Daily Market Outlook - Monday, Nov. 20

By Patrick Munnelly of Tickmill

Monday, November 20, 2023 4:47 AM EDT

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Image Source: Unsplash

Asia - Most Asia-Pacific stocks were positive, but gains were limited due to a lack of fresh catalysts over the weekend. Investors are waiting for key risk events this week, including the release of FOMC minutes on Tuesday. Nikkei 225 swung between gains and losses, reaching its highest level since 1990 before wiping out all gains. Hang Seng and Shanghai Comp outperformed due to resilience in tech and support pledges for the property sector. China's latest benchmark loan rates were maintained.

Europe - The previous week saw a positive change in market dynamics as optimism grew about the possibility of early interest rate cuts in the UK, US, and Eurozone. The unexpected decrease in October CPI inflation in both the UK and US boosted market sentiment in the first half of the week. Later on, an increase in US unemployment claims raised hopes that the slowdown in US economic growth could lead to interest rate reductions by the Federal Reserve in the near future. As a result, the market now predicts that the first US rate cut will likely happen by May, with March also being a significant possibility. Currently, market expectations include around 100 basis points of cuts in 2024. Similarly, in the UK, there is now a probability of over 50% for a rate cut by early May, and a March cut is seen as a possibility with about a 20% chance. In the Eurozone, there is an increased expectation of at least one rate cut by April, with a 50% probability. Today, market participants will closely watch for comments from various central bank speakers to gain more insights into the future of interest rates. ECB members Vujcic, de Cos, and Villeroy are scheduled to speak separately throughout the day. However, there is heightened attention on Bank of England Governor Andrew Bailey's evening speech as he delivers the Henry Plumb memorial lecture in London (18:45 GMT). Despite recent discussions, Bailey has emphasised that it is too early to start discussing interest rate cuts.

US - Stateside, On Friday, US stocks ended the day with minimal changes as the market experienced difficulty in finding a clear direction. Meanwhile, Treasuries showed a mix of results, with a bear flattening trend observed following the release of higher-than-anticipated US Housing Starts and Building Permits data, along with some hawkish comments from Federal Reserve officials. The Federal Reserve's meeting minutes are the main event in a quiet week for important economic data, as the US prepares for Thanksgiving on Thursday. Investors will examine the minutes for confirmation that the Fed has finished raising interest rates, after recent expectations of a more cautious approach following weaker-than-anticipated US CPI figures. The only significant US data releases this week are existing home sales, durable goods and University of Michigan consumer sentiment. Additionally, the S&P Global flash November PMIs will be published.

FX Positioning & Sentiment

The most recent data from the Commodity Futures Trading Commission (CFTC) reveals that the net short position on the British Pound (GBP) has surged to its highest level since January. In the week ending November 14, there was a notable increase in net GBP shorts, reaching 27,730 contracts. This marks the eleventh week out of the last twelve in which bearish GBP bets have been on the rise. The current net short position is the largest since January, when it reached 16,252 in the week ending November 7. Notably, there has been a significant shift in market sentiment toward the GBP, as prior to this period, speculative investors had a net long position on the currency from mid-April to early October. The reversal in sentiment suggests a growing bearish outlook on the British Pound.

CFTC Data As Of 17-11-23

USD net long up as JPY sales trump EUR buys, in Nov 8-14 period, $IDX -1.42%
Specs broadly long feeling pain as USD slips in new period on lwr Fed view
EUR$ 1.69%, specs +19,851 contracts now +108,907 on lwr Fed rate view
$JPY +0.01%, specs -26,209 contracts, now -130,249 contracts; pair lower
GBP$ +1.63% in period, specs -11,478 contracts now -11,478 contracts
AUD$ (+1.11%), $CAD (-0.53%) saw specs sell into strength
BTC +0.27%, specs +333 contracts now -1,344; specs sell near BTC 2023 highs (RTRS)