Daily Market Outlook - Wednesday, September 27

By Patrick Munnelly of Tickmill

Wednesday, September 27, 2023 4:16 AM EDT

Asian equity markets had a mixed performance, influenced by a rebound in Chinese Industrial Profits that offset the subdued sentiment from Wall Street. Major US indices continued to decline as the month-end approached, lacking significant catalysts. The Nikkei 225 underperformed, briefly slipping below 32,000 before recovering. Meanwhile, the Hang Seng and Shanghai Composite posted gains after the People's Bank of China (PBoC) pledged to enhance policy coordination in its Q3 monetary policy meeting, emphasising the need for macro policy adjustments. The positive sentiment was further supported by improved Industrial Profits in August, which returned to growth.

In terms of economic data docket, Eurozone M3 money supply figures for August stood out on an otherwise light calendar. Annual M3 growth had slowed from over 12% in early 2021 and nearly 4% at the end of 2022 to -0.4% as of July, reflecting the impact of higher interest rates. The latest figures were expected to show a further decline, reinforcing expectations that Eurozone interest rates may have peaked. Key European Central Bank policymakers had recently reiterated the message that rates might not be hiked again, although they emphasised that cuts were unlikely in the near future.

Stateside the data docket is also light, with August durable goods orders being the only notable data point. Orders had shown erratic patterns lately due to global manufacturing sector uncertainties. Despite a weak start to the year, orders appeared to have picked up modestly, and there were hopes that the government's green investment program would provide a boost. August's durable goods orders were expected to decline for the second consecutive month, primarily due to the volatile transport sector, while other orders were forecasted to show continued growth.

No scheduled speeches are expected from major central bank policy makers today as the market focus has shifted to speculation about how long interest rates will remain at current levels, with markets increasingly concerned that they might stay elevated for a longer period than previously assumed.

Negotiations to avoid a partial federal government shutdown in the US continue, with reports suggesting progress in the Senate but potential challenges in the Republican-controlled House of Representatives. Failure to reach an agreement before Sunday would lead to a government shutdown, affecting various sectors and potentially impacting economic growth.

FX Positioning & Sentiment

Institutional FX month-end rebalancing models are anticipating an increased demand for USD as month-end flows come into play. Credit Agricole's model suggests that the strongest USD buy signal is against CAD. However, their corporate flow model points to EUR buying at the end of the month. Barclays' model indicates strong USD buying against all major FX pairs. The USD has been on the front foot against all major currencies throughout the week, and FX options have seen raised risk premiums due to concerns of further USD gains and increased volatility. Morgan Stanley's outlook includes a projection of the DXY eventually reaching 1.0800 and EUR/USD dropping to 1.0300. These models and analyses reflect the ongoing dynamics in the foreign exchange market as traders assess various factors influencing currency movements.

CFTC Data As Of 22-09-23

USD net spec short flips to long $4.567 in Sept 13-19 period; $IDX +0.51%
EUR$ -0.67% in Sep 13-19 period, specs -11,099 contract, now +101,981
Hawkish Fed posturing at Fed hold Wednesday pushed EUR lower in current period
$JPY +0.55%, specs -2,906 contract as pair hovers near 2023 highs
Dogfight b/w bulls & bears as longs profit, new longs eye US-JY yield diffs
GBP$ -0.87% in period, specs -12,491 contracts on less-hawkish BoE rate view
Weak BoE data, recent hold hints at further GBP weakness
AUD$ (+0.54%), $CAD (-0.9%) sold aggressively despite higher commodity prices
BTC +4.29% in period, specs -635 contracts; higher Fed rate musing stir long unwind (Source: Reuters)