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Asian equity markets faced downward pressure, driven by the negative momentum carried over from global markets. The initial excitement related to Nvidia's positive performance subsided, and markets were positioned for the upcoming speech by Fed Chair Powell at the Jackson Hole Symposium.

The Nikkei 225 index experienced a significant decline, dropping below the 32K handle and displaying a gap down in its opening. This drop was exacerbated by a broad sector-wide recoil, particularly impacting tech stocks. Hang Seng, the benchmark index in Hong Kong, recorded a decrease of just over 1%, while the Shanghai Composite also saw a decline of 0.5%. In Hong Kong, companies like NetEase and Meituan faced notable losses, primarily due to the general sell-off in the technology sector, which overshadowed their earnings results. Losses were somewhat contained in the mainland Chinese market, partly due to a strong liquidity injection by the People's Bank of China (PBoC). Additionally, China's securities regulator engaged with financial industry firms, advocating for longer-term funds to contribute to stabilizing the stock market. Overall, the decline in Asia-Pacific stocks was driven by the waning Nvidia-driven optimism and the anticipation surrounding Powell's speech. The broader tech sector sell-off played a significant role in the market's downward movement across various indices in the region.

The anticipation has been building in the markets for today's speech by Powell at the Fed's Jackson Hole Economics Symposium. While a significant portion of the event is dedicated to academic papers examining substantial economic issues (with today's theme being 'Structural Shifts in the Global Economy'), these discussions are unlikely to have an immediate impact on market dynamics. However, Powell, as the Fed Chair, will initiate the proceedings with brief remarks on the current economic landscape and how it relates to US monetary policy. There are two primary aspects that the markets are keenly observing today. First, analysts will be watching for any confirmation from Powell regarding the likelihood of the Fed maintaining interest rates at their current level during the upcoming policy update scheduled for September. Second, there is a desire for more insight into whether interest rates have reached their peak, and if they have, when a potential rate cut might occur. In the previous July update, Powell remained cautious about the possibility of a pause in rate hikes for September, emphasizing that the decision was contingent on data trends. Since then, several of his colleagues have voiced their support for such a pause. It's conceivable that Powell might hint at this option during his speech today, aligning with the sentiments of the market. However, he might refrain from signaling that rates have definitively peaked. Instead, he could express the Fed's belief in its ongoing battle against inflation, suggesting that more efforts may still be required to address this concern. This strategy allows him to avoid predicting a specific timing for rate cuts.

The light data docket for the day includes the anticipated August German IFO survey, likely to reveal continued economic fragility but possibly showing a minor improvement in expectations. Stateside, the second reading of the University of Michigan consumer sentiment index for August is expected to validate a slight decline. Furthermore, European Central Bank President Lagarde is also scheduled to speak later in the day, adding to the day's economic insights and potential market-moving information.
 

FX Positioning & Sentiment 

Dealers have noted a substantial surge in trading activity involving benchmark USD/CNH (US Dollar/Chinese Yuan) options in the Asian market on Friday. An attention-grabbing detail is the trading of a straddle with a 1-month expiration, which is valued at nearly $1 billion. This trading activity is accompanied by an implied volatility of 5.95 for this option. To put this into context, a typical trade size for FX options is approximately $30 million. The exceptionally large volume of the USD/CNH options highlights the magnitude of this recent trading activity. Implied volatility for the 1-month USD/CNH options experienced an increase from 5.3 to 6.9 in the middle of August. This heightened demand for options coincided with the USD/CNH exchange rate rallying to its highest level of 2023, reaching 7.35 on August 17. The prevalent strategy in these trades involves taking positions in long implied volatility, essentially betting on actual volatility exceeding the levels implied by the options market. This could suggest that traders are expecting greater price swings in the USD/CNH exchange rate compared to what is currently being implied by the options pricing. Overall, the significant trading of USD/CNH options and the notable increase in implied volatility indicate a high level of market activity and a growing focus on the potential for increased price fluctuations in the coming period.
 

