The Morning Update

The USD firms, oil prices are steady, equity markets are down, and US yields rise as risk-off sentiment dominates. Currencies, commodities, and equities all slumped on the combination of weak corporate earnings, the US downgrade, the hot labor market in the US, and rising yields which have all contributed to the increased risk-off sentiment. The S&P500 had its worst session in 3 months on Wednesday, the Nasdaq 100 slid 2.2%, and the VIX index hit its highest level since May. Asian shares dropped for a 3rd day, and European equities extended their sell-off down nearly 1% on average in early trading. The Bank of England is expected to hike its interest rates for the 14th time in a row by 25bps, but traders haven't fully ruled out a 50bps hike as policymakers continue to tackle UK inflation that's four times the official target. Today alongside the UK Rate decision, US Initial Jobless Claims, key US PMI, and the RBA Monetary Policy Statement.

‍

In other news. Investors turn gloomy over Europe's economic outlook-FT. Australian office vacancies edge up to the highest level since the 1990s. Russia adds Norway to list of countries 'unfriendly' to its diplomats. Wagner fighters seek to unsettle NATO's eastern flank, Polish PM says. China says it is willing to keep talking with the US on foreign minister visits. In Taiwan, typhoon Khanun shuts down markets & grounds flights. The US sees the price cap on Russian oil working despite the upturn in prices. Russia hands out weapons to civilian defense forces near the Ukraine border.

‍

In currency markets. The USD hits a 4-week high as safe haven flows return. Commodity currencies come under renewed selling pressure as commodity prices ease. The Pound hits 1-month lows heading into the BoE interest rate decision. ZAR extends weakness, tumbling 4% in August on a combination of weaker commodity prices, domestic uncertainty, and increased risk-off trading. CNY firms 0.25%, while Asian currencies are down 0.2% on average vs USD. Trading currencies are mixed with JPY up 0.25%, while CHF is flat, NZD slips 0.1%, AUD & NOK fall 0.2%, SEK weakens 0.4%, ZAR drops 0.6% and MXN tumbles 1.4% vs USD.

‍

Oil prices hold steady as markets balance steady demand out of the US, which is being offset by increasing risk-off sentiment. CAD breached the key level at 1.3333 (75 cents) as investors turned cautious, switching back to the safe-haven USD which has seen the CAD fall nearly 1.5% in the first three days of August. Investors will look to Friday's key CAD job data for guidance for the BoC's next steps. Today's focus will be on US PMI data for guidance ahead of Friday's key US Nonfarm payroll data. CAD has room to weaken towards 1.3425 as safe-haven flows continue supporting the USD.

‍
EURCAD holds steady to start the day, but weakening commodity prices could see further selling pressure grow for the CAD.

‍

EUR edges lower retesting 1.0900 ahead of US PMI data. Euro continues to slide retesting multi-week lows as the stronger US jobs data and increasing risk-off mood continue to put pressure on the single currency. Domestically eurozone PMI's with the exception of Germany all weakened, while Germany's PMI came in slightly better than expected. The rout in risk-on sentiment and the prospect of further US rate hikes to contain the ongoing hot US jobs markets continue to support a stronger USD this week ahead of the key US Nonfarm Payroll data on Friday. Intraday we expect to see the Euro remain on the back foot heading into today's US PMI data & Friday's key Jobs data.

‍

GBPEUR slips heading into the BoE interest rate decision as the pound eases on the expectation of a 25bps interest rate hike.

‍

GBP weakens to near 1-month lows amid growing risk-off sentiment and the BoE interest rate hike. The Bank of England is expected to hike its interest rates for the 14th time in a row by 25bps to 5.25%, but traders haven't fully ruled out a 50bps hike as policymakers continue to tackle UK inflation that's four times the official target. The focus will be on the BoE governor's statement today, any signal that the BoE could pause or takes a less hawkish approach to future interest rate hikes will increase selling pressure on the pound. Alongside the BoE interest rate decision, the focus will be on the US PMI results and investors may remain cautious intraday ahead of Friday's key US Jobs release.

‍