Daily Market Outlook - Thursday, Nov. 9

By Patrick Munnelly of Tickmill

Thursday, November 9, 2023 3:55 AM EDT

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Image Source: Unsplash

Asia - stocks were mostly on the rise today, taking cues from a positive trend on Wall Street. Across most major markets in the Asia-Pacific region, things were looking green, although Chinese markets didn't quite keep up the momentum. The Nikkei 225 had a strong start, benefiting from recent weakness in the JPY, which gave exporters a boost. The index eventually crossed the 32.5k handle. In contrast, the Hang Seng and Shanghai Composite had a mixed day. Mainland China saw a flat to firmer trend, but the latest Chinese inflation metrics hinted at economic fragility, with the nation slipping back into deflation. Hong Kong, particularly affected by a drag from the Property sector, underperformed, leading to a lower index.

Europe - The European data docket is scant today as such investor attention will turn to Central Bank officials. The Bank of England's Chief Economist, Pill, is set to make remarks for the second time this week. Earlier this week, on Monday, his comments hinted at a possible agreement with market expectations of a rate cut in the upcoming spring. However, Governor Bailey's remarks yesterday struck a more cautious tone, echoing sentiments from last week's policy update, where he indicated that a rate cut might not happen for a significant period. Meanwhile, European Central Bank President Lagarde and Chief Economist Logan are also scheduled to speak. Despite some colleagues expressing that it's too early to discuss ECB interest rate cuts, it would be quite surprising if either Lagarde or Logan deviate from this stance in today's speeches.

US - Stateside, the spotlight in today's data lies on US jobless claims, the key metric on the economic stage. While weekly initial jobless claims have seen a modest uptick in the past couple of weeks, they still remain relatively low when compared to recent historical trends. This suggests that, at least for now, there is no clear indication of a significant relaxation in the tight labor market. Anticipations for today's release align with this trend, expecting to see no substantial shift in the current labor market dynamics. Federal Reserve Chair Powell is taking the stage for the second consecutive day, following his remarks yesterday where he remained silent on the immediate monetary policy outlook. The market is eagerly anticipating its response to the significant drop in bond yields since last week's Fed monetary policy update. Additionally, three other Fed officials are also scheduled to speak, adding to the potential insights into the central bank's perspective on the current economic landscape. Investors will be closely watching for any hints or guidance regarding the Fed's stance in light of recent developments.

FX Positioning & Sentiment

FX options market appears to be underpricing the risk associated with Friday's UK data, including GDP, industrial, and manufacturing output. The overnight FX option expiry, scheduled for 10 a.m. NY/15 GMT on Friday, coincides with the release of these crucial economic indicators.

Despite this alignment, the implied volatility for GBP-related FX options hasn't seen a significant increase. Implied volatility serves as a gauge for anticipated FX market volatility, and the levels for GBP/USD and EUR/GBP imply a relatively subdued expectation. For overnight GBP/USD options, with an implied volatility of 9.25, the premium/break-even is set at 47 USD pips. Similarly, the implied volatility for overnight EUR/GBP options at 6.0 suggests a break-even range of just 22 GBP pips. This lack of a substantial rise in implied volatility may indicate that market dealers are not anticipating a significant deviation from expectations in the upcoming data release, signaling a certain level of confidence that the data won't trigger a notable shift in GBP volatility.