Daily Market Outlook, October 30, 2023

Munnelly’s Market Commentary… 

Asia – stock markets experienced mixed trading with most major indices ending in negative territory. The ongoing geopolitical concerns remained at the forefront of investor sentiment as the month-end and upcoming risk events loomed. The Nikkei 225 was the weakest performer, down by 1.0%, as yields increased and the Bank of Japan initiated its two-day policy meeting, which some considered a live meeting. The Hang Seng and Shanghai Composite initially dropped, with energy stocks and financials being affected, but later, there were hopes of improved US-China relations following a meeting between US Secretary of State Blinken and Chinese Foreign Minister Wang Yi, who agreed to work toward a Biden-Xi meeting in November. October Chinese PMI data will offer additional insights into whether the concerns about weakening growth in the world’s second-largest economy are substantiated. Additionally, the Bank of Japan is scheduled to provide a policy update, and the consensus expectation is for it to maintain its existing interest rates and yield curve control policy. However, there is a possibility that the effective ceiling for Japanese 10-year government bond yields may be adjusted.

Europe – Today, the market’s focus will be on German GDP and inflation data, which will be closely monitored ahead of the release of Eurozone figures tomorrow. It is expected that Germany, the largest economy in the Eurozone, contracted in Q3 by 0.2% quarter-on-quarter following a flat performance in Q2. This contraction reflects the economic challenges posed by higher interest rates, increased energy prices, and soft global demand conditions. France will also release Q3 GDP figures tomorrow, with a slowdown in the pace of expansion expected. Overall, Eurozone growth is anticipated to remain stagnant in Q3. In terms of inflation, Germany’s EU-harmonised measure is expected to drop significantly to 3.3% year-on-year in October from 4.3% in September, mainly due to base effects as the substantial increase in energy costs from a year ago is not repeated this month. Spain will also release inflation data today, and France’s inflation figures are due tomorrow morning. The forecasts suggest that inflation rates in both countries will decrease. These national releases align with the expectation for Eurozone headline CPI inflation to fall to 3.1% in October, down from 4.3% in September.

The Bank of England (BoE) is expected to keep interest rates unchanged in its upcoming policy meeting scheduled for November 2. The LSEG’s assessment shows a 90% probability that the BoE will maintain the current rates. While the BoE is likely to hold rates steady, the market remains divided on whether there could be another rate hike later this year. According to a recent Reuters poll, 16 out of 28 respondents indicated that the likelihood of another rate hike this year is high. The BoE’s messaging and the language in its policy statement will be crucial in shaping market expectations. The central bank’s communication will play a significant role in determining whether or not a rate increase is anticipated in the near future.

US – Stateside, the Federal Reserve decision on November 1 is expected to be the main event in financial markets. The market is currently pricing in a probability of over 90% that the Fed will keep interest rates unchanged. Therefore, the primary focus will shift to the messaging from the Fed, especially considering the mixed signals that have been coming from the central bank since the September meeting. According to the CME FedWatch tool, there is approximately a 20% chance that the Fed may opt for a 25-basis point rate hike in December. The market will closely scrutinise the Fed’s views on how elevated Treasury yields might impact its future policy decisions. Clarity on the central bank’s approach to managing the current economic environment will be of significant interest to market participants.

FX Positioning & Sentiment 

Speculators have increased their bearish bets on the British pound (GBP) for the ninth consecutive week, according to data from the U.S. Commodity Futures Trading Commission (CFTC). In the week ending October 24, net short positions on the GBP rose to 18,636 contracts, marking a significant shift from the net long positions held just two months earlier.

This extended period of bearish sentiment for the GBP has coincided with the flip from a net long position to a net short position over these nine weeks. Approximately two months ago, the net long position for the GBP reached 59,107 contracts during the week ending August 22. Last week, GBP/USD reached a three-week low at 1.2070 on October 26, with a prior low of 1.2039 recorded on October 4. The Bank of England (BoE) is widely anticipated to announce its second consecutive interest rate hold during the week, which has likely contributed to the bearish sentiment.

