Daily Market Outlook, November 29, 2023
Munnelly’s Market Commentary…
Asia - Stocks in the Asia-Pacific region displayed a mixed performance in the wake of volatile trading on Wall Street. The US dollar weakened, and treasury bonds gained ground following dovish comments from the Federal Reserve. Investors also considered the Reserve Bank of New Zealand's decision to keep interest rates unchanged but hinted at the possibility of future rate hikes. The Japanese Nikkei 225 index experienced fluctuations, initially impacted by a stronger currency but later recovering from its lows. The Bank of Japan reiterated its commitment to maintaining an accommodative policy and implementing further easing measures if necessary. On the contrary, the Hang Seng index in Hong Kong and the Shanghai Composite index both declined, with challenges in the property sector and rising domestic money market rates. The People's Bank of China's open market operations resulted in a net daily drain, adding to the complexities influencing the regional market dynamics.
Europe - The data for today's money supply predicts that M4 broad money growth will be significantly lower than last year in October. Forecasts for mortgage approvals suggest a rise from the previous month but a significant drop compared to the same period last year, indicating sluggishness in the housing market. Net consumer credit remains high, raising concerns about whether it may partly reflect distressed borrowing. Chancellor Hunt is expected to be questioned by a parliamentary committee today regarding the Autumn Statement. Observers in the market will be eager to detect any indications or clues he may provide about potential tax cuts in the upcoming Spring Budget. Additionally, Governor Bailey of the Bank of England is scheduled to speak. Although it is anticipated that he will advise against expecting an early interest rate cut, market participants will be interested to hear if he offers any insights or comments on the consequences of the recently announced Autumn Statement. This focus on both fiscal and monetary policy indicates that today is an important day for financial markets, as participants seek clarity on the direction and policies that will shape the economic landscape.
In the Eurozone, November's business confidence data is expected to show signs of sentiment bottoming out. Recent surveys have hinted at a tentative optimism that growth will start to pick up next year, although current activity readings remain subdued. German November CPI data will be closely monitored for insights into the Eurozone's outcome as a whole. The consensus points to a further modest decline in both overall and core inflation. These indicators provide an overview of economic conditions and inflationary pressures, shaping the broader economic outlook for both the UK and the Eurozone.
US - Stateside, the upcoming data calendar includes a second reading for Q3 GDP, which is predicted to have a slight upward revision to 5% annualised growth. This revision would highlight the strength of economic activity during the summer months, although it may not be considered particularly newsworthy by markets. The October advanced report on international trade is expected to show a slight decrease in the trade in goods deficit and will be a more current indicator. The Federal Reserve's Beige Book, which provides anecdotal reports on the economy, is of particular interest as it offers a real-time snapshot of various economic aspects including activity strength and inflationary pressures. Investors and analysts will closely analyse the Beige Book for insights into current economic conditions and factors that influence the Federal Reserve's policy considerations.
FX Positioning & Sentiment
This week, the markets will be influenced by FX hedge rebalancing flows at the end of the month. According to models from Citibank and Barclays, the preliminary estimates indicate a stronger than average sell signal for the USD in November. For those investors who have proportional asset allocated portfolios, CitiQuant's model predicts outflows from global equities and inflows into global bonds, with the strongest inflows going into Canadian and Asian bonds. The FX hedging model suggests that the USD selling may stand out against both the AUD and NZD. The AUD/USD and NZD/USD are currently testing their respective 200 daily moving averages, and a close above those levels would be a bullish sign for the antipodeans. The USD is on track to have its weakest monthly performance in a year and is unlikely to do any better in December, which is typically its worst month for performance.
