The Morning Update

The USD extends gains, oil prices are up, while equity markets and US yields are mixed heading into US PMI data releases. The USD and commodity-based currencies advance, the US 10-year treasury yields touched 4.5% for the first time since 2007, while equity pared gains with the prospect that central banks will keep interest rates high for longer. The BoJ kept interest unchanged, domestic inflation rates rose which saw speculators increase bets that the BoJ may hike at their October meeting. Oil prices firmed, in part supported by news that Russia will ban exports of diesel-type fuel and gasoline. In Europe, natural gas firms despite news that unions in Australia agreed to end strikes at major export plants. In focus today, US S&P Global Manufacturing & Services PMI, CAD Retail Sales & ECB De Guindos speech will help provide intraday direction to currency markets.

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In other news. Dutch bank shares fall after lawmaker vote for new taxes. US announces new Ukraine arms package as Congress is split over more aid. UK recession risk increases after S&P weak Retail Sales data. Biden raised Canadian Sikh's death with India's Modi at G20-FT. EU trade commissioner to seek relief from export barriers during China visit. The UK is set to clear a fresh Microsoft-Activision deal. Ukraine's Zelensky visits Canada after challenges on US trip. Strikes end at Chevron's Australian LNG facilities.

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In currency news. JPY weakened after the BOJ kept its interest rate policy unchanged. The USD Index is set for its 10th weekly rise after the Fed this week suggested one more hike in 2023. GBP is under pressure after weak business activity and retail data increased speculation that the UK is facing a recession. CHF continues to weaken following SNB keeping rates on hold on Thursday. CNY is flat, while Asian currencies firm by 0.1% on average vs. USD. Trading currencies are mixed with JPY weakening 0.45%, CHF dropping 0.2%, and SEK slipping 0.1%, while MXN & NOK gained 0.3%, AUD & NZD strengthened 0.4% vs USD.

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Key commodity activity. Oil firms 1%, Natural Gas prices are up 1.5%, Gold firms are up 0.3%, Silver and Copper rallied 1%, Lumber is unchanged, and Wheat slipped 0.1%.

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CAD firms in early trading, with the loonie gaining support from strengthening commodity prices and as the Canadian 10-year yield touches a 15-year high. Investors will be focusing on Canada retail sales today, with ex-autos expected to rise to 0.5% m/m vs. -0.8% in July. Increasing commodity prices and the prospect of oil testing $100 in Q4/23 could possibly force the BoC's hand to raise interest rates again before the end of 2023. The increasing dispute between Canada & India is not anticipated to negatively impact the CAD. The intraday focus will be on the CAD & US data releases to provide direction to the loonie.

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EURCAD dropped to multi-month lows as firming commodity prices and dovish ECB helped CAD advance by nearly 2 1/2% vs. Euro in September.

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EUR remains heavy, stalling below 1.0650 after German and the EU PMI data. The PMI data from Germany PMI data beat expectations, while France missed expectations and the EU saw mixed PMI results with only the service sector improving. The Euro has managed to hold above its weekly lows, while the PMI data failed to provide a boost to the currency. If we see a strong US PMI print today, we expect to see the Euro come under fresh selling pressure with the potential of retesting 1.0480 vs. USD.

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GBPEUR drops to fresh 4-month lows as the combination of the BoE keeping rates on hold and the prospect that the UK could enter recession within 2023.

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GBP drops below 1.2250 after UK data puts further pressure on the currency. UK retail sales missed expectations and August PMI surveys showed that the private sector's business activity continued to contract showing its lowest score since January 2021. Continuing weak growth in the UK, coupled with 15-year highs in interest rates is increasing speculation that the UK may fall into recession as early as Q4/23. Intraday the US PMI data will drive market direction, which could potentially see the pound weakening further towards 1.2140 last seen in January.