The Morning Update

The USD is steady, oil prices extend losses, and equity markets & US yields are mixed as rate uncertainty continues. Currency markets are steady, oil prices remain under pressure, dropping nearly 10% in October, while equity markets are struggling as rate uncertainty lingers heading into Friday's key US Nonfarm payroll data. US yields remain at elevated levels as investors reprice the chance of the Fed keeping interest rates higher for longer if inflation remains above the target rate and the US economy continues to show resilience. In focus today, are US Challenger Job Cuts, Initial Jobless Claims, and CAD Ivey Purchasing Managers Index, alongside a flurry of German, EU, and US central bank speakers today. UK construction PMI dropped to its lowest level since May 2020.

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In other news. UK regulator asks for antitrust probe into Amazon, Microsoft cloud dominance. Foxconn expects strong holiday sales in Q4, September sales slump. European leaders to rally around Zelensky at Spain Summit. Alibaba accused of 'possible espionage' at European hub. WestJet will suspend Toronto-Montreal flights for six months. Republicans begin the hunt for a new Speaker to replace ousted McCarthy. Russia scrambles to cover ballooning costs of Ukraine war, as defense spending has tripled.

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In currency news. The USD eased after Wednesday's private payroll report, investor focus has shifted to the key US NFP report out on Friday. GBP comes under pressure after the UK construction PMI in September dropped to 45 vs. 50.8 in August. The Indian rupee holds in a tight range as the RBI keeps intervening to support the INR. The South African Rand comes under selling pressure after dovish central bank comments. CNY and Asian currencies are up 0.1% on average vs. USD. Trading currencies are mixed with ZAR tumbling 1.1%, MXN weakened 0.6%, NOK drops 0.5%, while CHF flat, JPY up 0.1%, and SEK, AUD & NZD firms 0.2% vs. USD.

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In commodity markets. Oil prices tumbled 1%, Natural Gas prices firmed 0.45%, Gold prices are flat, Silver strengthened 0.6%, Copper prices dropped 0.9%, Wheat prices gained 0.6%, and Soybean prices weakened 0.7%.

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CAD continues under pressure, testing a fresh 7-month low on a combination of oil pricing plunging the most in more than a year on weakening demand, and the impact of higher yields for longer on Canadians with their higher levels of household debt. In a recent poll, analysts are maintaining their forecast for CAD to strengthen to 1.34 in Q4/23. Intraday we will see Ivey Purchasing Manager Index which is expected to drop from 53.5 in August to 50.8 in September. Investors will likely keep their power dry today, focusing on Friday's CAD Unemployment rate which is expected to rise slightly to 5.6% in September from 5.5% in August. A break of 1.3804 (Mar 24th) opens the possibility of resting 1.3860 2023 highs.

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EURCAD extends gains to a fresh 3-week high as tumbling oil prices keep the loonie on the back foot vs. its peers.

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EUR steadies at 1.0500 as markets consolidate ahead of Friday's key US Nonfarm payroll report. Investors appear to be sidelined after a volatile start to October and prefer to wait for Friday's key US jobs report, followed by next week's inflation report which should help guide the Fed's next steps on interest rate hikes. Domestically Eurozone PPI deepened into negative territory and its retail sales continue to contract. ECB President Lagarde reiterated that rates remain sufficiently restrictive, with expectations that the ECB will not hike rates again in 2023. Our bias remains bearish on Euro vs. USD with the potential of seeing a retest of 1.0220 last seen Nov 22.

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GBPEUR slipped after the UK construction PMI dropped to its weakest levels in over three years.

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GBP holds steady below 1.2150 on a weaker USD ahead of US jobless claims today. The pound has consolidated within a 1.2110-1.2160 range as investors parr back their long USD positions ahead of Friday's key US NFP report. Domestically the CIPS UK construction PMI tumbled to 45.0 in September, down from August's 50.8, testing its weakest levels since May 2020, when Covid Pandemic restrictions were in force. The drop below 50 shows that construction has dropped into "contraction" vs. "expansion" above 50. The pound remains vulnerable to further weakness, a break below 1.2100 opens up the possibility to test 1.1802, the 2023 lows vs. USD.