The Morning Update

The USD holds steady, oil prices strengthen, equity markets are up, and US yields ease as risk sentiment improves. Currency and equity markets improved after China pledged further measures to support its economy. Equity markets gained for a second day, but remain on track for their worst month in almost a year as investors await a flurry of economic figures this week for clues on the outlook for global central bank policies. Focus today will be US Consumer Confidence and US JOLTS Job openings, with other key reports this week including US employment growth, August Payrolls, and Eurozone inflation readings.

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In other news. Toyota's Japan production is at a standstill as system failure hits assembly plants. 3M agrees to pay $6 bln to settle lawsuits over US military earplugs. European shares touch two-week highs as miners lead gains. German Consumer Confidence Survey in September falls due to declining income expectations. EU's Euro 86 bln budget battle casts a shadow over Ukraine funding. US & China to begin dialogue on export controls. UK flight disruption will take 'days' to resolve after an air traffic glitch.

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In currency markets. The USD index holds steady ahead of a busy week of data. The widening gap in interest rates between Japan and the US is putting pressure on the JPY. CNY remains under pressure as Chinese investors rush to offshore funds to offset domestic risks. CNY slips 0.05%, while Asian currencies are up 0.1% on average vs USD. Trading currencies are mixed with NZD & AUD down 0.2%, CHF slipping 0.1%, while SEK, JPY & MXN are flat, NOK firms 0.25%, and ZAR rallies 0.7% vs. USD.

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Oil prices strengthen as oil supply concerns outweigh demand worries. CAD holds steady straddling the 1.3600 level as investors appear sidelined ahead of a flurry of economic data releases out of Europe and the US this week. Domestically the Canadian economic docket is quiet until Friday when we see CAD GDP Q2 which is expected to drop from 3.1% to 1.2% Q/Q and also Global Manufacturing PMI which is expected to hold steady at 49.2 in August vs. 49.6 in July. Today's US Consumer Confidence & Jolts jobs opening will help provide intraday direction to the currency markets today.

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EURCAD holds steady as investors await Germany's inflation data on Wednesday.

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EUR remains capped on rebounds as investors remain cautious ahead of a flurry of key economic data this week. Euro is finding underlying support from some hawkish comments from ECB officials, with ECB policymaker Holzman arguing that there was a case for one more rate hike. Focus this week will be on the German inflation report on Wednesday, the Eurozone inflation reports on Thursday, and Friday's NFP will be the key drivers for the single currency this week for direction. Intraday US data will help provide direction, while our bias is that the Euro will remain capped at 1.0850 vs. USD today.

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GBPEUR edges slightly higher in thin trading as markets await a flurry of key US & Eurozone data this week.

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GBP steadies above 1.2600 ahead of US data today. The pound remains technically on a bearish sentiment, but a positive shift in risk sentiment is helping provide support to the pound vs. USD at touching its weakest level since mid-June at 1.2550. On the weekend BoE Deputy Governor Broadbent said the policy needs to remain in restrictive territory, highlighting that the rise in wages in response to rising prices was unlikely to fade as rapidly as they emerged. This week sees no key UK economic releases, so the pound direction will be driven by US & Eurozone economic releases this week.

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