The Morning Update

The USD weakens, oil prices gain, equity markets are down, and US yields rise as risk sentiment eases. Currency markets were mostly sidelined, while the Japanese yen rallied nearly 2%, marking its strongest rally in three months amid speculation that the Bank of Japan will abandon its negative interest rate policy. Equity markets, US yields, and Bitcoin eased, while Gold continues to edge higher after the BoJ comments rattled markets. "Both valuation and positioning would argue for exhaustion in the recent bond rally", said Kumar, Chief European Economist at Jefferies International. "Given our view of only a mild recession and inflation still remaining sticky, we would argue that the markets have run a bit ahead of itself." In focus today, US Initial Jobless claims, Challenger Job Cuts, and BoC Gravelle speech will help provide intraday direction to currency markets.

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In other news. China's exports grow for the first time in six months, in relief for factories. EU thrashing out landmark AI rules in marathon overnight talks. China's Xi warns top EU officials not to engage in confrontation, at their first summit in 4 years. Moody's advised staff to work from home ahead of the China outlook cut-FT. China deepens ties with Saudi Arabia at Hong Kong gathering. Oil markets caught out by surprise as US output surges. Humanitarian system in Gaza on the verge of collapse, says UN chief. The US Senate Republicans sink Ukraine's aid bill in a dispute over immigration. CN announces deal to acquire Iowa Northern Railway. US Bitcoin ETF issuer talks with the SEC have advanced to key details.

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In currency markets. CHF rallies to record highs vs Euro on expectations of ECB rate cuts. JPY rallies against all currencies on increasing bets the BoJ could hike rates as soon as its next meeting this month. CNY firms 0.1%, while Asian currencies firm 0.15% on average vs USD. Trading currencies are mixed with MXN weakening 0.65%, while CHF & NZD are flat, SEK is up 0.1%, AUD firms 0.2%, NOK strengthens 0.4%, ZAR gained 0.8%, and JPY rallies 1.5% vs USD.

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In commodity markets. Oil prices firmed by 0.9%, Natural Gas prices dropped by 0.2%, Gold, Wheat, and Silver prices are flat, Copper prices gained by 0.9%, and Soybean prices strengthened by 0.7%.

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CAD holds steady, stalling below 1.3600 after the BoC held interest rates on hold at 5% and oil prices attempted to claw back Wednesday's losses. The BoC Governor maintained his rhetoric that the bank is keeping the door open to another rate hike, saying they are still concerned about inflation levels while acknowledging an economic slowdown and a general easing in domestic prices. Expectations are growing that the BoC could ease rates by 100bps next year, which could allow the loonie to strengthen vs Euro, but remain under pressure vs USD in 2024. Intraday US data releases and boC Gravelle comments will help provide direction to CAD today.

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EURCAD holds steady at 5-week lows as markets appear sidelined ahead of Friday's key Nonfarm Payroll data for direction.

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EURO steadies near two-week lows as the single-currency stalls ahead of Friday's key US Nonfarm payroll report. Euro fails to exploit the weaker USD as investors continue to take stock of expectations that the ECB could ease interest rates by 150-175bps in 2024. EurChf slumped to its lowest all-time level on expectations that the Swiss central bank will be slower to ease its interest rate policy in 2024. The intraday focus will be on the initial jobless claims, while investors are expected to be cautious ahead of the critical US Nonfarm Payroll data out on Friday. Our bias remains that the Euro has room to continue to weaken towards 1.0500 vs USD into 2024.

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GBPEUR continues to edge higher, testing a fresh 3-month high as the Euro remains on the back foot, being overshadowed by the prospects of ECB rate cuts in 2024.

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GBP advances towards 1.2600 amid a weakening USD ahead of the initial jobless claims report. The pound bounces off 2-week lows below 1.2550 in early trading amid the weaker USD. With no fresh UK data, the pound is focusing on US jobs data for direction and we expect the pound to hold current levels as investors are expected to be sidelined ahead of Friday's US Nonfarm Payroll report.