The Morning Update

The USD strengthens, oil extends losses, equity markets are mixed, and US yields ease amid ongoing inflation concerns. The USD gained to a two-month high as investors focused on persistent inflation risks and the prospect of further Federal Reserve rate hikes. Hawkish comments from Fed officials have reinforced expectations that policy may need to tighten again if price pressures remain elevated. Global equity markets were mixed, with U.S. futures little changed and European and Asian benchmarks struggling for direction as investors weighed Middle East diplomacy and the outlook for interest rates. Technology shares were mixed after a strong recent run, with semiconductors showing signs of fatigue, while energy shares remained sensitive to the rebound in crude and cyclicals found some support from stronger Eurozone activity data. Broader sentiment remains cautious ahead of fresh PMI releases and the Trump-Xi meeting later this week. Elsewhere, oil prices held near two-week lows as improving Gulf supply and rising U.S. inventories eased supply concerns, while diesel margins hit record highs on fears of possible U.S. export restrictions. Today’s economic calendar includes U.S. preliminary S&P Global Manufacturing and Services PMIs, alongside speeches from Fed Governor Barr and the ECB’s Cipollone and Lane.

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News headlines. Trump-Xi summit puts AI safety talks on the table but neither side wants to slow down. Iran says Trump's threats a sign of 'strategic desperation,' floats conditions for Hormuz reopening. Stock futures mixed after Nasdaq composite posts fresh record. AI drone maker hits $6.4 billion valuation as Ukraine war spurs defence tech. Global banks warn the UK windfall tax will trigger shift away from London. Diesel surge costs European drives EUR 203 million per day. The Bank of England does not need to raise interest rates, say OECD. India's PM Modi expected to visit Canada in December to sign trade deal. TSX futures inch lower as Gold & Silver prices slip.

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In currency markets. Against the USD, the JPY remained under pressure near 157.8 after last week’s BoJ rate hike failed to convince markets that a faster tightening cycle is coming, although intervention risk is rising as USD/JPY approaches 160. AUD and NZD also weakened as hawkish Fed commentary kept the U.S. dollar supported, with NZD additionally pressured by widening U.S.-New Zealand rate differentials; both antipodean currencies remain sensitive to broader risk sentiment and developments ahead of the Trump-Xi meeting.

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In commodity markets. WTI -0.75% | Nat Gas +2.43% | Gold -0.56% | Silver -1.29% | Copper -0.20% | Palladium -1.37% | Coffee -0.18% | Cocoa -2.37% | Soybeans -0.68% | Wheat -1.50%

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CAD continues under pressure near seven-week lows as widening U.S.-Canada yield differentials and ongoing trade uncertainty outweigh the Bank of Canada’s more hawkish tone. Oil prices also weakened overnight, removing some support for the loonie, while markets still see a meaningful chance of an October BoC hike. Domestically, concerns remain that escalating U.S. tariffs could slow Canadian growth in the fourth quarter, complicating the BoC’s policy outlook even as inflation risks remain elevated.

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EURCAD slipped in early trading despite stronger Eurozone activity data, with the Composite PMI rising to 53.1 and services improving. However, softer German manufacturing and lingering fiscal concerns kept the euro subdued, while weaker oil prices also limited support for CAD.

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EUR remained under pressure nearing 1.1400 despite stronger Eurozone PMI data, with services activity improving sharply and German services returning to expansion. Political uncertainty in Germany and mounting concerns over France’s debt position continued to weigh on sentiment, offsetting the better economic data and keeping the euro near recent lows.

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GBPEUR eased in early trading as the pound underperformed the euro, with softer UK services activity outweighing a modest improvement in manufacturing. The cross remains under pressure as relative economic momentum currently favours the euro, while expectations for only gradual Bank of England tightening limit support for GBP.

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GBP fell toward 12-week lows below 1.3300 as mixed UK PMI data and broad U.S. dollar strength kept the pound under pressure. Manufacturing improved unexpectedly, but softer services activity reinforced concerns that UK growth momentum is uneven, while markets continue to price further Fed tightening. Adding to the more cautious BoE outlook, the OECD said the Bank does not currently need to raise rates, arguing the UK is starting from a different monetary-policy position than some other major economies.