The Morning Update

The USD is steady, oil prices firmed, equity markets are up, and US yields rose as markets remained cautious. The USD edges higher on the combination of safe haven flows and higher US yields. Equity markets turn positive but remain vulnerable to further volatility as investors monitor diplomatic efforts to contain the Israel-Hamas war and the visit of President Biden to the region on Wednesday. Oil prices rebound but remain vulnerable to further weakness amid hopes the US will ease sanctions on Venezuela. "Markets fear a ground offensive by Israel that could ignite a larger and more complicated regional conflict that risks regional supply chains, energy output, economic growth, and financial stability", said Kyle Rodda at Capital.com. In focus today, are US Retail Sales, CAD CPI, and Speeches from Fed Bowman & Williams.

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In other news. China tightens curbs on foreign travel by bankers and state workers. EU tries to unblock France & Germany's spat over industrial competition. China's Country Garden's entire offshore debt is to be in default if Tuesday payment is not made. Ford and UAW leaders spar as auto workers strike costs rise. UK wage growth edges down as the labor market eases. Mexico revives century-old railway in $2.8Bn Bid to rival the Panama Canal. Gaza water supplies dwindle as Israel lays siege to the strip. Russian President Putin is in China for talks with Premier Xi Jinping.

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In currency news. CNY slips as markets await GDP data and updates on the Country Garden repayment. Japan's Finance Minister has no comments on IMF remarks on FX intervention. The USD edges higher on safe-haven buying and as markets await Fed Chair Powell's speech on Thursday. NZD weakens as markets discount a rate hike in November after soft inflation data. CNY slips 0.1%, while Asian currencies weaken 0.2% on average vs USD. Trading currencies are mostly weaker with NZD tumbling 0.75%, MXN & NOK weakening 0.5%, ZAR dropping 0.3%, JPY, SEK & CHF easing 0.15%, and AUD gaining 0.2% vs USD.

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In the commodity markets. Oil prices firm by 0.3%, Natural Gas Prices strengthen by 0.6%, Gold is steady up 0.05%, Silver firms by 0.35%, Copper prices weaken 0.8%, Wheat prices tumble 1%, and Soybean prices are up 0.25%.

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CAD remains on the back foot vs USD and has the potential of weakening further on the combination of increasing geopolitical uncertainty, the prospect of the US lifting Venezuelan sanctions and the decreasing prospect of a BoC rate hike next week. The BoC Q3 Business Outlook was downbeat, with the outlook falling to its lowest level since the pandemic. The focus will be on the CAD inflation report which is expected to show inflation will hold at 4%, while m/m will fall to 0.1% vs 0.4% previously. Alongside the CAD inflation report, markets will also be focusing on US Retail Sales and several Fed speakers which will help drive intraday direction to the currency markets.

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EURCAD edges higher after a noticeable improvement in the German and Eurozone economic sentiment in October.

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EUR remains capped on rallies despite upbeat sentiment data. The Euro continues to struggle to retest 1.0600 as geopolitical concerns and expectations of higher US rates for longer continue to support the USD. Domestically, Eurozone Economic Sentiment grew by 2.3 significantly compared to September which declined by -8.9. German ZEW Survey - Current Situation and Economic Sentiment both beat expectations and showed positive improvements vs. September. All focus will be on the US Retail Sales data for intraday direction, with investors remaining cautious ahead of Fed Chair Powell's speech on Thursday.

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GBPEUR continues its weekly weakening trend as Europe shows improving economic data, while the US data continues to be lackluster.

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GBP retests 1.2150 after soft UK wage inflation data and increasing safe-haven USD buying. The pound bounces off 1.2150 but looks vulnerable to further weakness as increasing geopolitical concerns continue to favor the safe-haven USD. Domestically the average earnings including bonuses grew by 8.1% y/y in the 3 months to August, below the record 8.5% growth in July, and came in lower than the market expectations of 8.3%. Our bias remains bearish for the pound in Q4 with expectations the BoE will keep rates on hold, increasing geopolitical concerns favoring the USD and expectations that the UK economy remains vulnerable to slipping into a recession.

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