Daily Market Outlook - Monday, Oct. 23

By Patrick Munnelly of Tickmill

Monday, October 23, 2023 4:33 AM EDT

Asia

Asian equity markets saw declines, partially reflecting the losses in European and US markets from Friday. However, futures for European and US equities were trading higher. Meanwhile, both oil and gold prices decreased as investors continued to assess the ongoing volatile situation in the Middle East. Market participants have been monitoring the release of two hostages by Hamas and a delay in Israel's ground invasion of Gaza. Despite these developments, the risk of a broader escalation of the conflict, including potential concerns at Israel's northern border, is likely to keep markets on edge.

Europe

Last week, financial markets experienced a lot of volatility, which could be attributed to various uncertainties. One of them was the fear that the Israel-Hamas conflict might escalate into a wider regional crisis, which pushed oil prices to their highest level in about three weeks. However, not all market movements were typical of risk-averse behaviour, and other factors also seemed to influence the markets. For example, stronger US economic data might have reinforced the worries about interest rates remaining high for a longer period. The European Central Bank (ECB) is anticipated to keep interest rates unchanged following a series of ten consecutive rate hikes and maintain a subtle tightening bias at the upcoming Thursday meeting. Unless any unexpected developments occur, this meeting is likely to be uneventful. The Eurozone's economic performance has faced challenges in recent months. As such, the release of flash Purchasing Managers' Indexes (PMIs) may influence expectations regarding the duration of the ECB's rate pause before any potential rate cuts. Additionally, the release of the Flash Eurozone consumer confidence data and the German Ifo business climate index will be significant data points to watch. In the United Kingdom, key data releases will include flash PMIs and employment figures, providing insights into the state of the British economy.

US

Stateside the most significant event to watch this week is the release of the core Personal Consumption Expenditures (PCE) price index, which is the Federal Reserve's preferred inflation measure. Additionally, there will be the advance GDP figures for the third quarter. If the GDP growth meets or surpasses the projected 4.1% increase, it will underscore the Fed's belief that it can maintain "higher for longer" interest rates. Furthermore, the U.S. will see the release of S&P Global's flash Purchasing Managers' Indexes (PMIs), durable goods data, new home sales figures, and the final October reading of the University of Michigan consumer sentiment. It's important to note that during this period leading up to the October 31-November 1 Federal Open Market Committee (FOMC) meeting, there will be no comments from the Federal Reserve due to the blackout period..

FX Positioning & Sentiment

The USD/JPY exchange rate saw minimal movement after facing resistance at the 150 level on Friday, marking the fourth consecutive week in which it approached but failed to close above this key threshold. Market participants are concerned about the potential return of intervention by the Ministry of Finance (MoF) to bolster the yen, which could impact the currency pair. The JPY has not received substantial support from the Bank of Japan (BoJ), despite its commitment to maintaining ultra-easy monetary policies. In terms of economic data, Japan's core inflation rate fell below 3%, reporting an overall figure of 3.0% compared to the previous 3.2%. To manage rising yields in the Japanese government bond (JGB) market, the BoJ has once again taken steps to intervene by providing loans. Meanwhile, the Federal Reserve is no longer the favoured candidate to raise interest rates further, with expectations for the next rate cut being pushed into the future. This dynamic is influencing the USD/JPY exchange rate and adding to its complexity.

CFTC Data As Of 10-20-23

USD net spec long remained steady in Oct 11-17 period, $IDX +0.42% in period
EUR$ -0.42% in period, specs +6,878 contracts bottom-fishing, now +82,410,
$JPY +0.77%, specs -3,182 contracts; bulls wary of MoF, pair holds near high
GBP$ -0.84% specs -1,161 now -11,209; low BoE rate/growth view weighs
AUD$ (-1.01%) specs -4,162 , $CAD (+0.49%) specs -2,050 on weak growth view
BTC +3.86% in period, specs -824 contracts now +327, BTC ending near weeks high on upbeat ETF outlook( Source Reuters)

FX Options Expiries For 10am New York Cut

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

EUR/USD: 1.0535-40 (810M), 1.0550 (970M), 1.0600 (1.1B), 1.0660-65 (705M)
EUR/USD: 1.0670-75 (1.2B). EUR/GBP: 0.8650 (215M)
USD/JPY: 148.75-80 (1.9B), 149.00 (1.8B), 149.20-30 (2.1B), 149.50 (1.7B)
USD/JPY: 149.75-80 (540M), 150.00 (1.7B), 150.25 (1.2B), 150.50 (660M)
USD/JPY: 151.00 (535M). EUR/JPY: 156.10 (455M), 157.35 (625M)
USD/CHF: 0.8885-00 (1.0B), 0.9015-25 (575M), 0.9050 (890M)
AUD/USD: 0.6300 (490M), 0.6400-10 (530M). AUD/JPY: 0.9425-35 (2.2B)
NZD/USD: 0.5825 (735M), 0.5850 (480M). USD/CAD: 1.3600 (880M)

Overnight Newswire Updates of Note

Senior Israeli Official Says There Will Be “No Ceasefire” For Gaza Amid Hostage Talks
US Seeks Delay Of Israeli Ground Incursion For More Time For Hostage Talks
US Deploys Missile Defenses To Middle East Following Recent Attacks
BoJ Plans To Re-Revise Interest Rate Control As US Tightening Continues
In Blow To Kishida, LDP Loses One Of Two Seats In By-Elections
Japan PM Sets 3-Year Goal To Revive Inflation-Hit Economy As Wages Lag
Beijing Reviews Wine Tariffs Ahead Of Australian Prime Minister Visit
Republicans Unveil Nine Candidates To End House Speaker Deadlock
EU-Funded Report Calls For Wealth Of Super-Rich To Be Taxed, Not Income
Yen Breaches 150 Per Dollar Again, Raising Intervention Risk
Oil Declines As Israel Delays Gaza Invasion Amid Hostage Talks
EU Considers Price Cap Extension To Avert Winter Gas Crisis
Toyota Nears Mass Production Of Solid-State Batteries
Uber To Offer Hot Air Balloon Rides In Turkey In Tourism Push
S. Korean Regulator Gives Conditional Nod To Broadcom's Purchase Of VMware
Japan's FTC To Examine Google For Possible Anti-Monopoly Violations