Daily Market Outlook, November 24, 2021

Overnight Headlines

Traders Dial Back Inflation Fears, Hawkish Fed Bets Rise
Biden Vows US Will Get Through Spike In Gasoline Price
China Economy Czar He Calls For Stable Housing Market
Japan To Release Oil From Reserves, Reports 4.2M Bbls
Japan Factory Activity Grows Fastest Pace In Four Years
RBNZ Raises Rates Again To 0.75% As House Price Surge
EU Sefcovic: Expect Post-Brexit Talks To Extend To 2022
Report Tory MP Offer No Confidence Letters In Johnson
Oil Extends Gains As Release Of Reserves Underwhelms
Goldman Sachs: Oil Reserves Release Drop In The Ocean
Apple Selects TSMC To Build Custom iPhone 5G Modem
Tesla's Musk Exercises Options, Sells Shares At $1.05Bln

The Day Ahead

Risk tone overnight remained mostly subdued, with the key market focus on oil after several countries, including the US and China, coordinated a release of reserves. The oil price, however, rose after analysts said the release was smaller than expected, while reports suggest that oil producers may reconsider plans to increase output at next week’s OPEC+ meeting. Meanwhile, the Reserve Bank of New Zealand raised interest rates for a second time by 25bp to 0.75% in line with expectations, with more tightening in the pipeline.

The UK CBI industrial trends and the German IFO business surveys for November are the main releases this morning, which will be watched for latest indications of economic activity and prices. As in other surveys, the CBI survey has signalled significant upward price pressures this year. The BoE’s Tenreyro, meanwhile, is scheduled to speak. She is considered to be one of the most dovish MPC members.

For German IFO survey, expect the headline index to fall to 97.0 from 97.7, weighed by sharply rising Covid case numbers. Yesterday’s flash PMI, however, surprised on the upside, suggesting that responses to that survey may not yet have fully accounted for the most recent news on measures taken to tackle the new wave of infections.

US economic data have also mostly surprised positively recently, pointing to upside risks to forecasts for Q4 GDP growth. On top of the recent strong payrolls data, last week saw retail sales and industrial production beat forecasts, while yesterday’s flash PMIs continued to signal a strong pace of expansion. Ahead today, look for a strong print for consumer spending with a rise of 1.1%m/m. The Fed’s preferred inflation gauge, the PCE deflator, is likely to track the CPI data higher, with the annual rate for the headline index forecast to rise above 5% for the first time since 1990.

The minutes of the Fed’s November policy meeting will be watched for signs of a slightly more hawkish tilt. Recent strong data has raised speculation that the Fed’s taper may be accelerated, potentially paving the way for a rate rise next year which Chair Powell (who was reappointed this week) did not explicitly rule out. The Fed, however, continues to view current high inflation as ‘transitory’, although it acknowledged that it will take longer than previously expected for it to fall back.

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 )

USDJPY - 115.50/60 1.64bn (1.39bn C). 115.10/20 984m. 114.90/115.00 1.28bn (1.12bn C). 114.70/80 669m. 114.40/50 779m. 114.10/20 886m. 113.90/114.00 1.58bn (896m C). 113.70/80 737m. 113.50/60 1.24bn (849m P). 112.30/40 878m.

- EURUSD - 1.1500 4.22bn (3.72bn P). 1.1410/20 578m. 1.1400 1.84bn (851m P). 1.1320/30 1.31bn (810m C). 1.1300/10 1.82bn (C). 1.1270 458m. 1.1240/50 894m. 1.1220/30 1.03bn (P). 1.1190/1.1200 1.26bn (1.23bn P).

- AUDUSD - 0.7270 950m. 0.7200/10 610m.

- USDCAD - 1.2600/10 579m. 1.2580/90 944m. 1.2530/40 572m. 1.2470/80 1.33bn (948m C).

- EURGBP - 0.8550 473m.

- EURNOK - 9.90 1.07bn (1.02bn C).

- USDCNH - 6.53 550m. 6.41 470m. 6.40 494m.

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 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 Thursday's 663 million pound expiry at 1.3700 looks too far away to matter.

Stand out USD/JPY strike expiries Thursday has $905 million at 114.25 and $608 million at 115.00.