Daily Market Outlook, Tuesday, Sept.19

By Patrick Munnelly of Tickmill

Tuesday, September 19, 2023 7:57 AM EST

Munnelly’s Market Commentary…

Asian equity markets mostly traded lower, mirroring the flat performance in the United States. The lack of significant catalysts and mounting caution ahead of upcoming central bank decisions contributed to the subdued market sentiment.

Freepik

The Nikkei 225 underperformed as recent regional losses caught up with the index after returning from a holiday closure.

Additionally, market sentiment was dampened as investors questioned whether Bank of Japan (BoJ) Governor Ueda would use this week's events to lay the groundwork for a potential future policy exit.The Hang Seng and Shanghai Composite indices experienced choppy trading, influenced by pressure in the technology sector and mixed fortunes among property stocks. However, some downside was mitigated following further talks between the United States and China and the People's Bank of China's (PBoC) ongoing efforts to maintain liquidity.

In the UK, August Consumer Price Index (CPI) inflation data is scheduled for release early Wednesday morning, just before the Bank of England's (BoE) announcement. Expectations are for annual headline CPI inflation to increase to 7.1% from July's 6.8%, driven by recent petrol price rises and an increase in alcohol duty. On a more positive note, 'core' CPI inflation, which excludes energy and food prices, is expected to dip to 6.8% from 6.9%. Nevertheless, the rebound in headline inflation may strengthen the BoE's determination to raise rates this week.

Later today, the Eurozone will release its final reading of August CPI, which is expected to confirm preliminary 'flash estimates.' These estimates indicated that headline CPI would remain at 5.3%, compared to expectations of a decline to 5.1%. Core inflation was forecasted to drop from 5.5% to 5.3%, in line with expectations. Energy prices played a significant role in the headline figure. Upgrades to near-term inflation forecasts were a key factor behind the European Central Bank's (ECB) recent rate hike, which was viewed as a finely balanced decision.

Stateside, housing starts and building permits data will be released in the afternoon. Although stronger-than-expected outcomes are anticipated, these reports are unlikely to alter expectations for the Federal Reserve, which is expected to announce its second pause this year during Wednesday's meeting.

FX Positioning & Sentiment

The USD has seen a slight uptick, supported by sustained elevated U.S. yields that are hovering near multi-year highs. However, during the Asian trading session, the USD remained largely unchanged as traders adopted a cautious stance, awaiting upcoming risk events.

In the coming week, there will be central bank meetings for six out of the ten most heavily traded currencies, including the Federal Reserve (Fed), Bank of Japan (BOJ), and Bank of England (BoE). Additionally, there will be rate decisions and guidance from six emerging market central banks. Key events to watch include the decisions and announcements from the Fed, BOJ, BoE, and China's Loan Prime Rate (LPR) announcement. These will likely have a significant impact on the currency markets. Furthermore, the Eurozone's August Harmonized Index of Consumer Prices (HICP), scheduled for release on Tuesday, will be closely monitored as it plays a crucial role in shaping expectations for the European Central Bank's (ECB) interest rate policies.