Daily Market Outlook, March 15, 2023

Dead Cat Bounce Or Base In Place?

Asian equities are trading on the front foot as they followed Wall Street’s advance overnight as banking contagion fears and market jitters eased, in the absence of any additional bank failure rumours, strength in tech was once again pronounced in New York trading, following Meta’s jobs and cost-cutting plans (cutting another 10k jobs this year) boosting the Nasdaq by 2.32%, this has led to decent gains in the Hang Seng overnight driven by strength in tech, while risk appetite on the mainland remained buoyed after the PBoC completed another round of liquidity provision.

Ahead of Thursday’s ECB meeting and press conference, Reuters has reported (citing sources) that the ECB favours a 50bps rate hike on Thursday, as markets have stabilised in the light of SBV volatility, inflation remains stubbornly elevated and concern around the central banks credibility are keeping them anchored to their widely publicised rate move, while dovish voices on the council feel vindicated by recent market volatility they are likely to focus on data dependency with respect to further hikes as opposed to the hawks who favour pre-committal.

The UK Chancellor of the Exchequer Hunt will announce his budget this morning. Improvement in the government borrowing landscape has likely seen the full-year deficit for 2023 fall below the Office for Budget Responsibility’s(OBR) forecast by circa £30bn. This gives the Chancellor some latitude to facilitate further support for households and businesses.The Chancellor is likely to be reluctant to announce major changes to policy, while the calls for further tax cuts and additional spending commitments are common place, the Chancellor will be aware that the current tailwinds from improved financial conditions for the public purse are not yet confirmed as sustainable, markets will look to the growth forecast updates as a guide to the future direction of taxes and spending, it is likely that the 2023 outlook will see increased optimism from the OBR, however, productivity concerns may weigh on their GDP forecasts beyond this fiscal year. Market watchers expect the Chancellor to spotlight support for the supply side of the economy, with initiatives focused on increasing labour force participation via pension reform and childcare channels coupled with headline increases in business investment spending.

Stateside today’s US retail sales update for February is likely to register a retreat from the upside surprise seen in January. A pullback in car sales from the prior month will likely be a key factor for February softness, while core goods sales are expected to remain robust, running at a higher rate than in Q4. February producer prices will give a timely update on inflationary pressures following yesterday’s CPI which showed little signs of softness, markets are eyeing a potential for moderation in the annualised figure declining to 5.2% from last month's 5.4% print.

FX Options For 10am New York Cut

EUR/USD: 1.0500 (EU1.740), 1.0700 (EU1.69b), 1.0750 (EU1.69b)
USD/JPY: 126.00 ($2.48b) 133.00 ($1.59b) 140.00 ($1.06b)
USD/CNY: 6.9500 ($1.89b), 7.2100 ($1.45b), 6.8600 ($1.2b)
AUD/USD: 0.6720 (AUD925.7m), 0.6675 (AUD649.8m), 0.6900 (AUD628.6m)
USD/CAD: 1.3275 ($945m), 1.3725 ($837.2m), 1.3575 ($796.5m)
USD/MXN: 18.70 ($1.03b), 18.50 ($730m), 19.50 ($516.4m)
GBP/USD: 1.1900 (£769.3m), 1.2090 (£405m), 1.2030 (£325.6m)
EUR/GBP: 0.9300 (EU404.3m)
EUR/USD dealers report recent demand for higher strikes around 1.1000, while USD/JPY and AUD/USD option flows are still leaning more bearish. (RTRS)