The Morning Update

The USD is steady, oil prices weaken, equity markets are down, and US yields rise as risk sentiment eases. Currency markets weakened against the USD, while equity markets slipped as investors looked for fresh catalysts after last week's 50 bps rate cut by the Fed. US stock futures dipped after the DOW & S&P 500 hit record highs, and European markets slipped as investors worried the latest stimulus moves in China on Wednesday may not be sufficient to support the country's flagging economy. Investors are awaiting Fed Chair Powell's comments on Thursday and the Fed's preferred price metric on Friday for signals of further interest rate cuts by the Fed in 2024. Elsewhere, oil prices steadied, Bitcoin slipped, while gold and Iron ore prices hit record highs. In focus today, investors will be monitoring the US New Home Sales Change and Fed's Kugler Speech to help provide intraday direction to currency markets.

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In other news. The OECD sees global growth stabilizing at 3.2% in 2024. The FBI probes whether Silicon Valley venture firm passed secrets to China. Argentina's Javier Milei denounces the UN's 'socialist' agenda in speech. China test-fires an intercontinental ballistic missile into the Pacific. The US investigates tech firms SAP & Carahsoft for potential price-fixing. Norway starts probe into reported links to exploding pagers in Lebanon. China's monetary volleys miss key threats to economic growth. Climate change doubles change of floods like those in Central Europe, report says. Harris to push new incentives to boost domestic manufacturing in Pittsburgh. Conservatives attempt to bring down minority liberals rebuffed by Bloc & NDP. Russia has a secret war drone project in China, intel sources say.

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In currency markets. China breaks 7.0000 against the USD for the first time in 16 months. GBP is at a new high against the USD, testing its best levels since March 2022. Elsewhere, AUD tested a 19-month high, NZD tested 2024 highs, and CAD hit one-month highs following the China stimulus news. CNY firmed by 0.15%, while Asian currencies slipped by 0.15% on average against the USD. Trading currencies came under early selling pressure, with JPY & CHF weakening by 0.65%, NZD & NOK dropping 0.5%, AUD, SEK & MXN falling 0.25%, while outlier ZAR strengthened by 0.3% against the USD.

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In commodity markets. Oil, copper & soybean prices weakened by 0.7%. Natural Gas prices rallied by 1.8%. Gold prices are up by 0.2%. Silver prices tumbled by 1%, and Wheat prices eased by 0.4%.

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CAD holds steady at four-week highs despite rising concerns that China's massive stimulus package may not be enough to boost China's sagging economy. On Tuesday, BoC Governor Macklem said that given the continued progress the Bank of Canada has made in bringing down inflation back to the 2% target, it is reasonable to expect more rate cuts. With the prospect of further interest rate cuts, ongoing growth concerns in China, and the prospect of up to 1% more cuts by the BoC in 2024, the current levels of CAD may be a good opportunity to buy USD.

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EURCAD edges higher as weakening commodity prices put pressure on the loonie.

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EUR slips below 1.1200 as the USD finds support on China growth concerns. Risk-off flows return, putting pressure on the euro as China optimism fades and markets refocus on increasing Mideast tensions. Domestically, increasing concern for the outlook for the Eurozone economy is fueling increasing bets that the ECB will reduce its interest rates again next month. HSBC predicts that the ECB will start cutting rates at every meeting between October to April. ECB Policymaker Knot said he expects gradual easing in the near future.

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GBPEUR edges off its highs despite less dovish comments from BoE Governor Bailey, while the euro held on to its gains in early trading. Our bias is to see another test of 1.2000 with the increasing prospect of an ECB rate cut in October.

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GBP corrects below 1.3400 as investors take profit as risk sentiment eases. The pound eased off a 30-month high against the USD as investors took profits following the BoE governor's comments suggesting a gradual easing of interest rates in the coming months. Markets are also cautious amid increasing Mideast conflict and the Fed Chair's comments on Thursday.  BoE Governor Bailey said, "I do think the path for interest rates will be downwards, gradually." When asked about where interest rates will settle, Bailey didn't provide a specific neutral rate but assured that he did not expect them to return to historic lows as seen in times of the pandemic.