Daily Market Outlook, August 11, 2023

Munnelly’s Market Commentary…

Asian equity markets made little positive progress overnight,influenced by a dovish reaction to post-CPI developments in the United States and concerns surrounding Chinese property developers. Trading activity was also hindered by reduced participation as Japanese market participants were absent due to Mountain Day. The Hang Seng index and the Shanghai Composite index experienced declines, primarily driven by the struggles of property developers. Country Garden Holdings faced pressure after announcing a potential loss of up to CNY 55 billion for the first half of the year and enlisting CICC for assistance with debt restructuring. Additionally, Fantasia Holdings saw a significant drop of over 50% upon resuming trading, having been halted since March of the previous year. Market participants were also anticipating details emerging from an emergency meeting between the securities regulator, developers, and financial institutions. Conversely, certain Hong Kong-listed companies performed well. Alibaba, China Mobile, and Li Ning stood out as some of the best-performing stocks, buoyed by favourable results. China's e-commerce giant, Alibaba, surpassed expectations by exceeding both top and bottom-line projections, contributing to its positive performance.

The remainder of today's data dockets appears to be quiet, with no significant data releases in the UK or the Eurozone. Stateside, however, the focus turns to the producer price data for July, which comes after yesterday's July Consumer Price Index (CPI) report. The CPI report indicated a rise in overall inflation but a decline in the core measure, excluding volatile elements. The producer price data will offer insights into inflationary pressures earlier in the supply chain. Over the past year, annual producer price inflation has decreased from over 10% in June of the previous year to nearly zero. Yet, there are tentative indications that this decline might be stabilising. Notably, the recent recovery in oil prices, if sustained, suggests the potential for an uptick in inflation in the latter part of the year. However, it's worth considering that today's data may have been collected too early in the month to fully capture this trend. Recent metrics of consumer confidence in the United States have shown significant improvements over the past couple of months. Despite this, they still remain below the levels observed before the Covid-19 pandemic. This upswing in confidence might be attributed to a growing belief that inflation is receding and to hopes that interest rates have reached their peak. Of particular interest is the University of Michigan's consumer sentiment index, which saw a substantial increase in July. Observing its response this month will provide insights into the ongoing sentiment. It's important to note that this index can be particularly sensitive to short-term fluctuations in gasoline prices. The rise in gasoline prices since late June could potentially have a negative impact on consumer sentiment.

CFTC Data As Of 08-08-23

Tuesday FX close, $IDX +0.52%, hints at little change in Majors positioning
Fri's CFTC spec data release likely to show little chg in EUR, JPY positions
USD largest gain vs AUD, CAD & CNH on lower global growth outlook
EUR$ -0.31% in Aug 2-8 CFTC reporting period, as ECB hike cycle nears end
$JPY +0.1% in period, had rallied 2-big figures off period low
GBP$ -0.22% in period, pair hovers near trend low on lwr BoE rate outlook
BTC +2.6% in period, lower rates seen supporting BTC
Retail extreme net longs in $JPY, EUR$ suggests EUR$, $JPY may be ripe for selling (Source: Reuters)

FX Options Expiries For 10am New York Cut

(1BLN+ represent larger expiries, more magnetic when trading within daily ATR)

EUR/USD 1.0890-00 (1.44BLN), 1.0925-30 (584M)
1.0950-60 (1.96BLN), 1.0965-75 (629M)
1.0980-90 (1.63BLN), 1.1000 (1.02BLN), 1.1025-30 (1.05BLN)
1.1050 (423M), 1.1100 (995M)
USD/JPY: 143.00 (517M), 143.50 (326M), 144.00 (850M)
145.00 (755M)
USD/CHF: 0.8560 (500M), 0.8750-65 (937M), 0.8825 (463M)
GBP/USD: 1.2530 (311M), 1.2600-05 (380M), (1.2700 (472M)
1.2850 (404M). EUR/GBP: 0.8700 (400M)
AUD/USD: 0.6500 (330M), 0.6520-30 (850M), 0.6550 (271M)
0.6575 (278M), 0.6600 (882M), 0.6675 (1.5BLN)
NZD/USD: 0.6100 (251M)
USD/CAD: 1.3320-25 (3.83BLN)

FX Options Positioning

Implied volatility for near-term contracts in the G10 foreign exchange market continues to decline and has further decreased following the release of the CPI data, as was anticipated. The 1-month benchmark contracts are now approaching the possibility of revisiting their lows from June, indicating a resurgence of the typical FX market conditions during the traditional quieter period of August.