The Morning Update

The USD edges higher, oil prices gain, equity markets are mixed and US yields ease as risk sentiment wanes. The USD holds near 10-month highs, oil prices extend gains as supply concerns come back into focus, equity markets face a fifth down day, and US yields retreat slightly from 16-year highs. Investors are increasingly becoming more risk-averse as equity markets fell below their 200-day moving average, suggesting stocks may be entering oversold territory after recording their longest losing streak in more than a decade. In China, the chairman of Evergrande Group has been placed under police surveillance, Evergrande is the world's most indebted developer with more than $300 billion in total liabilities, which is a major concern for investors as the property sector accounts for roughly 25% of China's economy. In the US, the government is facing its fourth partial shutdown in a decade with the House & Senate remaining split as the country faces more than $31 trillion in debt. In focus today, US Durable Goods, Nondefense Capital Goods Orders ex Aircraft and the Swiss National Bank quarterly bulletin.

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In other news. China Evergrande chairman put under police watch, liquidation risk looms. Shutdown countdown: US Congress has four days to fund the government. H&M profits impress despite September sales slowdown. German consumer sentiment is unlikely to recover this year -GfK. FTC's Amazon antitrust lawsuit faces a high bar in US court. Toyota plans third India plant, new SUV as domestic sales surge. The UK gives the go-ahead for its biggest new North Sea oilfield in years. London office market in 'rental recession' as vacancies hit 30-year highs.

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In currency news. The USD holds steady at near 10-month highs. The pound sinks testing fresh 6-month lows. AUD weakens as inflation data reinforces expectations the RBA will keep interest rates on hold. The Chinese Yuan slips despite the PBOC's statement of intent to keep the currency stable. The Indonesian central bank intervenes in the market to ensure the FX supply-demand balance. CNY slipped 0.1%, while Asian currencies eased 0.15% on average vs. USD. Trading currencies remain under pressure with AUD & ZAR weakening 0.45%, NZD, CHF & SEK falling 0.3%, JPY & MXN slipping 0.1%, while outlier NOK strengthens 0.3% vs. USD.

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In commodity news. Oil prices rally 1.5%, Natural Gas prices are up 0.2%, Gold prices fall 0.4%, Silver weakens 0.5%, Copper and Wheat prices slip 0.2% and Soybean prices gain 0.6%.

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CAD slips to a fresh 9-day low as investors continue to favor the USD despite strengthening oil prices and CAD 10-year yields hitting their own 16-year highs at 4.046%. Increasing global risk-off sentiment, the prospect of higher rates for longer, and the robust US economy are keeping the loonie on the back foot. It is a light week for CAD economic releases, so investors will be monitoring Friday's Canada GDP for July to offer additional clues on the strength of the domestic economy. Looking at the bigger picture CAD is flat vs. USD in 2023. Intraday the strengthening oil prices should provide some assistance to the loonie as markets await the US Durable Goods data.

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EURCAD slips in early trading, with the Euro down 2.5% vs. CAD in September, and is retesting a triple low set in January, February, and September, a break of 1.4235 could see a retest of 1.3735 last seen Nov 2022.

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EUR slips below 1.0550 as risk sentiment wanes and the USD edges higher. The Euro is sitting a a critical 6-month low and looks vulnerable to weaken further towards 1.0350 last seen Nov 2022. ECB board member Elderson commented today that interest rates could still go higher, if necessary, but his comments failed to provide any uplift for the single currency. Growing concerns for the Chinese property sector, the prospect of a US shutdown, and a weakening EU domestic economy are continuing to see investors increasingly favoring the safe haven USD. Intraday US data releases will help provide some direction to currency markets.

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GBPEUR edges slightly higher but remains down near 1.5% in September and is looking increasingly vulnerable to see a retest of 1.1300 last seen in April 2023.

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GBP continues under pressure testing fresh multi-month lows and is on track to test 1.2100 vs. USD. Increasing risk-off sentiment and persistent USD safe-haven demand continue to cap the pound's ability to stage a rebound. Currency markets are now pricing in that the Bank of England is done hiking interest rates as the economy weakening and inflation pressures are easing. The pound is set for its biggest monthly drop vs. USD since August 2022, falling 4.25% month to date as markets price in a pause to UK rate hikes. The pound has to potential to fall through 1.1800 (Mar 23) to retest 1.1375 vs. USD last seen in Nov 22.