The Morning Update

The USD slips, Oil prices tumble, equity markets are mixed, and US yields gain as rates dominate markets. The USD steadies just below near 11-month highs, oil prices fall near 2%, and US yields test 22-year highs with 30-year yields touching 5% for the first time since 2007. Tuesday saw House Speaker McCarthy ousted, US jobs data come in better than expected, more hawkish comments from Fed officials, and combined continue to support the USD. Markets are pricing in a 33% chance the Federal Reserve hikes in November and see a 50% likelihood of a move in December. The unrelenting selloff in world government bond markets saw treasury yields globally testing multi-decade highs in Japan, the US, the UK, and Germany, and increasing fears that the moves could hasten a global economic slowdown. Today's focus will be on several key economic releases with US ADP Employment Change, ISM Services PMI, Factory Orders, Global Composite & Services PMI, and ECB President Lagarde & Panetta, as well as Feds Bowman & Goolsbee will all be speaking today.

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In other news. Kevin McCarthy became the first US House Republican in its history to be removed as its leader in a historic vote on Tuesday. COP28 chief urges energy groups to prepare for fossil fuel 'phase down'. US & German bond yields at multi-year highs in continued global selloff-FT. Ukraine seized nearly $5.5 million in Russian defense company's assets. UK rail passengers face disruption as drivers go on strike. Canada, Toronto home sales drop 7.1% y/y in September as higher rates bite.

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In currency news. Speculation grows that the BoJ intervened in the JPY after the yen tested 150. Taiwan's central bank flags forex intervention if 'extreme' fluctuations. Investors are increasingly looking at the possibility of the Euro back to parity on a broadly stronger USD, higher oil prices, and the prospect of further US interest rate hikes. CNY and Asian currencies firm 0.1% on average vs. USD. Trading currencies are mixed with JPY & NZD are down 0.1%, while MXN is up 0.1%, NOK & SEK gained 0.25%, and AUD, CHF & ZAR strengthened 0.35% vs. USD.

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In commodity markets. Oil prices weakened 1.65%, Gold prices slipped 0.2%, silver dropped 0.45%, Copper eased 0.1%, Wheat prices tumbled 1.5%, and Soybean prices firmed 0.6%.

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CAD holds near 8-month lows vs. USD as oil prices retest 3-week lows and as increasing fears of surging long-term borrowing costs will have a negative impact on domestic growth in Q4/23. BoC deputy governor Vincent said Canadian businesses have made larger and more frequent price changes since the pandemic, passing on higher costs to the consumer and that behavior could stoke inflation. The deputy governor's comments were perceived as hawkish and money markets see a 65% chance that the BoC will hike rates one more time in 2023. The intraday focus will be on key US data releases to help provide intraday direction.

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EURCAD continues to strengthen, regaining all of its losses over the last 3 months as weakening oil prices keep pressure on the loonie.

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EUR retests 1.0500 as the USD retreats ahead of a number of key data releases today. The USD retreated in early trading ahead of top-tier USD ADP jobs and PMI data releases which have the potential of increasing market volatility if we see prints outside expectations. Domestically German 10-year Bund borrowing costs traded at 3%, which is a fresh milestone in a market where yields were negative in early 2022. EU Retail Sales fell below expectations in September, a low not seen since November 2020, increasing fears that the EU economy will enter a recession in the coming months. Speculation in the currency markets is growing that the Euro could retreat back to parity vs. USD on expectations investors will continue to favor the safe-haven USD into 2024 with higher US interest rates, a more resilient US economy, and increasing geopolitical concerns. Intraday US data releases and comments from Fed officials and ECB Lagarde will provide direction to the Euro.

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GBPEUR continues to hold steady for the start of October as markets await key US data releases.

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GBP gets a reprieve as the USD eases ahead of key US Jobs and PMI data releases today. The pound bounces back from intraday lows of 1.2050 as investors parr back long USD positions heading into a flurry of key data releases out of the US today. Domestically UK PMI data showed services companies suffered a less severe downturn than first expected, reflecting the surprise drop in inflation levels and the BoE decision to leave interest rates on hold. In early trading, the British 30-year government bond yields hit a fresh 25-year high testing above 5%. Intraday the pound will be at the mercy of the US data releases, any print outside of the expected levels will see an increase in currency market volatility.

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