction to currency markets.

‍

In other news. China's central bank unveils its most aggressive stimulus since the pandemic. Israeli strikes kill almost 500 in Lebanon, says health ministry. The US proposes banning Chinese software and components in vehicles. Iran president warns of 'irreversible' consequences of wider regional war. German business sentiment falls more than expected in September, says IFO. Zelenskiy holds a flurry of bilateral meetings at the UN to shore up support for Ukraine. Hurricane John makes landfall in Mexico as a major category-three storm. Grain farmers urge intervention as Metro-Vancouver terminal Workers prepare to strike.

‍

In currency markets. AUD hits 2024 high following hawkish comments from the RBA. CNY strengthens on the China stimulus news. The USD Index is sidelined as investors await Thursday's US GDP and Friday's key Personal Consumption Expenditures price index. CNY strengthens by 0.3%, and Asian currencies gain by 0.15% on average against USD. Trading currencies are mixed, with JPY weakening by 0.5%, AUD & CHF up 0.1%, NZD, ZAR & MXN firms by 0.2%, NOK strengthened 0.45%, and SEK rallied by 0.55% against the USD.

‍

In commodity markets. Oil & Copper prices rallied by 2.5%, Natural Gas prices strengthened by 1.8%, Gold and Soybean prices increased by 0.1%, Silver prices firmed by 0.4%, and Wheat prices weakened by 0.5%.

‍

CAD extended gains after China announced a broad range of stimulus measures, increasing risk-on sentiment and rallying commodity prices. On Monday, Fed policymakers signaled the prospect of a further 50 bps rate cut by the end of the year, adding pressure to the USD and helping the loonie firm. The focus will be on BoC Governor Macklem's speech today for signs of further interest rate easing in 2024. Markets expect the BoC to cut three more times in 2024, possibly taking rates from 4.25% down to 3.25% by year-end.

‍

EURCAD holds steady despite a weaker-than-expected German IFO survey, with the Euro remaining up nearly 1% in September.

‍

EUR holds above 1.1100 against the USD as risk sentiment improves following the China stimulus news. The euro remains stalled within a tight range, with the single currency struggling to rally with the increasing expectations of more ECB rate cuts in Q4. Domestically, the IFO Current Assessment dropped to 84.4 from 86.4 previously, and the business climate weakened to 85.4, below the forecasted 86.0. Our bias is to see the euro come under fresh selling pressure with expectations the ECB could cut a further 50bps in Q4.

‍

GBPEUR tests a fresh two-year high following disappointing IFO Business Climate and Current Assessment survey from Germany.

‍

GBP extends gains towards 1.3400 on a softer USD and increased risk-on sentiment. The pound breached 1.3350 and is extending towards 1.3400 following China's stimulus announcement. The pound appears to have shrugged off BoE Governor Bailey's dovish comments, with only one policymaker voting for a 25bps cut in September. Investors remain focused on the prospect of further 50 bps rate cuts by the Fed in Q4, following Feds Goolsbee and Kashkari's comments yesterday. Intraday sees a lighter economic calendar, with markets focusing on the Fed's Bowman's comments and US Consumer Confidence report to help provide some intraday direction to the pound today.

,