Daily Market Outlook, May 17, 2023

Asian equity markets put in another mixed performance overnight as caution prevailed in the region due to the negative handover from Wall Street. Concerns over the debt ceiling clouded risk appetite in the US, although the meeting between President Biden and congressional leaders was described as productive, but without any major breakthroughs. The meeting did, however, set the stage for further discussions. The Nikkei 225 in Japan outperformed, surpassing the 30K handle for the first time since September 2021. Sentiment was bolstered by stronger-than-expected Japanese GDP data.

With no tier one data on the docket in the UK investors will eye Bank of England Governor Andrew Bailey who is scheduled to deliver a keynote speech at the British Chambers of Commerce Global Annual Conference in the UK. The speech is expected to draw investor attention as it discusses opportunities for growth. Various topics will likely be addressed, including the UK's concerning rate of productivity growth, which was highlighted in the recent labour market report. The speech aims to shed light on these issues and foster discussions on potential solutions for improving productivity in the UK.

In the Eurozone also a relatively quiet data slate today, the Eurozone Consumer Price Index (CPI) report for April is set to be released as a final reading, with no expected revisions from the initial 7.0% year-on-year "preliminary" figure. The final print, however, will provide additional details that can offer further insight into the current conditions driving underlying price pressures. While there have been nascent signs of moderation in goods prices, the extent to which elevated price pressures remain present in the services sector will be closely monitored in the final release. Throughout the day, several officials from the European Central Bank (ECB) are scheduled to speak, and their commentary is likely to heavily focus on the outlook for inflation. Interest rate markets are currently pricing in a cumulative 47bps of rate increases in the upcoming months, with a quarter-point rise at the June meeting having approximately a 90% implied probability.

US data is expected to shed light on the performance of the housing sector, March data revealed a notable decline in permits issued during that month, which is likely to have a dampening effect on housing starts activity in April, with a projected decline of 1.4%. However, when considering the broader picture, reports indicate low housing inventories and indications of stabilisation in home sales and prices. These factors suggest that the recent upswing in underlying activity may have room for further growth. Consequently, investors expect an increase in building permits for the month of April. Market will remain alert to updates regarding the US debt ceiling with President Biden confirming he is cutting short hos Asia tour to be available for further in person negotiations.

FX Options Expiries For 10am New York Cut

(1BLN+ represent larger expiries, more magnetic when trading within daily ATR)

USD/CAD: 1.3400 (1.8BLN), 1.3450 (1.4BLN)
USD/JPY: 136.00-10 (1.5BLN), 136.80 (805M), 137.00 (653M)
EUR/USD: 1.0795 (590M), 1.0810 (519M), 1.0825 (864M), 1.0850 (354M)
1.0915-20 (697M), 1.0950 (313M)
GBP/USD: 1.2400 (423M) . EUR/GBP: 0.8700 (250M), 0.8730 (274M)
AUD/USD: 0.6715 (292M), 0.6800 (370M). NZD/USD: 0.6070 (495M)

CFTC Data As Of 12/05/2023

USD net spec short position grew in May 3-9 period; $IDX -0.24$
EUR$ -0.38% in period, specs +5,933 contracts now long 179,422
Net EUR long position highest since Oct 2020, was +212k in Aug 2020
$JPY -0.96% in period, specs +7,309 contracts yen short pared to -61,015
GBP$ +1.2%, trade to new 2023 high; specs buy 3,463 contracts now long 4,528
$CAD -1.77%, specs cut CAD short +7,833 contracts; AUD$ +1.52%, specs -4,183
BTC -3.62% in period, specs buy dip add 255 contracts now long 423 (Source RTRS)