Daily Market Outlook, March 21, 2023

Banking Concerns Calmed, As US Considers Backstopping All Deposits

Asian equity markets took Wall Street's lead, with most markets printing gains given the retreat in market fears around the banking sector as investors digested Credit Suisse's emergency acquisition by UBS and fresh optimism that FDIC’s deposit insurance amount could be increased. The ASX 200 nudged up towards a 1% gain for the session as the RBA Minutes from the March meeting highlighted that policy makers were reconsidering the case for pausing at the April meeting which would allow time to reassess the outlook for the economy, however, the board also noted that further tightening is likely necessary to defeat persistent inflationary pressures. The Hang Seng and Shanghai Comp were also in the green, recovering as Hong Kong benefitted from strength in consumer stocks and the mainland was once agin supported given ongoing PBoC’s liquidity injection provisions the upside was seen as contained on higher money market rates in China where the overnight repo rate rose to its highest in more than 2 years.

The German ZEW survey will be one of the first indications on March Eurozone economic activity in the single currency area. Market watchers expect that sentiment will have likely retreated reflecting new economic uncertainties, in light of the recent banking turmoil.

UK Chancellor Hunt is scheduled to appear before a House of Lords Committee later today. Given that the Committee recently released a report on employment supply issues, Hunt may be quizzed on whether last week’s budgetary statement on pensions and childcare are likely to move the needle in materially combating the employee shortage situation. February UK Inflation data will be released early Wednesday. Expect both the headline and core annual CPI inflation to have declined again, as headline is expected to have retreated sub 10% for the first time in six months.

In the US, new home sales are expected to have advanced in February. The recent pullback in US bond yields suggests lower mortgage rates adding to incentives for buyers as such supporting new home sales activity.

FX Options For 10am New York Cut

USD/JPY: 116.65 ($629m), 142.00 ($605.4m), 137.50 ($508.4m)
EUR/USD: 1.0690 (EU880.3m), 1.0545 (EU708.7m), 1.0250 (EU658.8m)
USD/CNY: 6.9500 ($574m), 7.1000 ($527m), 6.9300 ($501.1m)
AUD/USD: 0.7050 (AUD769.3m), 0.7200 (AUD736.1m), 0.6750 (AUD411m)
USD/CAD: 1.3690 ($429.8m), 1.3700 ($320.2m), 1.3505 ($300.7m)
EUR/GBP: 0.8815 (EU386.5m)
USD/MXN: 18.77 ($454m)
GBP/USD: 1.2100 (GBP504.1m), 1.1910 (GBP405m), 1.1750 (GBP325m)
NZD/USD: 0.5900 (NZD445m)
EUR/USD downside strike premiums have eased but trade flows lack a directional bias and dealers say the focus is on volatility. Front end expiry risk reversals hold long term highs above 2.0 for JPY calls and reflect the risk of more USD/JPY losses. (RTRS)