The Morning Update

The USD strengthens, oil prices are steady, equity markets gain, and US yields slip as rates remain in focus. European equities clawed back some of August's losses as speculation the Fed is nearing the end of its tightening cycle after increasing signs of weakening domestic data. Asian equities and currencies remain under pressure after China's manufacturing PMI continues to contract in August. In Europe, inflation comes in higher than expected, and unemployment holds steady at 6.4%, lowering the probability of an ECB hike in September with slowing growth across the Eurozone. Investors remain cautious as they await Friday's key US Nonfarm payroll data which is expected to slip in August. In focus today, ECB Monetary Policy Meeting Accounts, US Core Personal Consumption Expenditures, Initial Jobless claims, Personal Consumption Expenditures, CAD Current Account Q2 & Chicago Purchasing Manager's Index.

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In other news. UBS breaks industry record with $29bn profit after Credit Suisse takeover. Officials say that China's Premier Xi will not attend the G20 leaders' summit. Japan raises military spending to counter China with more missiles and ships. The US warns of 'advancing' arms talks between Russia and North Korea. US Commerce Secretary hails 'new approach' to China business frictions. Microsoft to unbundle Teams to appease EU competition worries. Ukraine launches its biggest drone attack yet inside Russian territory. Switzerland unveils money laundering clampdown. At least 73 people were killed in Johannesburg fire.

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In currency markets. Euro weakens on less hawkish comments from key policymaker. USD strengthens on a combination of longer-term, higher interest rates and weaker economic results from peer countries. ZAR, AUD, NZD & CNY are sluggish after disappointing China manufacturing PMI data. CNY slipped 0.1%, while Asian currencies weakened 0.2% on average vs. USD. Trading currencies are mixed with NOK & SEK tumbling 0.75%, CHF falling 0.5%, ZAR down 0.4%, AUD & NZD slipped 0.15%, while MXN is flat, and JPY firms 0.25% vs USD.

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Oil prices give back some early gains after China factor activity shrinks and investors shift their focus to today's US data releases. CAD gives back some of Wednesday's gains on data showing China's manufacturing activity contracted again in August. In focus today is CAD Current Account Q2 which is expected to slide to -11.2B which is seen as a bearish number as it shows the flow of capital into Canada falls short of the capital reduction. Today sees a flurry of data, but we anticipate investors will be cautious ahead of Friday's key US Nonfarm Payroll and CAD GDP data releases.

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EURCAD weakens after comments from German policymaker Schnabel failed to give clues on whether the ECB will hike rates in September.

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EUR drops below 1.0900 after Eurozone data. The data from the Eurozone showed inflation came in at 5.3%, slightly higher than expected. According to Reuters, the probability of the ECB raising rates by 25bps in September declined to 40% after the data, down from 60% on Wednesday. ECB policymaker Schnabel said that eurozone growth was weaker than predicted, but does not necessarily void the need for more rate hikes. Analysts saw Schnabel's comments flagging the downside risk to growth across the EU and increased selling pressure on the Euro. Today & Friday's key US data releases will be the primary driver for the single currency to set the stage for the September ECB policy meeting.

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GBPEUR gains on the back of Euro weakness as bets on an ECB hike in September eases, while the pound finds underlying support from BoE Pill's hawkish comments.

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GBP slips below 1.2700 as the USD rebounds ahead of a flurry of US data releases. The pound retreated from Wednesday's 1.2747 high as investors took profits ahead of Friday's key US Nonfarm payroll data. BoE chief economist Pill said that the policy outlook it makes it difficult for the pound to preserve its strength. Pill said that there was no room for complacency on inflation but noted that he would prefer to hold rates steady for longer. In August the pound fell 1.25% vs. USD, while year to date the pound has still gained nearly 5% vs. USD. Today US data releases will help drive intraday direction ahead of Friday's key US NFP data release.

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