Daily Market Outlook, November 15, 2023
Munnelly’s Market Commentary…
Asia - stocks experienced an uptick as global risk sentiment improved. The catalysts for this positive shift included weaker-than-expected US Consumer Price Index (CPI) data, which led to a more dovish outlook from the Federal Reserve, raising hopes that the Fed might conclude its rate-hiking cycle. Additionally, the region witnessed better-than-expected Chinese activity data. The Nikkei 225 rose by 2.5%, and the Hang Seng saw a 3% increase. Chinese Industrial Production and Retail Sales surpassed expectations, contributing to the positive sentiment. Reports suggesting that China is contemplating CNY 1 trillion in new funding for the housing market further boosted investor confidence. Additionally, the People's Bank of China (PBoC) conducted its largest Medium-term Lending Facility (MLF) net injection in seven years. The confluence of these factors resulted in a favourable environment for Asia-Pacific stocks, reflecting the impact of global economic data and central bank signals on regional markets.
Europe - In the UK, the Consumer Price Index (CPI) inflation figures for October were released earlier today, revealing a significant drop in the headline rate to 4.6% from 6.7% in September. This represents less than half of the peak rate observed a year ago at 11.1%. The larger-than-expected decrease is primarily attributed to the exclusion of last year's increase in gas prices from the annual comparison. Core inflation, which excludes food and energy, also experienced a more substantial decline than forecast, falling to 5.7% from 6.1%. Policymakers will closely monitor the "stickiness" of services inflation, a key metric influencing monetary policy decisions. Additionally, a speech by BoE MPC's Haskel is scheduled for this evening.
In the Eurozone, it is anticipated that industrial production fell by 0.8% in September, confirming a fourth consecutive quarterly contraction and supporting the estimate of a 0.1% decline in overall GDP for Q3. Despite this, the November German ZEW survey brought positive news, showing a fourth consecutive increase in expectations. This raises hopes of stabilisation in the Eurozone's largest economy, providing a potential boost to the broader economic outlook for the region. The economic data from both the UK and Eurozone will play a crucial role in shaping policy decisions and market sentiment.
US - Stateside, The upcoming data from the United States today has the potential to reinforce the market's expectations for an early rate cut, especially following yesterday's weaker-than-expected Consumer Price Index (CPI) inflation figures. The forecast for October retail sales is flat, which is above market expectations for a decline. Additionally, the core rate is expected to have slightly increased. The New York Fed Empire manufacturing survey is also anticipated to remain weak in November. Collectively, this data supports the view that U.S. growth is likely to slow in Q4 after a robust Q3. In addition to retail sales and manufacturing data, the U.S. Producer Price Index (PPI) inflation figures, scheduled for release today, will provide insights into pipeline inflationary pressures. Analysing producer prices is crucial for understanding the dynamics of inflation and assessing potential pass-through effects into consumer prices. The combination of these data points will contribute to the ongoing narrative surrounding the U.S. economic outlook, monetary policy considerations, and market expectations.
FX Positioning & Sentiment
The USD put over call implied volatility discount has been appearing attractive, and holders of USD put options may have benefited from the post-CPI (Consumer Price Index) USD drop on Tuesday. The miss in U.S. CPI and the subsequent extended drop in the USD was not priced into overnight expiry options, rewarding owners as break-even points were easily surpassed. The lack of realised volatility in the foreign exchange (FX) market in recent weeks has been a factor weighing on implied volatility, leading traders to be hesitant in holding long volatility positions and risking the loss of premium. Despite the post-CPI drop, the U.S. dollar remains well within recent trading ranges. It may face challenges in extending its setback significantly without additional weak U.S. data or positive data from other parts of the world, keeping implied volatility subdued for the time being. Shorter-dated implied volatility has experienced further declines following the data release. However, one-week historic/realised volatility and fair value measures remain significantly below. Benchmark one-month implied volatility could potentially offer better value, as its values align more closely with past realised volatility metrics. Additionally, with December's key central bank policy decisions included in the one-month expiry, it may present a more comprehensive picture for traders evaluating options.
CFTC Data As Of 10-11-23
CAD bearish -3,555
EUR bullish 11,287
GBP bearish -1,547
AUD bearish decreasing -4,760
NZD bearish -747
MXN bullish 867
CHF bearish -2,047
JPY bearish increasing -8,558
Gold bullish increasing 32,422
USD bullish decreasing 9,060 (CFTC)
FX Options Expiries For 10am New York Cut
(1BLN+ represent larger expiries, more magnetic when trading within daily ATR)
EUR/USD: 1.0700-20 (3BLN), 1.0740 (503M), 1.0775 (705M), 1.0800 (1.6BLN)
1.0850 (1.1BLN), 1.0875 (1.3BLN), 1.0900-10 (636M), 1.0930 (483M)
USD/CHF: 0.8900 (425M), 0.8940 (230M), 0.8975-80 (724M)
GBP/USD: 1.2345 (355M), 1.2400 (488M), 1.2535 (881M)
AUD/USD: 0.6430 (450M), 0.6500 (850M), 0.6520 (326M), 0.6575 (424M)
USD/JPY: 150.00 (1.4BLN), 150.50 (565M), 151.27 (783M), 152.00 (2.6BLN)
EUR/JPY: 163.30 (562M)
Overnight Newswire Updates of Note
Fed Officials Tout Inflation Progress, Still See Long Way To Go
Bond Traders Shift To Aggressive 2024 Fed Cut Bets After CPI
JPMorgan's Dimon: US Inflation May Not Go Away That Quickly
House Pass Stopgap Plan, Easing Government Shutdown Risk
PBoC Pumps Cash In Bank System To Support Stimulus Funds
China’s Economic Recovery Moved Slightly Higher In October
BoJ Cut Offer Amounts For Regular Bond Buying As Yields Slip
Japan GDP Falls More Than Expected, Supporting BoJ Easing
US Frustration With Israel Grows As Gaza Civilian Deaths Rise
Israeli IDF Troops Begin ‘Targeted Operation’ At Gaza Hospital
ECB’s Villeroy: Confident Will Get Inflation Toward 2% By 2025
Buffett’s Berkshire Cuts HP Stake, Exits Bet On General Motors
(Sourced from Bloomberg, Reuters and other reliable financial news outlets)
Technical & Trade Views
SP500 Bias: Bullish Above Bearish Below 4470
Below 4400 opens 4370
Primary support 4420
Primary objective is 4540
20 Day VWAP bullish, 5 Day VWAP bullish
EURUSD Bias: Bullish Above Bearish Below 1.08
Below 1.0650 opens 1.0550
Primary support 1.0650
Primary objective is 1.0964
20 Day VWAP bullish, 5 Day VWAP bullish
GBPUSD Bias: Bullish Above Bearish Below 1.2430
Below 1.24 opens 1.2350
Primary support is 1.2185
Primary objective 1.2570
20 Day VWAP bearish, 5 Day VWAP bullish
USDJPY Bias: Bullish Above Bearish Below 150
Below 149 opens 148.30
Primary support 147.30
Primary objective is 152.50
20 Day VWAP bullish, 5 Day VWAP bearish
AUDUSD Bias: Bullish Above Bearish Below .6450
Below .6290 opens .6250
Primary support .6330
Primary objective is .6590
20 Day VWAP bearish, 5 Day VWAP bullish
BTCUSD Bias: Bullish Above Bearish below 34000
Below 33600 opens 32400
Primary support is 30000
Primary objective is 37000
20 Day VWAP bullish, 5 Day VWAP bullish
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Past performance is not indicative of future results.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!