The Morning Update

The USD slipped, oil prices retreated, equities fell, and U.S. yields traded mixed as fears of a US government shutdown weighed on sentiment. The USD slipped in early trading as investors weighed the risk of a government shutdown that could delay Friday’s key jobs report and complicate the Fed’s policy outlook. While a short shutdown may be brushed off, a prolonged one could weigh on growth and add pressure for a more accommodative Fed stance. Global equities are down as European stocks and U.S. futures weakened ahead of key labour data, with BHP tumbling nearly 5% after China’s state-run buyer halted iron ore purchases. Vice President JD Vance warned that the U.S. government is on track for a shutdown after failed talks in Washington, raising the risk of delayed economic releases and dampening sentiment. Asian markets were mixed, underscoring fragile risk appetite as global equities trade near record highs. “We advise investors to look past shutdown fears and focus on other market drivers,” wrote Mark Haefele, chief investment officer at UBS Global Wealth Management. “We continue to prefer quality fixed income, particularly those with medium-term maturities, which we believe offers a compelling combination of income and resilience in the event of slower growth.” Elsewhere, oil prices fell 1% due to concerns over OPEC+ output and Kurdish exports, while gold prices eased after hitting record highs. Bitcoin also slipped 1%, dropping below $113,000 as investor sentiment turned cautious. In focus today, German CPI, US Housing Price Index, Consumer Confidence and Jolts Job Opening, alongside speeches from ECB President Lagarde and Elderson, Fed's Collins and BoE's Mann and Breeden will help drive intraday currency direction.

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In the news. Israeli far right hits out at Netanyahu over Gaza deal. US VP Vance warns the U.S. government is "headed to a shutdown." M&A deals top 1tn in third quarter. EU moves to advance Ukraine's accession by sidestepping Hungary.  YouTube pays $24.5 million to settle Trump censorship lawsuit. Meloni boosted as Brothers of Italy party re-elected in bellwether region. Trump sets Lumber and Wood tariffs in a bid to boost the US industry. China bans new BHP iron ore cargoes as pricing dispute grows. Imperial Oil to slash 20% of workforce in major corporate restructuring. TD plans to cut up to $2.5 billion in expenses as it tries to get "back to winning."

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In currency markets. AUD/USD strengthened in early trading, outperforming on signs of resilience in Australian data and commodity support despite broader dollar pressures. The USD/JPY remains pressured by hawkish signals from the BoJ, while the USD/INR trades near record lows amid RBI intervention and limited policy room. CNY and Asian currencies are generally flat against the USD. Trading currencies are mixed, with SEK, NOK, ZAR, and CZK down 0.1%, CHF & PLN are flat, MXN & DKK are up, KWD gained 0.3%, and JPY strengthened by 0.5% against the USD.

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In commodity markets. Oil prices weakened by 1%. Natural Gas & Soybean prices eased by 0.35%. Gold prices are down 0.55%. Silver prices tumbled 1.5%. Copper prices fell 0.7%, while wheat and coffee prices are flat.

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CAD is flat in early trading, holding just above 1.3900 against the U.S. dollar as the greenback steadies following last week’s gains. Despite weaker oil prices, exporter hedging at favourable levels continues to provide some underlying support for the loonie. Speculative short positions in the CAD have climbed to their highest since April, underscoring market caution on the currency’s outlook. Canadian bond yields have eased across the curve, maintaining relatively stable conditions. Focus now turns to today’s U.S. economic data, including consumer confidence and housing figures, for fresh direction on USD/CAD.

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EURCAD is modestly higher in early trading, holding close to multi-year highs as the euro retains upside momentum. Analysts note that softer Canadian fundamentals, coupled with steady eurozone sentiment, continue to favour further strength in the pair.

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EUR is steady near 1.1750 in early European trading, supported by renewed weakness in the U.S. dollar. The pair has shrugged off softer German retail sales data, with attention now turning to today’s German CPI reading, expected to remain near 2.2% year-on-year. Such a print would reinforce the ECB’s cautious policy stance. Investors are also watching for U.S. job openings data and a potential government shutdown for further insight into the Fed’s direction. Later, a speech by ECB President Christine Lagarde could add to the euro’s near-term momentum if she offers clarity on inflation and monetary policy.

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GBPEUR is flat in early trade but remains on track for a fourth straight monthly loss, as persistent UK fiscal worries contrast with a steadier euro. Market focus now shifts to upcoming remarks from ECB President Christine Lagarde and BoE’s Catherine Mann, which could set the tone if their policy signals diverge.

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GBP is flat, but remains on track for its first monthly decline against the dollar since July, as U.S. shutdown risks dominate short-term moves. UK GDP grew 0.3% in Q2, in line with forecasts, but the current account deficit widened sharply to £28.9 billion, well above expectations. Sterling was little moved by the data, holding near $1.3450, though it has slipped about 0.5% versus the dollar this month. Investors remain cautious about Britain’s fiscal outlook, with borrowing costs and inflation among the highest in the developed world. Finance Minister Rachel Reeves is expected to raise taxes in November’s budget to plug a large fiscal gap, despite pledges not to hike VAT, national insurance, or income tax rates.