Daily Market Outlook, March 29, 2023

Banking Musical Chairs, Ermotti To Return As UBS Head, To Steady The Ship

Asian equity markets mainly in the green on the session following a somewhat benign range bound session on Wall Street given the lack of macro catalysts as investors position for quarter end. The standout performer overnight was in the Hong Kong markets which significantly outperformed as tech heavy Hang Seng posted 2%+ gains on the back of Alibaba’s plan for a six-way split, the Nikkei also posted decent gains as the Japanese government agreed a staggering 114 trillion JPY budget for the fiscal year ahead. Risk sentiment also benefited from a downside surprise in Australian inflation data falling from 7.4 to 6.8% leading to investors repricing future rate moves from the RBA.

Once again the data docket is pretty scant for the European session this morning, investors will eye comments for ECB speakers Kazimir and Schnabel, with Scnable set to address the NABE conference and is set to discuss the outlook for inflation in the Eurozone. The ECB has remained anchored to their rate increase path premised on the continued calm emerging in the banking sector, a positive development in the European banking sector came this morning with the announcement that current Swiss Re Chairman and industry stalwart Sergio Ermotti will return to the helm of UBS appointed new group CEO. On the inflation side of the ledger the first data inputs for March inflation are due out of Germany and Spain tomorrow morning, ahead of the Eurozone flash estimate set for release Friday morning.

Today’s US pending home sales for February are expected to show a further retreat but investors will likely look past this data as they focus on Friday’s PCE deflator data, widely known as the Fed's preferred gauge for inflation. US, headline annualised inflation is expected to decline but core inflation is expected to remain stubbornly elevated which will keep Fed officials firmly focused on the inflation battle.This evening the Bank of England's Mann, believed to be the most hawkish MPC member, is scheduled to speak on ‘inflation and monetary policy’ at the NABE conference, UK investors will parse her comments inlight of the BoE Governor Bailey’s more optimistic outlook on the UK economy and his apparent lean towards an imminent pause in the UK rate cycle, any softening in Mann’s hawkish stance would add further credence to the pause narrative for Uk rates.

FX Options For 10am New York Cut

EUR/USD: 1.1000 (EU958.2M), 1.0780 (EU922.3M), 1.0800 (EU683.2M)
USD/JPY: 130.75 ($630M), 131.75 ($615.2M), 128.10 ($310M)
USD/CNY: 6.9100 ($1.6B), 6.8000 ($1.23B), 6.9000 ($671M)
GBP/USD: 1.1500 (GBP505.7M), 1.2045 (GBP350M), 1.1900 (GBP325M)
AUD/USD: 0.6650 (AUD680.8M), 0.6800 (AUD565.7M), 0.6600 (AUD384.7M)
USD/MXN: 19.00 ($330.5M)
NZD/USD: 0.5650 (NZD423.9M)
CitiFX preliminary estimate of month-end FX hedge rebalancing flows points to moderate U.S. dollar selling against all major currencies except the euro. Although fixed income performed strongly across the board, our model suggests that both international equity and fixed income investors will likely be USD sellers this month-end,Japanese investors' needs to increase hedges on well-performing foreign fixed income strengthen the need to buy the yen and sell the dollar, although strong performance of European and UK fixed income weakens the buy signal for euro and sterling.