The Morning Update

The USD is steady, oil prices are down, equity markets are up, and US yields rise as risk sentiment improves. Equity markets turn positive as risk appetite improves slightly after Israel's military action in Gaza is proceeding more cautiously than some investors had feared. Oil prices declined nearly 2% in early trading as markets remain cautious ahead of this week's US Federal Reserve's policy meeting and China's Manufacturing PMI data out on Wednesday, offsetting support from Israel-Hamas tensions. We anticipate markets will be somewhat sidelined today without any key US economic releases. In focus this week, Tuesday sees Japan's interest rate decision, Eurozone CPI & GDP, and China's Manufacturing PMI, Wednesday sees the US Federal Reserve Rate Decision. Thursday sees the Bank of England Rate decision, and Friday sees China Caixin services PMI, Eurozone, US Unemployment data, and US Nonfarm payrolls.

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In other news. Israeli forces expand Gaza operations and target the West Bank. HSBC unveils $3bn in share buybacks despite lower than expected profits. The BoE is expected to keep rates unchanged, while inflation remains strong. Spanish inflation rose less than expected to 3.5%. Russia's new offensive zeros in eastern Ukrainian city. China pledged to renew military dialogue with the US while criticizing meddling. Australia and the EU fail to reach a free trade deal. EU seeks Ukrainian grain for Egypt as part of Cairo support deal.

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In currency markets. The USD starts on a steady note ahead of a week of busy central bank rate decisions, and key global economic data releases. AUD gains on stronger-than-expected retail sales data. CNY is quite ahead of key manufacturing data this week. CNY is flat, while Asian currencies firm by 0.3% on average vs USD. Trading currencies are mixed with SEK & CHF slipping 0.1%, while JPY is flat, NOK is up 0.15%, ZAR gaining 0.25%, NZD firms 0.35%, and AUD & MXN strengthening 0.55% vs USD.

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In commodity markets. Oil prices weakened by 1.7%, Natural Gas prices tumbled by 3.8%, Gold prices ticked higher by 0.3%, Silver and Copper prices rallied by 1.2%, Wheat prices slumped by 1.2%, and Soybean prices firmed by 0.45%.

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CAD firms from a one-year low after testing 1.3880 on Friday as investors consolidate positions ahead of the Bank of Canada's Governor's comments in front of the House of Commons Standing Committee of Finance. The Governor is expected to maintain his narrative that the BoC is seeing clear evidence that higher rates are working, with interest rates expected to remain capped at 5%. We anticipate the CAD will continue under pressure as oil prices slide and geopolitical concerns remain, a break of 1.3880 opens up the prospect of further weakness towards 1.4000 vs. USD.

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EURCAD holds steady ahead of the BoC Governor's comments, upbeat German GDP data, and the absence of key US data releases.

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EUR bounces above 1.0550 on the back of improving German GDP data. Euro benefited from a consolidating USD in the absence of any key US data, caution ahead of the FOMC interest rate decision, and upbeat German GDP data. The German data showed that the real GDP shrank at an annual rate of 0.3% in Q3, significantly better than forecasted as shrinking 0.7%. The focus shifts to German CPI data out later today, which is expected to show inflation falling from 4.3% in September to 3.6% in October. We anticipate markets to start the week cautiously ahead of the Fed's interest rate decision on Wednesday and US & Eurozone unemployment data on Friday.

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GBPEUR slipped slightly in early trading as the stronger German GDP results helped provide support to the Euro.

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GBP rebounds off early lows and retests above 1.2100 as the USD consolidates in early trading. The pound benefited from an easing USD in quiet markets as investors are cautious heading into Tuesday's China Manufacturing data, Wednesday's US interest rate decision, and the BoE interest rate decision on Thursday. The Bank of England is widely anticipated to keep pause interest rates at 5.25%, with only a 20% probability that they will hike rates. The BoE commented that although inflation is falling, we can't be complacent. We will be watching closely to see if further increases in interest rates are needed. We remain bearish GBP in Q4/23 and continue to feel a move towards 1.1800 is possible.