CFTC Data
The release of CFTC data for the period of November 15-21, though delayed due to the holidays, offers insights into the evolving market sentiment. Despite the potential outdated nature of the data, it sheds light on the short-term trends leading up to the end of 2023. In November, the USD index witnessed a gradual decline, reflecting a more pessimistic Federal Reserve rate outlook. During the specified period, the EUR exhibited a 0.32% increase, suggesting a substantial addition to long positions in the EUR. Conversely, the JPY decreased by 1.32% as the U.S.-Japan spreads narrowed, indicating a likely reduction in significant short positions in the JPY. The GBP saw a 0.32% increase, attributed to less dovish language from the Bank of England and UK inflation staying above the target. Both the AUD and CAD experienced gains of 0.74% and 0.09%, respectively, driven by a positive outlook on China and a reduction in substantial short positions. Bitcoin (BTC) witnessed a 3.54% increase, accompanied by a reduction of 1,344 contracts as of November 14. Sellers were active leading up to a 2023 high, with 38k contracts being sold. While the data may be dated, it provides valuable clues about the short-term market direction during this period.
FX Options Expiries For 10am New York Cut
(1BLN+ represent larger expiries, more magnetic when trading within daily ATR)
EUR/USD: 1.0895-1.0900 (1.8BLN) , 1.0970-75 (1.6BLN)
1.1000-10 (1BLN), 1.1035 (685M)
GBP/USD: 1.2300 (770M). EUR/GBP: 0.8600 (300M)
AUD/USD: 0.6500 (2.8BLN), 0.6525 (1.6BLN)
USD/CAD: 1.3520-25 (552M), 1.3595-1.3605 (603M), 1.3670 (305M)
USD/JPY: 146.50 (480M), 148.00 (1.3BLN), 148.15 (1.4BLN), 148.50 (1BLN)
Overnight Newswire Updates of Note
New Zealand Keeps Rates Unchanged, Forecasts Risk Of Hike
Australia’s Monthly Inflation Cools, Boosting Case For RBA Pause
BoJ Policymaker Says Premature To Debate Exit From Ultra-Low Rates
Fed's Goolsbee: He Has Some Concern About Overshooting On Rates
With Fed Likely Done Hiking Rates, Waller Flags Pivot Ahead
Australia, NZ Dlrs Hit 4-Mth Highs, RBNZ Stuns With Hawkish Call
US Yields Hit Multi-Month Lows As Traders Eye Fed Cuts In 2024
Oil Holds Advance With OPEC+ Meeting And Weaker Dollar In Focus
Gold Hits Six-Month High As Fed’s Rate-Cut Momentum Swells
Hang Seng Index Heads For One-Year Low As Alibaba, Meituan Sink
Toyota's October Global Output Hits Record Despite Supplier Accident
Apple Pulls Plug On Goldman Credit-Card Partnership - WSJ
(Sourced from Bloomberg, Reuters and other reliable financial news outlets)
Technical & Trade Views
SP500 Bias: Bullish Above Bearish Below 4540
Below 4519 opens 4485
Primary support 4420
Primary objective is 4600
20 Day VWAP bullish, 5 Day VWAP bullish
EURUSD Bias: Bullish Above Bearish Below 1.0950
Below 1.0940 opens 1.09
Primary support 1.0650
Primary objective is 1.1050
20 Day VWAP bullish, 5 Day VWAP bullish
GBPUSD Bias: Bullish Above Bearish Below 1.2640
Below 1.2630 opens 1.2575
Primary support is 1.2185
Primary objective 1.28
20 Day VWAP bullish, 5 Day VWAP bullish
USDJPY Bias: Bullish Above Bearish Below 148
Above 148.10 opens 149
Primary resistance 149.70
Primary objective is 145
20 Day VWAP bearish, 5 Day VWAP bearish
AUDUSD Bias: Bullish Above Bearish Below .6590
Below .6580 opens .6520
Primary support .6330
Primary objective is .6740
20 Day VWAP bullish, 5 Day VWAP bullish
BTCUSD Bias: Bullish Above Bearish below 34000
Below 33600 opens 32400
Primary support is 30000
Primary objective is 37000
20 Day VWAP bullish, 5 Day VWAP bullish
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Past performance is not indicative of future results.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!