Daily Market Outlook, November 1, 2023
Munnelly’s Market Commentary…
Asia - stocks experienced predominantly higher trading conditions. However, the gains were limited for most indices ahead of the FOMC announcement. The region also faced a series of data releases, including disappointing Chinese Caixin Manufacturing PMI, which marked its first contraction in three months. The Nikkei 225 posted the most substantial gains, benefiting from reports of a new economic package in Japan totaling around JPY 17 trillion, as well as recent currency depreciation following the Bank of Japan's modest YCC adjustment. Conversely, Hang Seng and Shanghai Comp. saw choppy trading. Chinese Caixin Manufacturing PMI data mirrored the recent deterioration in the official release, and there was some disappointment after the People's Bank of China's open market operations resulted in a net daily drain, despite prior reports of the central bank's likely addition of further liquidity and expected declines in money market rates from the day.
Europe - Today's October PMI manufacturing data for the UK and the Eurozone are second readings, and they are not anticipated to be revised. The initial estimates indicated a decline in the Eurozone measure. In contrast, the UK's index increased to its highest level in three months. Nevertheless, both readings remain significantly below the pivotal 50 level, indicating that economic activity is still in a contraction phase.
US - Stateside, October ISM manufacturing survey is a new release. In September, the overall index climbed to 49.0, its highest level since last November, and it's not far below the crucial 50 level. The reading for the alternative PMI measure also rose to 50 in October, suggesting the ISM could potentially follow suit. However, it is more likely to remain at 49.0. Both measures indicate that the decline in the manufacturing sector may be stabilising. This could be due to a combination of reduced inflationary pressures, some reshoring of activity, and government support for manufacturing as part of President Biden's green agenda. Additionally, the US will release the ADP employment measure for October and construction spending data for September. Today's Federal Reserve monetary policy update in the United States is anticipated to keep interest rates unchanged. Prior to entering their pre-announcement quiet period, multiple Fed officials expressed the view that the recent increase in bond yields effectively amounted to a tightening of monetary policy, reducing the necessity for another rate hike. The Fed is known for avoiding sudden market surprises in its rate decisions, so it is highly probable that US interest rates will remain unaltered for the second consecutive policy update. Nonetheless, the Federal Reserve finds itself in a challenging position. While inflation has moderated throughout the year, the US economy continues to perform strongly, and the job market remains highly competitive. This situation creates uncertainty about whether inflation will return to the Fed's target of 2.0% and remain there without the need for additional policy adjustments. Consequently, Fed Chair Powell is unlikely to rule out the possibility of future rate hikes or provide strong support for expectations of an imminent rate cut. Instead, he is expected to emphasise the ongoing uncertainty and avoid making definitive commitments about future policy actions.
FX Positioning & Sentiment
USD/JPY made significant gains, surging 1.6% following a perceived disappointment from the Bank of Japan (BoJ) and positive US economic data, pushing it toward the 2022 peak at 151.94. Notably, this level marked a 32-year high and triggered substantial Japanese Ministry of Finance (MoF) yen buying, leading to a decline in the USD/JPY price. The current high on Tuesday reached 151.715, potentially testing the waters for intervention by the MoF. The most recent intervention on October 21, 2022, occurred when USD/JPY reached an intraday low of 144.50. However, any intervention-driven sell-off in USD/JPY is likely to be short-lived if US data continues to outperform expectations. Positive economic reports are propping up expectations for the Federal Reserve's policy and pushing short-term Treasury yields higher. Wednesday's calendar includes crucial data releases such as the ADP employment report, ISM manufacturing data, JOLTS job openings, and several events leading up to the non-farm payrolls (NFP) release and ISM non-manufacturing data on Friday. Federal Reserve Chair Powell is expected to maintain a stance of steady interest rates while refraining from discussing easing measures. If US data persistently beat forecasts, and the MoF remains silent, the market may attempt to break the 155 level. However, even if there's no intervention, verbal interventions from Japanese authorities are likely above 152. The market sees significant expiries around 151 and 152 as the week concludes, with 150 now considered a key support level. This push toward 2022 highs in USD/JPY comes despite the narrowing spreads between US Treasury (Tsy) and Japanese government bond (JGB) yields compared to the levels seen in October.
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: 1.0445-50 (740M), 1.0500 (753M)
1.0540 (450M), 1.0575-85 (823M), 1.0590-05 (1.86BLN)
1.0625 (226), 1.0665-75 (1.42BLN), 1.0700 (255M)
USD/JPY: 148.00-10 (1.29BLN), 148.25-35 (1.51BLN)
148.40-50 (1.7BLN), 149.25-30 (909M), 149.50 (412M)
149.70-80 (959M), 150.00 (1.25BLN), 150.50-60 (2.52BLN)
151.00 (867M), 151.50 (230M)
EUR/JPY: 159.00-10 (426M), 160.00 (280M)
USD/CHF: 0.8900 (262M). EUR/GBP: 0.8675 (500M)
GBP/USD: 1.2175 (245M), 1.2190-1.2210 (395M)
AUD/USD: 0.6250 (257M), 0.6325 (359M)
0.6400 (470M), 0.6430 (348M), 0.6460 (309M)
USD/ZAR: 18.86 (300M)
USD/CAD: 1.3650 (300M), 1.3750 (425M)
Overnight Newswire Updates of Note
China’s Manufacturing Production Falls Slightly In October
Japan’s Manufacturing Conditions Continue To Deteriorate In October
Japan 'On Standby' To Take All Possible Steps Amid Yen Decline
Japan Plans Economic Measures Worth JPY17 Tln
RBNZ's Hawkesby: NZ Can Handle Higher Rates Of Unemployment
RBNZ Says Full Impact Of Interest-Rate Hikes Still To Be Seen
China’s Central Bank Drains Liquidity After Overnight Rate Surge
BoJ Spurs Bets Against Yen, Testing Threshold For Intervention
BoJ Steps Into Bond Market To Slow Rising Yields
S&P 500 Logs First 3-Month Losing Streak Since March 2020
AMD Gives Soft Q4 Guidance, Expects To Sell $2 Bln Of AI Chips Next Year
Toyota More Than Doubles Quarterly Profit, Shares Surge
Toyota To Pour A Further $8bn In North Carolina Battery Plant
Evergrande Proposes Offshore Creditors Get 30% Equity Stake In Subsidiaries
(Sourced from Bloomberg, Reuters and other reliable financial news outlets)
Technical & Trade Views
SP500 Bias: Bullish Above Bearish Below 4130
Above 4195 opens 4240
Primary resistance is 4280
Primary objective is 4075
20 Day VWAP bearish, 5 Day VWAP bullish
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 150
Below 149 opens 148.50
Primary support 144.50
Primary objective is 152.50
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
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!