CFTC Data As Of 15-08-23

• Friday's IMM data release showed USD short grew by 0.55bn in Aug 9-15 period
• Current Aug 16-22 reporting period will not include Jackson Hole Symposium
• Data released 25 Aug likely to be mooted by J-Hole comments by Powell, et al
• EUR$ -0.45% in prior period; -0.7% in new may stall EUR buying
• Slow glbl growth tempers hawkish ECB outlook after China cut, lwr German PPI
• $JPY +0.33% in new period, expect USD buying amid widening US-JP rate view
• GBP$ +0.43% since Aug 16; UK CPI well-above target to keep BoE in hike mode
• AUD, CAD big sellers in prior period on China slowdown short likely to keep growing amid less-dovish Fed view (Source: Reuters)
   

FX Options Expiries For 10am New York Cut 

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

• EUR/USD: 1.0800-10 (1.3BLN), 1.0825 (1.9BLN), 1.0850 (1.4BLN)
• GBP/USD: 1.2500 (721M), 1.2750 (550M)
• USD/JPY: 146.15 (309M), 146.50 (530M)
• EUR/JPY: 158.00 (300M). EUR/AUD: 1.7000 (300M)
• USD/CAD: 1.3500 (506M), 1.3580-85 (831M)
   

Overnight Newswire Updates of Note

• Major Indexes Fall 1%, Focus Shifts To Upcoming Powell Speech
• Tokyo Inflation Slows Further In Line With BoJ Expectations
• China Asks Banks To Limit Some Connect Bond Outflows
• ECB’s Nagel Says ‘Much Too Early’ To Consider Rate Hike Pause
• ECB’s Vujcic Says More Price Data Needed to Determine Rate Peak
• UK Consumer Confidence Rebounds After Signs Inflation is Cooling
• Dollar Loiters At Two-Month Peak Ahead Of Powell Speech
• Biggest Yuan Bears Fail To Gain Traction Among Option Traders
• T-Bill Deluge Risks Draining Bank Reserves, St. Louis Fed Warns
• Fed Rate Hikes In 2024 Are ‘Not Unthinkable,’ Pimco Warns
• Oil Heads For Weekly Fall On Demand Worries, Dollar Strength
• Saudi Arabia Eyes Chinese Bid For Nuclear Plant - WSJ
• Asia Stocks Echo Wall Street Decline Before Powell Speech
• Morgan Stanley Cuts China Stock Targets Again On Risks To Growth
• Goldman Warns China Stress Can Spill Over To Asia, Cuts Targets

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

Technical & Trade Views

SP500 Intraday Bullish Above Bearish Below 4350

• Above 4400 opens 4475
• Primary resistance  is 4475
• Primary objective is 44560
• 20 Day VWAP bearish, 5 Day VWAP bearish

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EURUSD Intraday Bullish Above Bearsih Below 1.0860

• Below 1.810 opens 1.07
• Primary resistance is 1.1066
• Primary objective is 1.07
• 20 Day VWAP bearish, 5 Day VWAP bearish

(Click on image to enlarge)

GBPUSD: Intraday Bullish Above Bearish Below 1.2650

• Below 1.2560 opens 1.25
• Primary resistance  is 1.2819
• Primary objective 1.23
• 20 Day VWAP bearish, 5 Day VWAP bearish

(Click on image to enlarge)

USDJPY Bullish Above Bearish Below 145

• Below 144.90 opens 143.90
• Primary support 141.90
• Primary objective is 147.20
• 20 Day VWAP bullish, 5 Day VWAP bullish

(Click on image to enlarge)

AUDUSD Intraday Bullish Above Bearish Below .6450

• Above .6500 opens .6600
• Primary resistance  is .6670
• Primary objective is .6200
• 20 Day VWAP bearish, 5 Day VWAP bullish

(Click on image to enlarge)

BTCUSD Intraday Bullish Above Bearish below 27000

• Above 29000 opens 30000
• Primary resistance  is 28750
• Primary objective is 24757
• 20 Day VWAP bearish, 5 Day VWAP bearish

(Click on image to enlarge)

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