Daily Market Outlook - Thursday, Oct. 5

By Patrick Munnelly of Tickmill

Thursday, October 5, 2023 4:13 AM EST

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Image Source: Unsplash

Asian equity markets mostly traded higher, finding relief as risk assets rebounded with yields retreating from recent highs after weak US ADP jobs data and a drop in oil prices. The Nikkei 225 led the gains, up 1.6%, breaking a five-day losing streak. Meanwhile, the KOSPI rose 0.7% and the Hang Seng initially lagged due to light news flow and the absence of mainland Chinese participants, but eventually gained momentum.

The UK's September services PMI was revised upward to 49.3 from the preliminary flash estimate of 47.2, signaling a moderate contraction. Today, the focus is on the September construction PMI survey, which returned to a slight expansion in July and August, though housing-building activity remained in contraction. The Bank of England's Decision Maker Panel (DMP) survey will also be released, closely watched by policymakers for signs of inflation expectations. Earlier this week, the British Retail Consortium (BRC) reported a decline in shop price inflation to a one-year low of 6.2% in September.

Stateside, trade data and weekly jobless claims will be released, with several central bank speakers scheduled. Notable Fed speakers include Barkin, who will discuss the economic outlook, and Daly, who will speak at the Economic Club of New York. ECB Chief Economist Lane, ECB VP Guindos, and other ECB officials will also make appearances at a monetary policy conference.

FX Positioning & Sentiment

The demand for USD and market anxiety has driven FX option implied volatility to recent highs, and sellers have been cautious to return even though USD gains have temporarily stalled. Concerns regarding Japanese intervention, triggered by the sharp drop of USD/JPY from above 150.00 on Tuesday, led to a peak of 1-month implied volatility at 10.2. This was a significant increase from the late September lows of 7.7. Currently, it's trading in the range of 9.65-9.9 as the FX market settles around 149.00. There has been notable interest in downside strike options, reflecting concerns about intervention and potential setbacks in USD/JPY. For EUR/USD, 1-month implied volatility rose to 7.9 from a late September low, while the current 1-month realized volatility level is around 6.25. Longer-dated options have provided greater returns for those who purchased them during the recent lows.

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)