The Morning Update

The USD steadies, oil prices rally, equity markets are down, and US yields are mixed as geopolitical concerns weigh on risk sentiment. Currency markets are sidelined in early trading, and equity markets retreat as tensions in the Middle East increase after Arab leaders canceled a planned summit with President Biden following the Gaza hospital attack. Concerns over China's property sector increased after Country Garden Holdings Co. signaled that it is set for its first-ever default as the grace period is ending for dollar bond interest. China's GDP, Industrial Production, and Retail Sales data all beat expectations, showing that the economy is finding a foothold for future growth, at the same time, the property sector concerns overshadowed the positive data. US Treasuries steadied after 2-year yields hit their highest levels since 2006 in the previous session. Oil prices rallied after the Gaza hospital explosion as investors fear the possibility of a wider conflict that could endanger crude flows. Today sees a lighter economic docket, focusing on US Building Permits, the Fed's Beige Book, and a flurry of Fed speakers that will help provide intraday direction to currency markets.

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In other news. President Biden arrives in Israel as rage spreads over Gaza hospital explosion. Gold prices rise to 4-week highs as Israel-Hamas conflict drives demand for safe-haven assets. UK inflation held steady at 6.7% in September. China's economy grew faster than expected in Q3/23. Xi hails 'deep friendship' with Putin as leaders meet in Beijing. Ukraine strikes Russian forces with US-made ATACMS long-range guided missiles for the first time. The US cuts China off from more Nvidia chips and expands curbs to other countries.

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In currency news. The USD stalls as the Chinese economy beats expectations. GBP edges higher after UK inflation holds at 6.7%. AUD & NZD find support from the stronger-than-expected Chinese data. CNY firms 0.1%, while Asian currencies are flat on average vs USD. Trading currencies mixed with NOK & SEK fell 0.25%, while JPY, CHF & NZD are up 0.1%, AUD & MXN firmed 0.2%, and ZAR strengthened 0.4% vs USD.

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In commodity markets. Oil prices rallied 2.3%, Natural Gas prices fell by 0.7%, Gold prices firmed by 0.8%, Silver prices strengthened by 1.15%, Copper prices gained 1.1%, Wheat prices strengthened by 0.9% and Soybean prices are up by 0.6%.

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CAD holds within a narrow weekly trading range and slips in early trading despite strong Chinese growth data, and rallying oil prices as investors favor the USD with the prospect that the BoC will keep interest rates on hold. Money Markets anticipate an 84% chance that the BoC will leave its benchmark rate unchanged at a 22-year high of 5% at its policy meeting on the 25th of October. We anticipate the CAD will remain under pressure as we see a divergence growing between the US & CAD economies, coupled with the prospect of still higher US interest rates versus static CAD interest rates. Today CAD housing starts are not expected to have an impact, so investors will remain focused on US data, Fed speakers, and developments in the Middle East to help provide intraday direction to the loonie.

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EURCAD is flat in early trading, month to date Euro has seen a modest gain of 0.6% vs CAD.

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EUR continues to find resistance at 1.0600 amid an ongoing cautious market mood. Markets stay risk-averse amid increasing tensions between Israel-Hamas providing an underlying support to the safe-haven USD. Domestically Eurozone inflation levels remain unchanged month over month and came out within expectations, increasing expectations that the ECB will keep its interest rates on hold at its next meeting. Intraday US data & Fed Speakers will help provide intraday direction, but with increasing geopolitical tensions we anticipate the Euro will remain capped.

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GBPEUR edged off monthly lows and gained marginally after UK inflation levels held at 6.7%.

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GBP retests 1.2200 after the UK inflation report. The UK Inflation surprised markets by holding at 6.7%, which is its 18-month low, but markets had expected inflation levels to have dropped to 6.5%. The rise in petrol prices between August & September was a primary driver for the higher interest rate levels. The higher-than-expected inflation levels have sparked fresh expectations that the BoE may need to hike interest rates again at its next meeting. Later today the US Housing Starts & Building Permits data for September will be in focus, the higher US inflation levels may impact mortgage demand and any significant contraction in Housing Starts could put pressure on the USD.