The Morning Update

The USD steadies, oil prices slip, equity markets are down, and US yields ease as weak earnings sour risk sentiment. Currency markets and US yields are steady, while oil prices and equity markets slide as the focus shifts to disappointing earnings. The USD paused its decline, while global equities paused their rally as the optimism that central bank rates have peaked, as focus shifted to earnings after a slew of companies missed expectations. "The inflation discussion is done and dusted," said Kinsella, head of FX strategy at Union Bancaire Privee UBp SA. "Now the narrative will slowly shift from inflation to growth risks, and we have to wait and see what happens with labor market data." In focus today, Walmart earnings, US initial Jobless Claims, Philadelphia Fed Manufacturing Survey, Feds Mester, Cook, Williams & Waller, alongside BoE Ramsden and ECB De Guindos speeches will help provide intraday direction to currency markets.

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In other news. The Biden/Xi meetings agreed to resume high-level military communications. Global food price inflation set to fall in 2024, says Rabobank. Fed official warns against calling time on rate-rising cycle too soon. UK train strikes announced for December. Israeli president says 'strong force' may need to stay in Gaza, Biden says occupation a 'big mistake". Britain's Burberry bruised by the slowdown in luxury spending. In Canada, millennials had the largest drop in homeownership rates in over a decade: Zoocasa.

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In currency news. The USD finds support after two volatile days as the Fed signals that interest rates will stay higher for longer. China's CNY holds steady despite persistent weakness in the property sector. Commodity currencies give back gains as the USD finds support. CNY is flat, while Asian currencies are up 0.1% on average vs USD. Trading currencies are mixed with NZD falling 0.55%, AUD, ZAR & SEK declining 0.25%, CHF slipping 0.1%, while NOK is flat, and JPY & MXN are up 0.1% vs USD.

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In commodity news. Oil prices slipped by 0.4%, Natural Gas prices extended gains up by 1.6%, Gold prices edged higher by 0.2%, Silver prices strengthened by 0.8%, Copper prices are up by 0.3%, Wheat prices dropped by 1.1% and Soybean prices dropped by 0.6%.

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CAD drifts lower, giving up its 9-day high in thin early trading as markets prepare for a flurry of Fed speakers who are expected to echo the rhetoric for US rates to remain higher for longer. CAD has been boosted this week by easing US inflation levels, the prospect that the Fed rates have peaked, and optimism for improving Sino/US relationships. Our bias remains that CAD could retest 1.4000 into December with the prospect of slowing global growth, so we look at these levels as good USD buying opportunities. Today we see no high-tier CAD economic data releases, so the focus will remain on US jobs data and Fed speakers to help provide intraday direction.

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EURCAD retests 6-month highs as CAD remains on the back foot with the prospect of slowing global growth and the prospect of higher US rates for longer.

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EUR steadies above 1.0850 amid souring risk sentiment. Market risk sentiment sours amid increasing rhetoric from the Fed that interest rates will stay higher for longer. Markets have stalled ahead of a day with a flurry of Fed, ECB speakers, and US jobs data as investors are sidelined looking for fresh direction. The intraday focus will be on US Initial jobless claims which are expected to edge higher from 217k to 220k. Our bias is that we see the Euro slip back towards 1.0780 and see current levels as a good selling opportunity.

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GBPEUR weakens and tests a fresh 6-month low as expectations grow that the BoE may look to ease interest rates into Q2/24.

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GBP continues to weaken from Tuesday's highs amid increasing US Fed rate rhetoric. The pound has slipped from 1.2500 highs earlier in the week to retest 1.2400 as risk sentiment wanes as Fed speakers continue to maintain their hawkish tone. In the absence of any top-tier UK economic data, the pound will take direction from US jobs data and a flurry of Fed speakers today. Domestically inflation has dropped to 4.6%, the Retail Price Index sits at 6.1% down from 8.6% in September and its Producer Price Index declined to 2.6% highlighting the UK's slowing economy. Our bias is that we could see the pound weaken towards 1.2200 into December, so feel current levels could provide a good opportunity to sell GBP.