Daily Market Outlook, November 23, 2021

Overnight Headlines

Wall Street’s Popular Fed Bet Gets Rescue From Powell Nom
Fed Bostic: Faster Taper Would Give Option For Earlier Hikes
Tsy Sec Yellen: Must Ensure Inflation Not Become ‘Endemic’
US To Unveil Emergency Oil Release Bid To Fight High Prices
US Call On Russia To Deescalate Rising Tension With Ukraine
US Sanctions Ship Involved In Finishing Nord Stream Pipeline
China’s Slowdown Tests PBoC As Debate Erupts Over Easing
China Dedicated Than Ever To Covid Zero As It Battles Delta
ECB Knot: No Indication Inflation Keep Exceed Expectations
ECB Villeroy: ECB Serious on Ending Pandemic Bond-Buying
Oil Slips, Traders Assess OPEC+ Response To SPR Release
Dollar Surges To Four-Year High Vs Yen On Faster Hike Bets

The Day Ahead

Asian equity markets are mixed this morning. US President Biden announced that he would retain Jerome Powell as Chair of the Federal Reserve. In the UK, MPs voted to pass the Government’s social care package but a number of Conservatives either voted against or abstained. The November Australian manufacturing PMI rose modestly and the services PMI surged, signalling a rebound from the latest lockdown.

Today’s November manufacturing and services PMIs will provide timely readings on economic trends. In the UK, last month’s readings saw unexpected improvements. The services measure posted a particularly big rise with the removal of some restrictions on international travel highlighted as one reason for the bounce. The gains were a signal that economic growth may have accelerated at the start of Q4, although the surveys also pointed to ongoing signs of supply restrictions. Look for declines in the manufacturing PMI to 57.0 from 57.8 and the services PMI to 58.0 from 59.1. However, that would leave both still well above the 50 expansion/contraction level.

In the Eurozone we forecast the services PMI to decline to 53.5 from 54.6, which is somewhat lower than our prediction for the UK, highlighting a more rapid loss of momentum. The Eurozone manufacturing PMI is also predicted to fall, weighed down by ongoing supply-side constraints. In contrast recent US data has suggested that economic growth has picked up in early Q4 even though supply issues also remain a concern there. Consequently, look for rises in both the US measures.

Speeches from a number of Bank of England Monetary Policy Committee members this week will be closely watched for anything new on the chances of a December rate hike. External policy member Haskel will give a speech about inflation trends today. He voted for unchanged policy in November and his previous comments have marked him out as one of those most reluctant to tighten policy. So it would be a surprise but notable if he now seems to be wavering. Governor Bailey will testify to a House of Lords Committee about digital currencies, but he may not touch on the immediate policy outlook.

Early Wednesday, New Zealand’s central bank is expected to announce its second interest hike in less than four months. A 25 basis points increase to 0.75% is widely expected, although some analysts have talked about the possibility of a 50bp rise. The move may further boost market expectations of hikes elsewhere

G10 FX Options Expiries for 10AM New York Cut

(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls )

EUR/USD: 1.1220 (767M), 1.1275 (306M), 1.1300 (712M)

1.1340 (529M), 1.1350-55 (375M)

USD/CHF: 0.9175 (215M). GBP/USD: 1.3530 (177M), 1.3550 (295M)

AUD/USD: 0.7275 (351M), 0.7325 (495M). NZD/USD: 0.6950 (201M)

USD/CAD: 1.2600 (270M), 1.2625 (220M)

USD/JPY: 114.20 (840M), 114.80 (200M), 115.00 (280M)

Stand out FX option strike expiries for the week ahead

(Reuters) – Despite a fairly light calendar due to this week's U.S. Thanksgiving holiday, there are still some big FX strikes – the hedging of which can impact FX price action if nearby.

Stand out EUR/USD strikes Tuesday has 737 million euros at 1.1220, 712 million 1.1300, and 904 million euros between 1.1340 and 1.1355. Wednesday has 750 million euros at 1.1195-1.1200, 836 million at 1.1300, 600 million at 1.1330 and 1.8 billion at 1.1400. Without a big short squeeze, a well touted 4.2 billion at 1.1500 won't factor.

The biggest GBP/USD strikes Tuesday has 295 million pounds at 1.3550 and 294 million pounds at 1.3600. Thursday's 663 million pound expiry at 1.3700 looks too far away to matter. The biggest EUR/GBP strike this week is Monday at 0.8360 on 507 million euros.

AUD/USD has A$351 million at 0.7275 and A$495 million at 0.7325 on Tuesday, and A$850 million at 0.7270-0.7275 on Wednesday.

NZD/USD has NZ$302 million at 0.7150 on Tuesday, and NZ$342 million at 0.6985 on Wednesday.

USD/CAD Wednesday has $1.3 billion at 1.2475-1.2480 and $1.3 billion between 1.2580 and 1.2605

Stand out USD/JPY strike expiries are on Tuesday at 114.20 on $780 million, on Wednesday at 113.50 on $1 billion, at 113.70 on $500-million, between 113.95 and 114.05 on $1.5 billion, between 115.00 and 115.10 on $1.2 billion, and between 115.50 and 115.60 on $1 billion. Thursday has $905 million at 114.25 and $608 million at 115.00.