CFTC Data As Of 27-10-23

  • USD net spec long up a touch in Oct 18-24 period; $IDX rose 0.03% in period

  • Since period closed ECB dovish hold & Japan CPI may moot period adjustments

  • EUR$ +0.12% in period, specs -2,843 contracts; weak growth trump inflation

  • $JPY +0.05%, specs +3,029 contracts now -99,629; pair hovers near 150

  • GBP$ -0.16% in period specs -18,636 contracts; dovish BoE rate view weighs

  • AUD, NZD net spec short grew amid low rates, growth view; weak China growth

  • $CAD +0.67% in period, weak glbl growth and stagnant BoC rates weigh

  • BTC +18.2% period, specs sell 781 contracts flip to short, BTC steady since

  • End of developed mkt hikes and global growth remain key determinants ( Source Reuters)

FX Options Expiries For 10am New York Cut 

(1BLN+ represent larger expiries, more magnetic when trading within daily ATR)

  • EUR/USD: 1.0425 (759M), 1.0500 (235M)

  • 1.0525 (350M), 1.0540-50 (2.3BLN), 1.0575 (210M)

  • 1.0600 (929M, 1.0630 (265M), 1.0640-50 (1.7BLN)

  • USD/JPY: 149.00 (729M), 149.50 (1.5BLN), 150.00 (250M)

  • 150.25 (250M), 150.50 (809M), 150.65-75 (626M)

  • 151.00 (756M), 152.00 (510M)

  • EUR/CHF: 0.9575 (365M)

  • GBP/USD: 1.2145 (396M), 1.2200 (227M)

  • EUR/GBP: 0.8900 (307M). NZD/USD: 0.5650 (520M)

  • AUD/USD: 0.6140-50 (2.5BLN), 0.6510 (1.1BLN)

  • EUR/NOK: 11.50-60 (557M)

Overnight Newswire Updates of Note

  • Israeli Forces Expand Gaza Ground Operations In Push To Destroy Hamas

  • China War Veteran Blasts US As Troublemaker At Top Defense Forum

  • Japan To Ease Residency Rules For Foreigners Starting A Business

  • Trade Talks Collapse Between EU And Australia

  • Speaker Johnson Open To Short-Term Stopgap Funding Measure Until Jan. 15

  • House GOP Plans To Vote Thursday On Israel Aid Bill

  • ECB Is Finished With Rate Hikes ‘For Now,’ Vujcic Says

  • Europe’s Top Banking Supervisor Says Fragmenting Market Raises Risks

  • G7 Trade Chiefs Slam Weaponization Of Economic Dependencies

  • Japan, US Plan To Hold Economic 2+2 Talks In Mid-November

  • US Treasury Seen Boosting Auction Sizes As Budget Deficit Worsens

  • Evergrande Winding-Up Hearing Adjourned To Dec. 4 By Hong Kong Court

  • Toyota Posts Record Global Output, Sales In April-Sept. Period

  • HSBC Announces $3 Bln Share Buyback After Missing Estimates

  • UAW Leaders OK Ford Deal With $8 Bln In Manufacturing Investment

  • GM Hit With More Strikes While Stellantis Reaches Deal With UAW

  • Stellantis Workers In Canada Strike As Contract Talks Fail

  • Apple To Hold Special Event On Oct. 30 Dubbed ‘Scary Fast

(Sourced from Bloomberg, Reuters and other reliable financial news outlets)

Technical & Trade Views

SP500 Bias: Bullish Above Bearish Below 4100

  • Above 4160 opens 4200

  • Primary resistance  is 4280

  • Primary objective is 4075

  • 20 Day VWAP bearish, 5 Day VWAP bearish

EURUSD Bias: Bullish Above Bearish Below 1.06

  • Below 1.0550 opens 1.0480

  • Primary support is 1.05

  • Primary objective is 1.04

  • 20 Day VWAP bearish, 5 Day VWAP bearish

GBPUSD Bias: Bullish Above Bearish Below 1.22

  • Below 1.21 opens 1.1950

  • Primary support  is 1.21

  • Primary objective 1.24

  • 20 Day VWAP bearish, 5 Day VWAP bearish

USDJPY Bias: Bullish Above Bearish Below 149.25

  • Below 149 opens 148.50

  • Primary support 144.50

  • Primary objective is 151

  • 20 Day VWAP bullish, 5 Day VWAP bullish

AUDUSD Bias: Bullish Above Bearish Below .6400

  • Above .6475 opens .6525

  • Primary resistance  is .6620

  • Primary objective is .6270

  • 20 Day VWAP bearish, 5 Day VWAP bearish

BTCUSD Bias: Bullish Above Bearish below 32000

  • Below 27100 opens 26500

  • Primary support  is 30000

  • Primary objective is 37000

  • 20 Day VWAP bullish, 5 Day VWAP bullish