The Morning Update

The USD steadies, oil prices weaken, equity markets edge higher and US yields are mixed as rate cut hopes grow. The U.S. dollar held steady Thursday as weak labour market data and fragile bond markets reinforced expectations of a Fed rate cut this month. Investors now await Friday’s key jobs report, which will shape the outlook for upcoming Fed policy decisions. Equity markets ticked higher as traders bet on quicker Federal Reserve rate cuts, with S&P 500 futures up 0.1% and 10-year Treasury yields dipping to 4.20%. Gains were stronger in Europe, where the Stoxx 600 rose 0.2%, though Chinese equities slumped on reports that regulators may act to cool a $1.2 trillion rally. With labour market data pointing to softness, swaps show traders nearly fully pricing in a September rate cut and are divided on the likelihood of another in October. “September’s cut is a given, but we don’t have any strong convictions going forward,” said Fabien Benchetrit, head of target allocation for France and southern Europe at BNP Paribas Asset Management. “As for equities, we’re on the lookout for opportunities, and we would look for a temporary weakness to reinforce our positions.” Elsewhere, oil prices weakened for a second day on possible OPEC+ output and higher stockpiles. Bitcoin fell 1%, below $111,000. Gold and Silver prices also dropped 1% in early trading. Focus today will be on the US Challenger Job Cuts, ADP Employment Change, Initial Jobless Claims, S&P Global Composite PMI, and the ISM Services, alongside a number of Fed speakers, which will help drive direction to currency markets today, ahead of the critical US Nonfarm Payroll report on Friday.

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In the news. Bond investors count on Trump tariff revenues to rein in US dept. Europe split over troop pledges as talks on postwar Ukraine force begin. Trump to call Putin in 'next few days' as Ukraine peace efforts stall. The US is 'very troubled' by the Norway fund's Caterpillar divestment over Israel. TD aims for growth at US banking unit despite asset cap. UK construction firms are stuck in the longest slump since before COVID-19. The TSX extends record-setting run, led by tech and metal mining shares. Canada's budget will focus on austerity and investment, says PM Carney. South Africa's sugar farmers face 'double whammy' from Trump tariffs and cheap imports. Japan and the US are near a deal to bring lower auto tariffs into effect. Eurozone retail sales fall more than expected in July.

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In currency markets. The USD is holding steady as traders await U.S. labour data, with the euro and sterling steady, while the yen and CHF ease as risk sentiment improves. The South African rand has been more volatile, under pressure from global growth concerns, and across G10 currencies, sentiment is cautious since any surprise in Friday’s NFP could trigger sharp, broad-based moves. CNY and Asian currencies on average eased by 0.1% against the USD. Trading currencies comes under pressure, with ZAR tumbling 0.75%, NOK weakening by 0.6%, SEK, AUD & NZD easing 0.4%, MXN, CZK, PLN, JPY & CHF down 0.2%, and KWD is flat against the USD.

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In commodity markets. Gold, Copper & Silver prices tumbled 1.1%. Natural Gas prices strengthened by 0.7%. Gold and Wheat prices weakened by 1%, and Soybean prices eased by 0.3%.

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CAD slipped towards 1.3825 amid weakening commodity prices and increased investor caution ahead of Friday’s US & CAD job reports. Analysts say labour market figures will be pivotal for both the Bank of Canada and the Federal Reserve, with investors pricing about a 60% chance of a BoC rate cut and a 97% of a Fed rate cut on September 17. Canada’s August employment report is expected to show 7.5k new jobs and a slight uptick in unemployment to 7%, while weaker GDP data has reinforced easing expectations. Intraday, the US data releases will drive direction for the loonie.

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EURCAD remains sidelined as traders await key catalysts, with Friday’s Canadian jobs data and EU GDP report likely to set direction. The euro is under mild pressure after weaker-than-expected EU retail sales, while the loonie is under pressure from weakening commodity markets.

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EUR remains confined to a tight range as investors turn cautious ahead of key U.S. and Eurozone data. Retail sales in the bloc dropped 0.5% in July, well below expectations, while June’s figure was revised higher to 0.6%. Year-on-year growth slowed to 2.2%, missing forecasts of 2.4% and down from 3.5% previously. EUR/USD is holding near 1.1650, close to the lower end of its recent range, as markets await today’s U.S. ADP data along with Friday’s Eurozone GDP and U.S. Nonfarm Payrolls for direction.

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GBPEUR climbed above 1.1530 as the euro weakened after Eurozone retail sales fell 0.5% in July, missing forecasts and pushing the cross off recent highs. The pound also found support from lingering UK gilt market concerns, adding to upside momentum against the euro.

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GBP steadied on Thursday but remained on track for a third weekly decline after a volatile week marked by investor concerns over UK finances and a surge in 30-year gilt yields to their highest since 1998., The Bank of England Governor Andrew Bailey indicated that rates are likely to fall further but cautioned over the pace of cuts, with markets widely expecting a reduction on September 18. Investors are now focused on Friday’s UK Retail Sales and U.S. Nonfarm Payrolls, which could inject volatility and influence sterling’s near-term direction.