Daily Market Outlook, August 22, 2023
Munnelly’s Market Commentary…
Asian equity markets exhibited mixed trading overnight, mirroring a similar performance seen in the United States. In the US, the technology sector experienced a rally, although broader market gains were constrained due to the ongoing rise in global yields.
The Nikkei 225 index advanced as the technology sector in the Asia-Pacific region drew inspiration from its US counterparts. Notably, SoftBank registered noteworthy gains, partly driven by its Arm unit's filing for a US Initial Public Offering. On the other hand, the Hang Seng index displayed marginal gains, while the Shanghai Composite index recorded a slight decline. Investors in these indices were deliberating over the latest support measures announced by Premier Li and the State Council, in addition to the People's Bank of China's net liquidity withdrawal. This mixed trading sentiment across Asia-Pacific markets reflects a blend of tech-driven positive momentum and concerns stemming from global yield upticks.
Bond selling persisted on Tuesday, driving 10-year Treasury yields to new highs not seen in 16 years during Asian trading hours. This surge in yields has made stock markets that were already on edge proceed with caution. The catalyst behind this movement isn't immediately apparent. Contrary to what might be expected, it's not driven by inflation concerns, as inflation expectations have hardly moved. Instead, it seems that investors are demanding higher returns in order to continue purchasing bonds. Some analysts have pointed out the timing coincidence between the selloff and the Bank of Japan's indication that it might allow Japanese 10-year yields to reach as high as 1%. This has led to speculation that traders could be preemptively reacting to a potential withdrawal of Japanese capital from the bond markets. Additionally, the thematic focus of the upcoming Jackson Hole symposium by the Federal Reserve – centred around "structural shifts in the global economy" – has spurred speculation that bond markets need to adapt, particularly in the longer-term segment. In any case, with the prospect of earning relatively inflation-protected returns of 2% over a 10-year period, the consequences for risk appetite across the broader financial landscape could be substantial. Given the relatively sparse data docket for Tuesday, attention is likely to shift towards Wednesday's raft of PMI data while investors will be remaining equally attentive to yield moves and the anticipation surrounding Federal Reserve Chair Jerome Powell's speech at the Jackson Hole symposium, scheduled for Friday.
FX Positioning & Sentiment
On Friday, Nomura made a strategic shift in its trading positions, moving from a long EUR/GBP (euro to British pound) position to a short GBP/USD (British pound to US dollar) position. The target for this short position is set at 1.22, a level at which the GBP/USD exchange rate was last seen on March 24. To manage potential losses, Nomura has established a stop-loss point above 1.30. This move comes as Nomura identifies the possibility of a squeeze on GBP (British pound) long positions. The latest CFTC (Commodity Futures Trading Commission) data revealed that net GBP long positions increased to 50,988 contracts in the week ending on August 15. A squeeze on these long positions could potentially lead to a decline in the British pound's value.
CFTC Data As Of 15-08-23
Friday's IMM data release showed USD short grew by 0.55bn in Aug 9-15 period
Current Aug 16-22 reporting period will not include Jackson Hole Symposium
Data released 25 Aug likely to be mooted by J-Hole comments by Powell, et al
EUR$ -0.45% in prior period; -0.7% in new may stall EUR buying
Slow glbl growth tempers hawkish ECB outlook after China cut, lwr German PPI
$JPY +0.33% in new period, expect USD buying amid widening US-JP rate view
GBP$ +0.43% since Aug 16; UK CPI well-above target to keep BoE in hike mode
AUD, CAD big sellers in prior period on China slowdown short likely to keep growing amid less-dovish Fed view (Source: Reuters)
FX Options Expiries For 10am New York Cut
(1BLN+ represent larger expiries, more magnetic when trading within daily ATR)
EUR/USD: 1.0850 (507M), 1.0870 (488M), 1.0885 (490M), 1.0900 (1.3BLN)
USD/CHF: 0.8800 (394M), 0.8825 (200M), 0.8840 (250M). EUR/CHF: 0.9600 (276M)
USD/JPY: 145.00 (962M), 145.25-30 (432M)
AUD/USD: 0.6400 (861M), 0.6425 (519M), 0.6440 (250M).
EUR/AUD: 1.6900 (201M). AUD/JPY: 95.00 (302M)
Overnight Newswire Updates of Note
Treasury Yields Hit Highest Since 2007 On Elevated Rate Fears
BoJ’s Ueda: Discussed Economy, Financial Markets With PM Kishida
More Economists Cut China Forecasts As Real Estate Gloom Deepens
Fed Officials More Split Over Interest Rate Path Than They Used To Be
Dollar Falls Despite Yield Spike; Yen Under Watch Tuesday
China Ramps Up Yuan Defence With Most Forceful Fixing On Record
New Zealand’s Dollar Is On Brink Of Longest-Ever Losing Streak
Japan’s Benchmark Bond Yield Hits Nine-Year High In Test For BoJ
Wells Fargo Strategists Recommend 10-Year TIPS With Yields Hitting 2%
Oil Holds Loss On Signs Of Supply Rebound As Demand Woes Linger
Asian Stocks Advance, Poised To Snap Seven-Day Losing Streak Tuesday
S&P Joins Moody’s In Cutting US Banks Amid ‘Tough’ Environment
SoftBank’s Arm Files For IPO That Could Be 2023’s Biggest
BHP’s Full-Year Profit Falls 37% As China’s Metals Demand Wanes
(Sourced from Bloomberg, Reuters and other reliable financial news outlets)
Technical & Trade Views
SP500 Intraday Bullish Above Bearish Below 4445
Above 4450 opens 4475
Primary resistance is 4510
Primary objective is 4335
20 Day VWAP bearish, 5 Day VWAP bullish
EURUSD Intraday Bullish Above Bearsih Below 1.0860
Below 1.860 opens 1.0830
Primary support is 1.830
Primary objective is 1.13
20 Day VWAP bearish, 5 Day VWAP bullish
GBPUSD: Intraday Bullish Above Bearish Below 1.28
Below 1.2680 opens 1.2620
Primary support is 1.2590
Primary objective 1.3850
20 Day VWAP bullish, 5 Day VWAP bullish
USDJPY Bullish Above Bearish Below 145
Below 144.90 opens 143.90
Primary support 141.90
Primary objective is 147.20
20 Day VWAP bullish, 5 Day VWAP bullish
AUDUSD Intraday Bullish Above Bearish Below .6450
Above .6500 opens .6600
Primary resistance is .6670
Primary objective is .6200
20 Day VWAP bearish, 5 Day VWAP bullish
BTCUSD Intraday Bullish Above Bearish below 27000
Above 29000 opens 30000
Primary resistance is 28750
Primary objective is 24757
20 Day VWAP bearish, 5 Day VWAP bearish
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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!