The Morning Update

The USD steadied, oil prices firmed, equity markets are down, and US yields are mixed on the second day of stock losses. The safe-haven Swiss franc and U.S. dollar held firm after a wave of global risk aversion triggered sharp losses in equity markets across Asia and on Wall Street. The pound remained pinned near a seven-month low following UK Chancellor Rachel Reeves’ warning of higher borrowing costs and potential tax hikes. At the same time, the European Central Bank’s steady policy stance kept the euro broadly stable. Global equities extended losses for a second straight session, led by a sharp selloff in technology stocks as investors trimmed exposure to high-valued AI-related names. The Nasdaq and major Asian chip indices declined as profit-taking and nervous sentiment swept through markets, while small-cap shares in the U.S. showed tentative stabilization. The pullback erased roughly $500 billion in market value across global tech sectors, underscoring growing caution ahead of key U.S. labour data and uncertainty over future Federal Reserve policy moves. Elsewhere, oil and Bitcoin both gained, supported by improved risk sentiment and firmer demand signals, while gold traded steady as investors balanced inflation expectations with reduced safe-haven demand. In focus today are the US GDP and ISM Services PMI, as well as speeches by the BoC's Governor Macklem and the BoE's Breeden, which will help drive intraday direction.

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In the news. Democrats sweep first major elections of second Trump term. Beijing lifts some tariffs on US farm goods, but soybeans stay costly. IBM is cutting thousands of jobs in the fourth quarter. Global stocks slip as the US sell-off over AI valuations spreads. The US enters its longest-ever shutdown as Trump resists calls to talk. Canada's Carney pledges C$141 bn to counter Trump's trade war. EU leaders to skip summit in Colombia after Trump sanctions. Trump's fentanyl tariffs on Canada is the focus today in the US Supreme Court. Eurozone economy grows at fastest pace in more than two years, PMI shows. Fed rate cut odds falling amid inflation concerns, strategists say.

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In currency markets. The British pound recently came under pressure as UK Chancellor Rachel Reeves flagged rising borrowing costs and hinted at broad tax increases in the upcoming budget, leaving the currency stuck near a seven-month low. Meanwhile, the New Zealand dollar rebounded slightly from a seven-month trough after the unemployment rate rose to 5.3%, its highest level since 2016, although the weak labour market is still putting pressure on the currency. At the same time, the Japanese yen continues to benefit from its safe-haven status amid global uncertainty, drawing flows as investors seek low-risk assets. CNY and Asian currencies, on average, are flat against the USD. Trading currencies are contained in tight trading ranges, with KWD down 0.15%, JPY, CHF, NZD, SEK, NOK, DKK, ZAR, and PLN flat, and MXN is up 0.1% against the USD.

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In commodity markets. Oil prices firmed 0.55%. Natural gas prices tumbled by 2.7%. Gold and Silver prices up 0.2%. Copper prices weakened by 0.65%. Coffee gained by 0.8%. Wheat prices are flat, and Soybean prices strengthened by 0.9%.

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CAD extended its slide, trading near 1.4150 against the U.S. dollar and hitting a seven-month low as investors positioned cautiously ahead of Prime Minister Mark Carney’s first federal budget. The loonie was pressured by a stronger greenback, softer oil prices, and weak domestic growth data, amplifying expectations of further downside. Carney’s budget — which doubles Canada’s deficit to C$78.3 billion through large-scale investments in infrastructure, defence, and housing to counter U.S. tariffs - has fuelled concerns about long-term fiscal discipline even as the government emphasizes growth and competitiveness.

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EURCAD advanced as robust Eurozone PMI data showed the region’s economy growing at its fastest pace in over two years, boosting sentiment toward the single currency. Meanwhile, the Canadian dollar remained under pressure following a federal budget that doubled the deficit through heavy spending on infrastructure, defence, and trade diversification, raising concerns about fiscal discipline.

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EUR held steady as upbeat Eurozone PMI data confirmed the region’s fastest pace of growth in more than two years, offering support to the single currency despite ongoing global risk aversion. The strong PMI figures highlighted resilience in services and manufacturing activity, helping to offset broader market caution ahead of key U.S. employment and ISM data later in the day.

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GBPEUR is trading steadily in early European hours, with little net movement as markets await fresh policy cues. The steady performance reflects a balancing act between divergent economic signals and central‐bank commentary from the European Central Bank and Bank of England. With headline catalysts currently absent, traders appear to be on the sidelines, keeping the pair range‐bound for now.

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GBP steadied above 1.3000, as traders awaited key U.S. employment data from the ADP Research Institute and the Institute for Supply Management (ISM) Services PMI. At the same time, the currency remained under pressure due to UK Finance Minister Rachel Reeves’s warning of broad tax rises in her upcoming budget, which dampened sterling’s upside potential. The backdrop of cautious fiscal signals in the UK and soft upcoming data in the U.S. kept the GBP’s gains modest and the pair range-bound for now.