Daily Market Outlook - Friday, September 22

By Patrick Munnelly of Tickmill

Friday, September 22, 2023 9:14 AM EDT

Asian equity markets showed a mixed performance overnight. The Bank of Japan (BoJ) made no changes to its monetary policy in its latest update. BoJ Governor Ueda's post-announcement comments did not signal an imminent rise in interest rates. Before the meeting, Japan's finance minister had issued a warning that action would be taken if the yen continued to weaken. Japanese annual CPI inflation fell slightly to 3.2% in August, down from 3.3% in July, while 'core' inflation remained unchanged.

In the UK, retail sales data for August indicated a 0.4% increase, following a 1.2% decline in July. This figure was in line with expectations and is unlikely to significantly alter perceptions of economic conditions. Additionally, the GfK consumer confidence indicator for September unexpectedly saw a sharp rise to -21, up from -25 in August. This marks its highest level since January 2022, with consumers showing increased optimism about their personal finances and the overall economic situation.

Today brings the release of the September purchasing managers' indices (PMIs) for the UK, Eurozone, and the US. In the UK, both the manufacturing and services PMI indices fell in the previous month. The decline in the services sector was notably significant, pushing the composite index below 50, indicating a contraction in activity for the first time since January. If this month's readings also show weakness, it may further heighten concerns about downside risks to economic growth and potentially reinforce the belief that interest rates have peaked. Notably, Bank of England policymakers had access to this data before deciding to keep rates unchanged yesterday. The September CBI industrial survey will also be published this morning.

In the Eurozone, both PMI indices declined in August, with the composite indicator remaining below 50 for a third consecutive month. These developments added to concerns about declining activity in the region and may have contributed to the European Central Bank's suggestion that interest rates have peaked. While there may be a modest rebound in the manufacturing sector this month, it is expected that services will continue to slide, keeping the composite indicator below the 50 threshold.

Stateside, PMI readings have garnered more attention recently, possibly due to the uncertain economic environment. Moderate increases in both readings are anticipated for September. Several Federal Reserve policymakers are scheduled to speak, and the market will be closely monitoring their remarks for further insights into the likelihood of another interest rate hike before the end of the year.

FX Positioning & Sentiment

Traders are increasing their bearish bets against most Asian currencies, with the Chinese yuan remaining the most shorted currency. Short bets on the Thai baht are near a three-month high, and the Indian rupee (INR) is witnessing its largest short position since November 2022. Additionally, there is a substantial bet against the Indonesian rupiah (IDR), the largest in over nine months. These developments come as the yuan's recovery reached a significant point last week, impacting traders' sentiment and positions in the region's currencies.