The Morning Update

The USD is flat, oil prices drop, equity markets weaken, and US yields are mixed as rates & China keep markets on edge. The USD index holds near 10-month highs, equity markets retreat for a fourth day, and US treasuries and European government debt stabilize after hitting decade highs as investors price in interest rates higher for longer. Fed Kashkari said he expects US rates to increase again in 2023 given the robust economy, with Fed Collins and Bowman both echoing the same interest rate sentiment. Hong Kong's Hang Seng Index fell to its lowest levels last seen in November and mainland benchmarks edged lower reflecting the dismal mood across the region as China Evergrande Group missed a domestic debt payment and on the news former executives were detained. In focus today, the US Housing Price Index, Consumer Confidence (Sep), and Fed's Bowman speech will help provide intraday direction to currency markets.

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In other news. US House to press forward with spending cuts despite shutdown risk. Chinese e-commerce giant Alibaba plans to list its logistics unit Cainiao in Hong Kong. Russian air strikes hit the Ukrainian port on the Danube. Moody's warns a federal shutdown would be 'negative' for US debt ratings. Germany leads the push to delay electric vehicle tariffs between the EU and the UK. Italy in markets' crosshairs as PM Meloni readies difficult budget. UK Gatwick cancels more than 160 flights because of ATC staff shortages. Jamie Dimon, floated the idea US interest rates could reach 7%, a worst-case scenario that could catch consumers & businesses off-guard.

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In currency markets. The USD hits 10-month highs, EUR & GBP slip towards 6-month lows, and the Turkish lira weakens to a new record low vs. USD. Speculation grows that the BoJ may intervene in continuing JPY weakness as Yen tests 149.00 vs. USD. CNY is flat, while Asian currencies are down 0.15% on average vs. USD. Trading currencies are mostly under pressure with ZAR tumbling 0.9%, MXN falling 0.35%, AUD weakening 0.25%, NZD & CHF slipped 0.1%, while the JPY and NOK are flat and outlier SEK extended gains up 0.25% vs. USD.

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In commodity markets. Oil prices weakened 0.9%, Natural Gas tumbled 1%, Gold and Copper slipped 0.3%, Silver dropped 0.4%, Wheat prices rose 0.7%, and Soybean gained 0.55% in early trading.

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CAD retreats from Monday's highs as the loonie balances weakening oil prices offsetting CAD 10-year yields hitting 16-year highs rising to 4%. Increasing hawkish rhetoric from Fed policymakers suggesting another rate hike in 2023 continues to support a strengthening USD, while the BoC Governor remains quiet. Domestically money markets see a 50% chance that the BoC will hike at its next meeting in October. With no key CAD data releases until Friday's CAD GDP report, we will continue to look at oil prices and US data releases to drive intraday direction to the loonie.

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EURCAD firms, rebounding off multi-month lows as the Euro steadies and CAD weakens driven by lower oil prices.

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EUR recovers from intraday lows, but stalls at 1.0600 as risk sentiment remains fragile. Euro edges off 6-month lows at 1.0570 but the single currency remains vulnerable to further weakness from the increasingly hawkish rhetoric from the Fed and growing concerns for the Chinese economy as property giant Evergrande Group missed an onshore bond repayment. The focus will be on the US conference board which will be releasing the consumer confidence index data for September, in August the confidence index dropped to 106.1 and put selling pressure on the USD.

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GBPEUR continues under pressure and continues to hold near 4-month lows as fears linger that the UK will enter a recession in Q4/23.

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GBP continues under pressure, holding below 1.2200 ahead of US data releases. The pound continues to weaken for a 3rd trading day, testing fresh 6-month lows of 1.2167 as negative risk sentiment keeps investors at bay. Safe-haven flows continue to favor the USD after China's Evergrande Group reportedly missed an onshore bond repayment. Our bias remains bearish on the pound and we see the potential of retesting 1.2000 into October. Intraday US Consumer Confidence data release and Fed Bowman comments will help drive USD direction.