Asia – Stocks across the board faced a widespread decline, echoing the negative sentiment emanating from Wall Street that rippled through the APAC region. Multiple factors contributed to this downturn, including a lacklustre 30-year US auction and Federal Reserve Chair Powell’s hawkish stance. In the APAC arena, the struggle extended beyond global influences, with a mix of earnings reports and persistent challenges in China further weighing on markets.The Nikkei 225 faced significant headwinds, primarily due to substantial post-earnings declines in major players like Nissan, Sony, and Softbank, witnessing drops ranging from 3% to 6%. Despite these setbacks, the index managed to rebound from its nadir, climbing back above the 32.5k threshold. Meanwhile, the Hang Seng and Shanghai Composite indices mirrored the overall negative trajectory, with Hong Kong emerging as the weakest link among regional markets. Notably, the Tech and Financial sectors took the brunt of the hit, emerging as some of the most significant losers in this challenging market environment.Europe – UK GDP data, as reported by the Office for National Statistics this morning, indicates that the economy did not contract in Q3, aligning with the Bank of England’s expectations of no growth. Despite a period of positive growth and some resilience in the first half of the year, the latest figures show a stagnant economy. Notably, the monthly data for September exceeded expectations with a robust 0.2% increase. While there was a decline in consumer-facing services output, this was counterbalanced by stronger services activity in other sectors, coupled with growth in manufacturing and construction output. This economic scenario further supports the anticipation that the next move in UK policy interest rates is more likely to be a reduction rather than an increase. However, given the persistent inflation above the target and uncertainties about its trajectory in the upcoming year, policymakers emphasise the likelihood of keeping interest rates steady for the time being. A rate cut is deemed premature at this point. Financial markets have already factored in the expectation of a rate reduction by August next year. BoE Chief Economist Huw Pill noted earlier this week that the market’s pricing for a rate cut around next summer is “not entirely unreasonable.” Looking ahead, the focal point for today will be the insights shared by central bank speakers on the growing emphasis on lower interest rates in 2024 within financial markets. ECB President Lagarde is set to engage in a “fireside chat” with the FT’s Martin Wolf, and there are scheduled speeches by the Fed’s Bostic and Logan, along with German central bank head Nagel. These discussions are expected to shed light on the evolving monetary policy landscape.US – Stateside, the critical data release for today is the November update on US consumer sentiment from the University of Michigan. Markets anticipate an increase to 65.5 from the October figure of 63.8. However, even with this expected rise, the projected level of confidence remains relatively low. This suggests that the robust consumer spending growth witnessed in the third quarter may not be sustained into the current quarter. The survey results will provide valuable insights into the prevailing sentiment among US consumers and its potential impact on economic activities.
FX Positioning & Sentiment The FX Option market appears relatively unperturbed by Federal Reserve Chair Powell’s recent comments. Despite Powell expressing concerns about inflation, the USD saw only a modest recovery on Thursday and continues to trade within its typical FX ranges. Notably, the implied volatility in FX options has only experienced a slight uptick after Powell’s remarks, remaining at a low level that reflects the current lack of substantial FX volatility. This muted response suggests that there is currently less urgency for significant FX movements to offset lower option premiums. As the market braces for the upcoming U.S. CPI data, holding options might prove valuable. Of particular note is the current scenario where USD put options are more affordable than calls, presenting an inexpensive hedge against a potential decline in the value of the USD. Investors may find this an opportune strategy to navigate the evolving landscape shaped by economic indicators and central bank commentary.
CFTC Data As Of 3-11-23
FX Options Expiries For 10am New York Cut (1BLN+ represent larger expiries, more magnetic when trading within daily ATR)
Overnight Newswire Updates of Note
(Sourced from Bloomberg, Reuters and other reliable financial news outlets)
Technical & Trade ViewsSP500 Bias: Bullish Above Bearish Below 4335
EURUSD Bias: Bullish Above Bearish Below 1.0630
GBPUSD Bias: Bullish Above Bearish Below 1.22
USDJPY Bias: Bullish Above Bearish Below 150
AUDUSD Bias: Bullish Above Bearish Below .6450
BTCUSD Bias: Bullish Above Bearish below 34000
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