Daily Market Outlook, November 9, 2021

Overnight Headlines

Fed Warns Peril In Run-Up Of Risky Asset Prices, Stablecoins
Biden Interviews Brainard For Fed Chair As Search Heats Up
Fed's Evans: Inflation High But Still No Rate Hikes Until 2023
Biden Plans Top Project To Challenge China’s Belt-And-Road
Chinese Factory Inflation Set To Quickening To 26-Year High
China State Council Think-Tank Met Developer, Woes Mount
China Evergrande Scrapes Some Cash From Tech Stake Sale
Japan Kicks Off $265Bln Stimulus Debate Including Batteries
EU Agree Inflation, Debt Must Fall But Without Hurting Growth
Early Christmas Shopping, Travel Up UK Consumer Spending
Oil Slips On Rosier Fuel Demand Outlook, Await EIA Release
Bitcoin Jumps Past $67,000 Level, First Time To Record High

The Day Ahead

Asian equity markets are mixed this morning but with no major movers. Following further signs of strain in China’s property market, the US Federal Reserve warned that big losses there could have a negative impact on global financial markets. In Australia the NAB business confidence index rose to its highest level since April in October. Meanwhile, in the UK the British Retail Consortium’s sales measure fell by 0.2% in October compared to the same point a year ago.

There is no UK data of note for the rest of the day. However, the German ZEW survey will provide one of the first indications of strength of Eurozone activity in November. The ZEW is a survey of the views on economic prospects from financial professionals rather than businesses, but it sometimes provides a good early guide to business surveys. Look for a modest falls in both the current situation and expectations components. That will probably reinforce financial market expectations that the European Central Bank is unlikely to raise interest rates anytime soon.

In the US, producer price data for October are expected to show a further sharp rise in inflation pressures as a result of higher commodity prices and supply chain constraints. Annual inflation may climb above September’s multi-decade high of 8.6%. Tomorrow CPI data are likely to confirm that much of these rises are being passed on to the consumer.

The US NFIB survey for October will provide information on how the small business sector is faring. Some of the results have already been released. They showed a record share of small businesses raised wages last month in response to recruitment issues. There was also an all-time high reading for the percentage planning future increases in wages.

Several central bank policymakers are scheduled to speak today, including Bank of England Governor Bailey and Fed Chair Powell. However, Bailey is supposed to talk about inequality and Powell about diversity and so neither may touch on the near-term outlook for monetary policy. BoE Deputy Broadbent is supposed to talk about labour shortages, which is a key issue for many economies right now, but he will be focusing primarily just on agriculture.

Longer dated government yield in both the UK and the US moved modestly up yesterday. However, they are both still below their levels of a week ago as markets continue to digest the implications of last week’s monetary policy updates from the US Fed and the BoE. In currency markets, sterling appreciated slightly yesterday against both the euro and the US dollar.

G10 FX Options Expiries for 10AM New York Cut

(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls )

- USDJPY - 113.70 1.99bn (1.06bn C).

- EURUSD - 1.1640/50 703m. 1.1550 1.77bn (1.56bn P).

- AUDUSD - 0.7470/80 526m. 0.7450/60 471m.

- USDCAD - 1.2460 1.15bn (910m C). 1.2400 734m.

- EURGBP - 0.8500 993m.

- USDMXN - 21.27 710m. 20.34 441m. 19.75 600m.

Beware the big G10 FX option strike expiries this week

(Reuters) – The hedging of FX option strikes can influence FX price action if nearby, and more so when the strikes are large and soon to expire, so it's worth being armed with this information in advance.

EUR/GBP There are 1-billion at 0.8500 Tuesday and 476-million euros between 0.8490-0.87500 Wednesday, while Friday has 429-million euros at 0.8625.

GBP/USD has 294-million pounds at 1.3500 Monday, while Wednesday has 784-million pounds at 1.3400, 360-million pounds at 1.3550, 516-million pounds at 1.3595-1.3600 and 540-million pounds at 1.3640-50. Thursday has 600-million pounds between 1.3530-50, while Friday has 445-million pounds at 1.3320.

EUR/USD has 1.1-billion euros between 1.1500-25, and 870-million between 1.1550-75 Monday. ... Tuesday has 1.3-billion euros at 1.1550. Wednesday has 1.1-billion euros at 1.1500, 2.2-billion between 1.1550-75, and almost 1-billion euros at 1.1600. On Thursday there are 1.2-billion between 1.1550-80, and Friday currently has 1.2-billion euros between 1.1540-50.

USD/JPY has $2-billion at 113.70 Tuesday. Wednesday has $611-million at 113.00 and $1.4-billion at 114.00. Thursday has $500-million at 113.40, $1.5-billion 113.50-60 and $1.4-billion at 113.70. There are $1.5-billion at 114.00 on Friday.

For USD/CAD there are $700-million at 1.2400-05 and 1-billion at 1.2460 on Tuesday. Wednesday has $840-million at 1.2450-55, 1.1-billion at 1.2500, and $790-million 1.2525. Friday has $762-million at 1.2450-55, $905-million 1.2465-75, $1.2485-901.1-billion, and $886-million 1.2510-15.

The biggest AUD/USD strikes are Wednesday on A$692-million at 0.7345-50 and 0.7375 on A$662-million, and on Friday between 0.7370-85 on A$1.5-billion.