Daily Market Outlook, July 20, 2023

Munnelly’s Market Commentary…

Asian equity markets had a mixed trading session, reflecting the uncertain performance in the US markets as investors processed various data releases, corporate earnings results from tech darlings Netflix and Tesla, the latter saw a decline in margins as it continues to boost discounts, while Netflix’s new password initiative failed to deliver expected revenue growth, investors were underwhelmed by both of their performance updates weighing on Nasdaq futures overnight.

The Nikkei 225 was the worst performer, declining following weaker-than-expected trade data with a contraction in imports, although the trade balance returned to a surplus for the first time in almost two years. On the other hand, the Hang Seng rose, buoyed by early strength in the property sector after the People's Bank of China eased cross-border funding for firms and financial institutions. However, the Shanghai Composite was lacklustre despite the PBoC maintaining benchmark lending rates and issuing guidelines for the promotion of the private economy.

In the Eurozone, consumer confidence has been steadily rising over the past three months, reaching its highest level since February 2022. Despite recent indicators suggesting a slowdown in Eurozone economic activity, both analysts and the consensus expect a further small increase in confidence for July.

Stateside several indicators will provide further insights into the US economic activity. The weekly jobless claims will indicate the tightness of the labour market. The June labour market report showed buoyant conditions, and recent weekly claims have surprised on the downside after a few higher readings. The June existing home sales report will offer an update on the housing sector, which has been affected by rising interest rates but is now showing tentative signs of slowing down. The July Philadelphia Fed index, while a timely update on the factory sector, tends to be too volatile to provide useful indications.

CFTC Data As Of 14-07-23

USD net spec short fell a touch in the Jul 5-11 period as $IDX slid 1.37%
Fairly serious moves among majors w/hardly any position changes
Suggest a fair amount of position replacement as specs were getting stopped
EUR$ +1.2% in period, specs -2,675 contracts into strength now +140,162
$JPY -2.84% in period after breaching 145 last wk, specs buy 738 contracts
GBP$ +1.73% as BoE seen a cointoss for +50bp Aug 3, specs +7,798 now +58,063
CHF specs relatively active -4,503 contracts now short 7,907
$CAD +0.06%, Aussie -0.06% specs sell less than 1k contracts
BTC fell a scant 0.74%, specs +221 on dip now short 1,855 contracts(Source: Reuters)

FX Options Expiries For 10am New York Cut

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

EUR/USD: 1.1110-20 (1.6BLN), 1.1190 (310M), 1.1200 (1BLN), 1.1270 (479M)
1.1300 (592M)
USD/CHF: 0.8625 (245M), 0.8735 (275M), 0.8830-35 (1BLN)
GBP/USD: 1.2775-95 (484M), 1.2945 (365M), 1.3015-30 (640M), 1.3095 (451M)
EUR/GBP: 0.8645-50 (605M), 0.8675 (903M), 0.8700 (551M), 0.8750 (364M)
AUD/USD: 0.6755-65 (554M), 0.6800-15 (2BLN), 0.6860 (227M)
NZD/USD: 0.6225 (429M), 0.6310 (1.2BLN), 0.6415 (280M)
AUD/NZD: 1.0850 (906M). USD/CAD: 1.3105 (680M), 1.3215-25 (430M)
USD/JPY: 138.75 (396M), 139.00 (271M), 140.00-10 (3.7BLN), 140.60-70 (773M)
140.90-95 (1BLN). AUD/JPY: 96.10 (250M)

Traders have been cautious about buying higher strikes in GBP/USD options, but they have not ruled out recent volatility. Implied volatility for the benchmark 1-month options has increased to 8.5, matching pre-June Bank of England peaks. After the inflation data, 1-month options were sold at 8.3, and 3-month options were given at 8.1-7.9, but deeper declines have been limited for now. There is demand for September Bank of England options, which include another CPI report before the expiration. The USD/JPY traders are likely to pay attention to Friday's Japanese CPI data, which may support current implied volatility levels and limit setbacks in options expiring after the 28 July policy announcement.

Overnight Newswire Updates of Note