The Morning Update

The USD is steady, oil prices slip, equity markets are down, and US yields rise as Investors remain cautious. Currency markets are stable, while oil and gold prices ease as markets reduce safe-haven hedges against an escalation of the conflict in the Middle East. Equity markets are cautious amid ongoing property market concerns in China, reports of a Chinese investigation against the Foxconn Tech group, and the flurry of quarterly reports from US tech giants Microsoft, Alphabet, IBM, Meta, and Amazon this week. Also in focus, investors will seek direction on global interest rates with inflation reports from Australia & Japan, Fed Chair will also be speaking, and the ECB & BOC will deliver their policy decision later in the week.

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In other news. American troops at risk across the Middle East amid rising tensions, US warns-FT. The EU accelerates Egypt's aid package as it fears a fresh wave of refugees. Taiwan's Foxconn faces China tax probes that are politically motivated. The Philippines labels China as an 'aggressor' fanning tensions in the South China Sea. Russian forces intensify pressure on Ukraine's Avdilvka, Kherson. China's graphite curbs will accelerate plans around alternatives. Aircraft rental costs soar as the industry struggles with manufacturing delays.

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In currency news. CHF maintains its strength as investors scramble for safe assets. China Sept forex outflows hit $75bln, its biggest since 2016-Goldman. Rising US yields and ongoing geopolitical concerns continue to provide an underlying support to the USD. CNY is flat, while Asian currencies are up 0.1% on average vs USD. Trading currencies are under pressure with ZAR, SEK & NOK falling 0.5%, while MXN & NZD are down 0.15%, and CHF, AUD & JPY are flat vs USD.

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In commodity markets. Oil prices slipped 0.4%, Natural Gas prices rose 0.5%, Gold slid 0.15%, Silver and copper prices fell 0.4%, Wheat prices firmed 0.1%, and Soybean prices dropped by 0.6%.

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CAD continues under pressure amid increasing geopolitical tensions and the prospect that the Bank of Canada will keep interest rates on hold at its October 25th meeting. In a recent Reuters poll, economists expect the Bank of Canada to keep interest rates on hold at 5% for at least six months, with the majority of economists expecting the BoC will lower interest rates in Q2/24. We anticipate the CAD has the potential to retest 6-month highs of 1.3785 ahead of the BoC interest rate decision.

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EURCAD is steady as currency markets are sidelined with the lack of economic releases and as risk-off sentiment continues to overshadow markets.

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EUR retests 1.0600 amid cautious markets and the absence of key economic data releases. Euro finds some support as investors rebalance their hedges ahead of the ECB interest rate decision amid a cautious risk tone to markets as the Middle East crisis unfolds. Economists anticipate that the ECB is expected to keep its benchmark interest rates on hold at 4% at its meeting this week, with many expecting that the ECB will look to ease interest rates in Q3/24. We anticipate the EUR will hold within its current levels with the absence of any high-tier data releases today.

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GBPEUR continues under pressure holding near 5-month lows after Friday's disappointing retail sales data.

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GBP holds steady near 1.2150 as currency markets are sidelined monitoring the Middle East Crisis. The Hamas-Israel conflict remains the main focus for currency markets as investors continue to favor the safe-haven USD & CHF currencies. Friday's retail takes data that came in weaker than expected in September and is continuing to weigh on investor sentiment toward the GBP. BoE Governor Bailey told the Belfast Telegraph that he expects a "market fall" in inflation next month. Saying the core inflation fell slightly from what we expected, is quite encouraging. We maintain our bearish tone for the GBP and suggest any strengthening in GBP provides a good opportunity to sell pounds.