Daily Market Outlook - Wednesday, Nov. 8

By Patrick Munnelly of Tickmill

Wednesday, November 8, 2023 4:25 AM EDT

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Asia - markets had a mixed performance following a similar trend from Wall Street, with the market activity being very limited in early APAC hours. Nikkei 225 initially gained from the strong earnings of Nintendo, which boosted the Electronics sector by over 6%, but the Oil sector dragged it down and the index eventually turned negative after BoJ governor Ueda said the Bank could exit YCC and negative rates without waiting for real wages to turn positive, if it expects them to do so in the future. Hang Seng and Shanghai Comp fluctuated between small gains and losses with little reaction to the comments from the PBoC governor, while markets awaited the meeting between Biden and Xi in San Francisco next week, although no major breakthrough was anticipated. China's inflation data for October will be released overnight. CPI inflation is expected to turn negative to -0.1% from 0.0% in September, showing weak domestic demand conditions. Producer price inflation is also expected to drop to -2.7% from -2.5%, indicating lower input costs for manufacturers.

Europe - Eurozone retail sales are projected to show a minor drop of 0.1% in September, after a bigger decrease of 1.2% in August. This implies that sales volumes have dropped in Q3 as a whole and have not increased in any quarter since the last quarter of 2021. The consumer expectations survey from the ECB, which comes out today, is also relevant for policymakers, especially for inflation expectations. Consumers' inflation expectations have gone down recently, which is comforting for policymakers. However, they are still fairly high, which makes policymakers careful about relaxing policy. The RICS residential survey from the UK, which is released overnight on Thursday, will reveal what surveyors are seeing in terms of prices and activity, and whether the sector is stabilizing. In the last survey, the net balance for current prices kept falling, but the net price expectations and new buyer inquiries got better. European futures are hugging the flatline after closing with modest losses yesterday.

US - Stateside, the market focus is turning to when interest rates will be cut in 2024, and there will be more curiosity about what central bank speakers will say today. In particular, markets will seek their opinions on the market expectations for interest rates to be lowered by around mid-next year, especially for the ECB and the Fed. Some of the speakers today are Bank of England Governor Bailey and Fed Chair Powell, as well as NY Fed President Williams, ECB Chief Economist Lane, and German central bank head Nagel. Bailey will talk at a conference about the financial system, while Powell will make opening remarks at a different conference. US futures continue to rotate just below the 4400 levels but retain a bid tone.

FX Positioning & Sentiment

Currencies have not yet adjusted to oil's sharp drop. Oil was supposed to rise due to the Middle East conflict, but it has plummeted to $81/bbl instead. Brent Crude is nearly $17/bbl lower than its September high. This implies less inflation and more urgency for central banks to loosen their policies. The likelihood of the first U.S. rate cut is shifting to May after investors bought USD in September because of a surprisingly hawkish view. The scenario of higher for longer interest rates and the USD power are now in danger.