The Morning Update

The USD strengthens, oil prices weaken, equity markets are up, and US yields ease as the Eurozone downturn quickens. The USD gains after Eurozone business activity have deepened far more than thought in August in a broad-based fall across the EU, particularly in Germany, Europe's largest economy. Equity markets gained, with Nvidia up 1.5% in premarket trading before its results today. The wider markets remain on the sidelines ahead of Fed Chair Powell's speech on Friday at the Jackson Hole Economic Policy Symposium. The resilient US economy continues to keep investors positioned for the Fed to keep borrowing costs elevated. Today's key events are US new home sales, S&P Composite, Manufacturing & Services PMI, New Home Sales change & CAD Retail sales which will help drive intraday direction.

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In other news. UPS workers approve massive new labor deal with big raises. ARM's China relationship complicates IPO. BRICS leaders weigh expansion criteria with bloc's future in balance. India counts down to a crucial moon landing. Spain's king gives conservative opposition a first chance to form a government. The Bank of England warns of corporate default risk. Falling Eurozone business activity raises doubts over ECB's next move. Hong Kong details imports ban on some Japanese seafood due to Fukushima release. Argentina's Massa expects IMF board OK for $7.5bln payout. Australia strikes may impact short-term LNG prices-Shell.

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In currency news. Euro & GBP both weaken on gloomy PMI data, while the USD Index rallies to a 2-month high. CNY steadies as traders are wary ahead of Friday's Fed Chairs speech. AUD & NZD are steady as commodity prices show some resilience. Japanese Yen weakness stalls as intervention fear increases with JPY near 150 vs USD. CNY is flat, while Asian currencies slip 0.1% on average vs USD. Trading currencies are mixed with NOK tumbling 1%, SEK weakening 0.8%, NZD down 0.15%, while AUD & CHF are flat, and JPY, ZAR & MXN firming 0.3% vs USD.

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Oil prices weakened 1% in early trading after demand concerns increased after disappointing Eurozone and UK PMI results. CAD retests 10-week lows as the combination of weakening Chinese & European economies impacting commodity prices as demand falls, and the prospect of the Fed Chair maintaining a hawkish tone increases the prospect of widening interest rates between CAD & US. Today alongside the US PMI data, CAD Retail Sales will be in focus as it offers clues on the strength of the domestic economy after it's been hit with labor strikes and wildfires in recent months.

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EURCAD slips after weaker-than-expected Eurozone PMI data, while the focus shifts to CAD retail sales data for intraday direction. Month-to-date, Euro remains 1.2% stronger than CAD.

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EUR tumbles to retest 1.0800 after disappointing Eurozone and German PMI data. Eurozone business activity declined far more than expected in August, with the weakness in Germany particularly quicker than its European peers, while some inflationary pressures returned the survey showed. The weaker Eurozone PMI data complicates the next steps for the ECB which still feels it needs to raise interest rates to tackle persistent interest rates but wants to avoid causing a recession. Investors have shifted their sentiment with expectations the ECB may pause in September, but with inflation levels still elevated a pause may be misinterpreted as a peak. Intraday US PMI data will help drive intraday direction.

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GBPEUR tumbled after the UK Composite PMI fell below 50 in August, revealing a contraction in the private sector's business activity.

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GBP dropped through 1.2750 to retest 1.2600 levels after dismal UK PMI results. The pound fell to its lowest level in a week vs USD after data showed a slump in the UK business activity in August, which fell to its lowest level since January 2021. The weaker-than-expected PMI data increases speculation that the BoE will not increase its interest rates beyond September. The focus will shift to the US US PMI data, a strong PMI print in the US could add further pressure on the pound with the potential of a rest of 1.2550 next.

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