Daily Market Outlook, Tuesday, Oct. 24

By Patrick Munnelly of Tickmill

Tuesday, October 24, 2023 5:46 AM EDT

Asia

Asian stocks edged up on Tuesday, recovering slightly from their lowest level since November 2022, while the dollar softened as traders awaited economic data that could signal the next moves by the U.S. Federal Reserve. Oil prices bounced back from some of the losses of the previous day as markets feared that the war between Israel and Hamas could spread to a wider conflict in the oil-producing region. Japan's Nikkei rose 0.21% after dropping as much as 1.4% earlier.

Freepik

Europe

Recently released labor market data from the UK revealed a decrease in employment by 82,000 during the three months leading up to August. The unemployment rate also saw a slight uptick, rising from 4.0% in the previous three-month period to 4.2%. These statistics were labelled as "experimental" as the Office for National Statistics (ONS) transitions to improved data collection methods set to be implemented from the next year. Despite the experimental nature of the data, it suggests that labor market pressures are alleviating, particularly in terms of the demand for workers. Furthermore, the upcoming October Purchasing Managers' Index (PMI) data for the UK is anticipated to confirm a potential slowdown in economic activity. Projections indicate a marginal increase in the manufacturing index, which, crucially, is expected to remain below the key threshold of 50, signalling contraction. Additionally, the services index is predicted to decline further, pushing it even further below the 50 level. These trends imply that the composite PMI may have fallen for a third consecutive month, a sign of potential GDP contraction. The CBI industrial survey for October will offer additional insights into the state of the manufacturing sector.

In the Eurozone, October PMI data is expected to mirror the UK's outlook. Forecasts indicate that both the manufacturing and services indices will fall below the 50 level, suggesting contraction. This is likely to result in a further decline in the composite indicator, which will have been below 50 for the fifth consecutive month, aligning with a decline in GDP.

US

Stateside,Purchasing Managers' Index (PMI) is a measure of the business activity in the manufacturing and services sectors of the US economy. It is based on surveys of purchasing managers from various industries, who report on the changes in new orders, production, employment, supplier deliveries, inventories, prices, and exports and imports. A PMI reading above 50 indicates expansion in the sector; below 50 indicates contraction. The most recent US PMI data for September 2023 showed a slight improvement from the previous month, but still remained close to the 50 threshold, signalling a sluggish expansion. The composite PMI, which combines both manufacturing and services, rose to 50.2 from 49.9 in August. This was mainly driven by the recovery in the manufacturing sector, which increased to 49 from 47.6, reflecting the slowest contraction in ten months. However, the services sector continued to decline, falling to 50.4 from 51.4, as supply chain disruptions, staff shortages, and rising costs weighed on business activity The projections for October suggest that the services sector might improve slightly, but manufacturing could see a decline, potentially leaving the composite PMI near the 50 threshold. However, it is important to note that alternative indicators, such as the ISM indices, suggest that the PMIs may be underestimating economic growth. The ISM Manufacturing PMI rose to 49 in September from 47.6 in August, while the ISM Non-Manufacturing PMI increased to 53.6 from 54.5. Both indices are based on similar surveys as the PMIs, but use different methodologies and weights. Furthermore, the upcoming release of US Q3 GDP data on Thursday is expected to signal robust economic activity, potentially providing a different perspective on the country's economic health.

FX Positioning & Sentiment

Bitcoin (BITCOMP) has experienced a notable surge, trading up by 3.3% at $34,166, following a significant gain of 9.29% that saw it reach a high of $34,283. Several factors have contributed to this upswing, including reports of a short squeeze, which occurs when traders with short positions are forced to buy Bitcoin to cover their losses. There is also speculation in the market that a Bitcoin exchange-traded fund (ETF) may soon become available, which could encourage a broader range of investors to enter the cryptocurrency space. Additionally, amidst the deepening crisis in the Middle East, some investors are turning to Bitcoin as a potential safe haven asset. Bitcoin has often been viewed as a store of value during times of geopolitical uncertainty.

From a technical perspective, the short-term technical indicators for Bitcoin are showing a bullish trend, especially after a nearly 20% jump in October. However, higher time frame charts provide valuable insights, with key resistance and support levels at 35,924 (38.2% of the 2021-2022 decline) and 42,239 (50% retracement). On the downside, key support levels include 24,756, which was the low in June 2023, with additional support seen in close dips during August and September.

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)