The Morning Update

The USD falls, oil prices strengthen, equity markets strengthen, and US yields ease on the last day of the quarter. The USD fell from 10-month highs, Brent crude set for best quarter gains since March 22, and equity markets bounced after dovish-leaning comments from Fed policymakers, and on cooling inflation levels in the Eurozone. Equity markets received a boost after comments from Fed Barkin who said the US would likely skirt a severe downtown, while Fed Goolsbee said policymakers were at risk of overshooting on interest rates. In Europe inflation levels fell to their lowest levels in two years at 4.3% in September as the economy slowed, supporting the ECB to keep rates on hold in Q4/23. In the US, a shutdown looms as the Senate & the House advance separate spending plans, increasing the odds that the federal agencies will run out of money on Sunday. In focus today, are US Core Personal Consumption Expenditures, Personal Income and Spending, Chicago PMI, Michigan Consumer Sentiment Index, and CAD GDP.

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In other news. Autoworkers grow frustrated over the pace of UAW negotiations as a new strike deadline looms. Eurozone inflation fell to 4.3% in September, its lowest level since October 2021. China Evergrande's troubles mount as the Chairman is suspected of 'illegal crimes'. More than 70% of Nagorno-Karabakh's population flees as the separatist government says it will dissolve. Leaders of EU huddle in Malta to discuss migration. US accuses China of launching global information war-ft.

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In currency news. The USD weakens on the last day of trading but is set for its best quarter in 2023. Japan defends Yen's weakness as the JPY tests 150 vs. USD. Trading currencies rebound on USD weakness with AUD & NZD facing their worst quarter of 2023. CNY steadies entering the Golden Week holidays. CNY firms 0.1%, while Asian currencies strengthen 0. 3% on average vs. USD. Trading currencies rebounded with JPY up 0.2%, CHF firming 0.5% MXN strengthening 0.7%, SEK gaining 0.8%, and ZAR, NOK, AUD & NZD rallying 1.2% vs. USD.

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In commodity markets. Oil, Wheat, and Gold prices firmed by 0.6%, Natural Gas is up 0.35%, Silver rallied by 2.3%, Copper strengthened by 1%, and Soybean prices edged higher by 0.15%.

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CAD strengthened towards September highs amid a weakening USD and rebounding commodity prices on more dovish-leaning comments from global central banks with signs of cooling inflation levels. CAD GDP will be in focus today with markets expecting the total value of all goods and services produced in Canada will rise to 0.1% in July vs. -0.2% in June. Uncertainty of a US government shutdown and a flurry of key US data releases will provide intraday direction to currency markets today.

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EURCAD holds steady, off September lows, but the Euro did weaken nearly 3% vs. CAD in September.

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EUR  holds above 1.0600 amid a weakening USD. The Euro held above 1.0600 despite the sharp declines in September inflation levels, dropping to their lowest levels in two years. Euro is increasingly looking more vulnerable to further weakness following falling inflation levels across the EU and after German inflation levels dropped to 4.5% from 6.1%, as speculation increases that the ECB will not hike further in Q4/23 & Q1/24. The focus will be on the U.S. House & Senate updates and U.S. key data releases for direction.

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GBPEUR inch higher, but remains down 1% in September as the prospect of a UK recession continues to keep pressure on the pound.

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GBP breaches 1.2250 as the USD continues to correct for month-end. The pound rebounds from September lows on the combination of USD correction and the news UK real GDP expanded 0.2% Q/Q in Q2. The pound is advancing on the USD weakness with month and quarter-end rebalancing. US government shutdown updates and US data releases will drive the intraday direction for the pound. In the bigger picture, we remain bearish for the pound and feel the pound is vulnerable to weaken towards 1.1800 into Q4/23.