Daily Market Outlook - Tuesday, Jan. 23

By Patrick Munnelly of Tickmill

Tuesday, January 23, 2024 3:55 AM EDT

macbook pro on black table

Image Source: Unsplash

Asian stocks mostly rose after Wall St's fresh record levels, but gains were limited ahead of risk events. The region also processed the BoJ policy decision and reports of a potential Chinese equity market rescue package. Nikkei 225 extended gains after the BoJ maintained its ultra-easy policy, as widely expected. Hang Seng and Shanghai Comp were somewhat varied, with Hong Kong boosted by reports of a potential equity market rescue package,China may consider a USD 278 billion equity market rescue package, as reported by Bloomberg citing sources. while tech names were also helped after China's gaming regulator took down draft rules for controlling spending on video games from its website. Conversely, the mainland lagged as initial support from the news of a potential equity market rescue waned, given that potential support measures remain speculation and more stimulus will likely be needed to revive the property sector.

Released earlier this morning UK public finances data for December indicated net borrowing of £6.8 billion. This figure is approximately £4.5 billion below expectations and less than half of the borrowing reported in December of the previous year. The Office for Budget Responsibility, in its commentary following the November data, acknowledged that in the first eight months of the fiscal year, borrowing had been higher than the same period a year ago and exceeded its November forecast. However, it anticipated a slower increase in the remaining months of the fiscal year due to stronger receipts. Today's data appears to align with that expectation. The upcoming January data, which will include self-assessment income tax receipts, is anticipated to provide insights into the potential fiscal space for Chancellor Hunt, especially concerning any potential tax cuts.

Ahead of the European Central Bank's policy update on Thursday, today's ECB bank lending survey will offer evidence regarding the impact of past interest rate moves on credit demand and supply. ECB Chief Economist Lane emphasized the importance of this survey in the ECB's analysis, potentially offering insights into the Board's willingness to cut rates.In the Eurozone, consumer confidence data for January is set to be released. This measure has seen increases for two consecutive months and currently stands at its highest since February 2022. Despite being relatively low compared to the longer-term picture, the rise suggests that consumers perceive an improving environment as inflationary pressures ease. A further modest increase is expected for January.

The rest of today's data docket is scant, Stateside, the Richmond Fed's manufacturing index for January will provide an update on recent conditions, with the consensus expectation anticipating some improvement. However, this index typically does not attract significant market attention.

Overnight Newswire Updates of Note

BoJ Keeps Ultra-Loose Policy Intact, Cuts Inflation Forecast
Japan LDP’s Kishida Faction Approves Its Dissolution
China Weighs Stock Market Rescue Package Backed By $278 Bln
Goldman’s Hatzius Sees US Soft Landing, Basis For March Fed Cut
Fed Review Clears Central Bank Officials Of Violating Rules
United Airlines Forecasts Q1 Loss Due To Boeing 737 Max 9 Grounding
Netflix Film Chief Scott Stuber Leaving To Start New Company
China Regulator Removes Draft Video Game Rules From Website; Shares Jump
Samsung Races Apple To Develop Blood Sugar Monitor That Doesn’t Break Skin
India Overtakes Hong Kong As World’s Fourth-Largest Stock Market
Red Sea Reroutings To Further Disrupt Car Supply Chains, Warn Shipping Execs

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

FX Options Expiries For 10am New York Cut

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

EUR/USD: 1.0915-25 (874M), 1.0975 (595M)
USD/CHF: 0.8600-10 (326M)
AUD/USD: 0.6650 (452M), 0.6700 (510M)
USD/CAD: 1.3400 (354M), 1.3475-80 (413M)
USD/JPY: 146.75 (450M), 147.00 (536M), 150.00 (559M)
The FX realized volatility in major currency pairs continues to trade at its lowest levels in two years, putting pressure on overall G10 FX option implied volatility. Despite a busy week with central bank meetings and data releases, there is a lack of demand for FX volatility premium, suggesting that FX realized volatility may not increase. If FX realized volatility remains low this week, larger G10 FX option expiries and related hedging flows may have a greater impact on the FX market. For those seeking direction in EUR/USD, risk reversal contracts do not provide any clear answers, as the downside strike premium is at long-term lows and there has been no premium for topside strike options since November 2022. Additionally, USD/CNH option implied volatility is returning to longer-term lows.