Tuesday October 8th, 2024

The USD slips, oil prices tumble, equity markets are down, US yields ease on Fed direction, and China's fading stimulus optimism. The USD slipped off its 7-week high while less dovish Fed comments provide underlying support. The Chinese yuan fell to its lowest level in nearly three weeks as investor sentiment eased on stimulus measures. European equity markets and US futures eased, led by declines in the mining and luxury sectors, which are exposed to the Chinese economy. In Asia, the Shanghai index rallied over 4.5%, while other Asian markets were down, while the Hong Kong index tumbled over 9%, its worst intraday loss since 2008. Market sentiment shifted when widely anticipated stimulus measures were not detailed in a press conference in Beijing, where officials vowed to meet economic targets. The crisis in the Mideast continues to weaken risk sentiment, as fighting escalated on Monday on multiple fronts after a year of war. Elsewhere, oil prices tumbled by 2% as investors pare bets on Mideast concerns and disappointment on China stimulus details. Bitcoin weakened by almost 1.5%, dropping towards $62k, while gold prices are flat, and silver prices fall below $31.50. Today sees a light economic calendar, with no high-tier economic releases, investors will focus on Fed's Jefferson and Bostic to help guide currency markets.

 In other news. Tampa Bay braces for what could be its strongest storm in a century. China hits EU brandy imports with anti-dumping penalties. Israel sends thoughts more troops to Lebanon as it prepares to expand ground operations. UK grocery inflation picks up in September. Fed's John Williams says the US economy 'well positioned' for a soft landing. Harris rules out bilateral talks with Putin on ending the war in Ukraine. Top US banks brace for the lowest lending incomes in almost two years. China stock rally fizzles as stimulus update disappoints investors. Former BoC official Beaurdy sees a jumbo rate cut in October. Boeing striking union to continue negotiations today.

In currency markets. GBP edges higher following higher UK grocery inflation news. Commodity-based currencies come under pressure as China's stimulus rally fades. The USD slips off 7-week highs but remains reported heading into the crucial US inflation report later this week. CNY tumbled 0.55, while Asian currencies are flat on average against the USD. Trading currencies are mixed, with AUD & ZAR weakening by 0.5%, NZD, CHF, NOK & MXN dipped 0.1%, SEK flat, and JPY gained by 0.25% against the USD.

 In commodity markets. Oil & Copper prices tumbled by 2%. Natural Gas prices strengthened by 0.8%. Gold slipped by 0.2%, and Silver & Soybean prices weakened by 1.6%. Wheat prices eased by 0.55%.

Current level USD Index                           102.397               Down 0.1%

CAD continues to weaken, down 1% in October, due to weakening commodity prices, a less dovish Fed, and increasing speculation of a 50 bps cut by the BoC in October. Domestically, we see Exports, Imports, and International Merchandise Trade reports, but they are not expected to have an impact on markets. This week, the US CPI report and the CAD unemployment report will be the key drivers for the loonie. Intraday, we expect the loonie to find resistance at 1.3620 and is vulnerable to further weakness towards 1.3700.

Current level USDCAD                              1.3644                 Up 0.2%

 EURCAD extends gains as weakening commodity prices put additional selling pressure on the loonie.

Current level EURCAD                               1.4985                 Up 0.3%

 EUR  finds support below 1.1000 following positive German data. The euro finds support in an easing USD and a stronger-than-expected German Industrial Production report. Domestically, ECB policymakers appear to be open to a policy easing, with V.Chair Elderson warning against economic growth risk materializing and that he is open-minded about the next policy action in October. While EBC policymaker Kazaks argued that inflation is not fully defeated, but said that data point to an interest rate cut in October. Our bias remains bearish on the Euro, with the prospect of a retest of 1.0800 if we see a stronger US inflation report on Thursday.

Current level EURUSD                               1.0985                 Up 0.1%

 GBPEUR holds steady as lack of China stimulus details eases risk-on sentiment, and both currencies are sidelined ahead of Thursday's US inflation report.

Current level GBPEUR               1.1910 (.8388)                  Flat

 GBP continues under pressure amid an increasingly cautious risk mood. The struggles to find support at 1.3100 amid less dovish Fed talk and fading risk sentiment following China's lack of stimulus details. Domestically, investors will be focused on Thursday's BoE Monetary Policy Report Hearings and Friday's GDP reports to help guide the Bank of England's interest rate direction in Q4. Intraday, we expect the pound to hold within its current range with the lack of high-tier data releases to drive market direction.

Current level GBPUSD                               1.3091                 Up 0.1%