Daily Market Outlook - Monday, Oct. 2

By Patrick Munnelly of Tickmill

Monday, October 2, 2023 5:30 AM EDT

Businessman, Internet, Continents

Image Source: Pixabay

Asian equity markets saw mixed trading as the region was significantly affected by holiday closures. The Nikkei 225 initially showed gains, but it later pulled back, slipping below the 32,000 level. The Hang Seng and Shanghai Composite were closed for the National Day Golden Week celebrations, and other countries like South Korea and India also had holiday closures. In the US, the recent government shutdown threat was averted, allowing for the nonfarm payrolls report for September to be released at the end of the week. This report will be a crucial factor for Federal Reserve policymakers in their decision-making regarding interest rates.

This week promises to be eventful, with a focus on top-tier data releases in the United States, including the September jobs report. Treasury yields are on the rise as the Federal Reserve maintains a hawkish stance, closely tied to economic data. The central bank calendar includes interest rate decisions in Australia and New Zealand, which will draw significant attention.

In the United States, aside from the Payrolls print, other key data releases this week include the ISM manufacturing and non-manufacturing PMIs, ADP jobs report, durable goods orders, factory orders, and international trade figures. In Europe, the schedule is relatively quiet, data includes August retail sales and German industrial orders. Japan will release its Q3 Tankan survey early in the week, along with final September PMIs, household spending, and overtime pay data for August. The Bank of Japan will publish a summary of opinions from its board members regarding its September 21-22 policy meeting.

The economic calendar for the day ahead primarily featured "final" manufacturing PMI reports for September from various regions, including the Eurozone, US, and UK. The UK's manufacturing PMI had been weak, contributing to the Bank of England's decision to keep interest rates steady at its recent policy meeting. The US manufacturing PMI is also expected to remain below the 50 mark in September, reflecting ongoing challenges in the sector.

Several Federal Reserve officials are scheduled to speak, including Chair Powell, Harker, and Williams. Their remarks will be closely watched for any hints about the possibility of an interest rate hike at the November policy meeting. Additionally, Bank of England's Mann, who voted for a rate increase at the last meeting, is scheduled to speak later in the day.

FX Positioning & Sentiment

Traders in the foreign exchange (FX) options market are increasingly positioning for the USD/JPY currency pair to rise well above the key level of 150.00. Concerns about potential intervention by Japanese authorities to curb the yen's depreciation have prompted traders to explore options that anticipate USD/JPY reaching levels around 151 to 152.00 over the coming weeks. Many of these option purchases involve bets on higher strike prices, which are now being offset by selling lower strike prices. This strategy allows traders to protect themselves against potential adverse price movements while still maintaining exposure to the possibility of further gains in USD/JPY. Notably, the USD/JPY pair reached 151.94 on October 21, 2022, marking its highest level in over 30 years. The level of 152.00 is considered significant due to the presence of FX option barriers, which can act as technical resistance levels. Recent comments from market participants, including well-known FX strategist Eisuke Sakakibara (also known as "Mr. Yen"), have suggested that an intervention level for the Japanese yen could be around 155.00. This indicates that some traders believe there is room for further appreciation of the USD/JPY exchange rate before potential intervention by Japanese authorities becomes more likely.

CFTC Data As Of 26-09-23

Net USD G10 long grew slightly to $5.1bn in Sep 20-26 period, $IDX +1.01%
EUR$ -1.01% in period specs -3,582 contracts now +98,399
$JPY +0.81%, specs -7,893 contracts now -109,512; USD longs eye 150
GBP$ -1.92% in period, specs -18,014 contract, long cut to 15,669
Specs wary of diminishing BoE hike outlook, falling UK growth
CAD, AUD buck the trend specs +15k CAD, +10k oz as commodities rise, oil abv $90
BTC -3.82% in period specs +197 contracts on dip, now +1,794; central banks near end of hike cycle supports BTC. (Source Reuters)