Daily Market Outlook, Wednesday, Oct. 25

By Patrick Munnelly of Tickmill

Wednesday, October 25, 2023 4:37 AM EST

Asia

Asian stocks displayed mixed trading patterns, influenced by a positive lead from Wall Street. Market focus shifted to the earnings reports of major companies like Microsoft and Alphabet. Microsoft's shares rose by 3.9%, while Alphabet experienced a 5.9% decline, with particular attention on their cloud business performance. The Nikkei 225 benefitted from the recent weakening of the Japanese yen, with export-related sectors performing well. There were also potential tailwinds following reports that the Bank of Japan (BoJ) was not considering changes to its forward guidance regarding monetary easing measures, however the index ceded gains into the close. The Hang Seng and Shanghai Composite indices surged at the opening bell, with positive sentiment in the region attributed to Chinese President Xi's unprecedented visit to the People's Bank of China (PBoC), signalling a focus on the economy. Hong Kong markets outperformed, with large-cap stocks posting gains of 4-6%, and the technology sector received some momentum from Microsoft's earnings and guidance, as with the Nikkei both the onshore and offshore indices have started to rollover.

Europe

Ahead of the European Central Bank's monetary policy update tomorrow, today's October German IFO survey is expected to provide further indications of a slowdown in economic activity. The recent weak October Purchasing Managers' Index (PMI) data for both Germany and the Eurozone as a whole have raised concerns of potential contractions in GDP, which may be confirmed by today's data.The October current conditions reading is anticipated to have declined for the seventh consecutive month, reaching its lowest level since August 2020, during the peak of the COVID-19 pandemic. On a more positive note, there is an expectation for a third consecutive increase in the forward-looking expectations reading, although it is expected to remain at a relatively low level. In the broader Eurozone, September's figures for the money supply are projected to show a third consecutive annual decline. This trend may lead some to believe that monetary policy is becoming overly restrictive, potentially posing a risk of recession.

US

Stateside, it's expected that new home sales likely saw an increase in September after a notable decline in August. New home sales have shown relatively strong performance since the spring, with increases recorded in four out of the last six months. However, the recent sharp ascent in bond yields, especially if it continues, may result in higher mortgage rates. This development raises questions about the sustainability of the ongoing rebound in housing market activity.

FX Positioning & Sentiment

The USD/JPY pair traded within a range of 149.32 to 149.94 yesterday and has continued to fluctuate within the range of 149.82 to 149.87 in the Asian market today. The market still seems to be capped below the 150.00 level, and any potential downside appears to be limited as well. The currency pair experienced some fluctuations in overseas trading overnight but saw a good rebound due to positive economic data from the United States. The downside for US yields also appears to be constrained, with Treasury 10-year yields ranging from 4.800% to 4.889%. Significant option expiries in the vicinity have played a role in containing the market's movements. Notably, there are total expiries of $1.6 billion between 148.50 and 149.00, $1.9 billion between 149.25 and 149.75, and $1 billion between 150.00 and 150.25 for today. Looking ahead, there are massive expiries at 150.00 for both tomorrow and Friday, with an exceptionally large expiring amount of $3.7 billion on Friday. Japanese exporters and importers are adjusting their trading strategies accordingly, buying on dips and selling during rallies. Market participants continue to closely monitor US economic data, yield movements, and the overall risk sentiment in the market.

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)