Daily Market Outlook, May 18, 2023

Asian equity markets posted gains overnight as the region followed the positive momentum from Wall Street. The rally in stocks was driven by optimism surrounding regional banks and progress in debt ceiling talks.The Nikkei 225 surged by 1.5% at the open, supported by reports of potential subsidies for Japanese chipmakers following a meeting between Prime Minister Kishida and foreign chip executives. However, the index later stalled just short of its highest levels in over three decades, as weaker-than-expected trade data emerged. Imports experienced their first decline in 27 months, and exports grew at the slowest pace in 26 months.

With a scant data slate for the European session focus will shift to Bank of England Governor Andrew Bailey, along with Deputy Governors Dave Ramsden and Ben Broadbent, who are set to testify before the Treasury Select Committee. The focus of the testimony will be on quantitative tightening (QT), and members of Parliament are expected to inquire about the role of quantitative easing (QE) in the recent rise in inflation. They will also explore whether tightening measures will be effective in bringing inflation levels down. Investors will be monitoring the proceedings for any hints regarding the likelihood of future interest rate hikes. Currently, investors have priced in the possibility of another quarter-point increase. In a recent statement, Governor Bailey reiterated his belief that lower energy costs will contribute to a decrease in headline inflation this year. However, he also acknowledged the presence of uncertainty and potential upside risks to the inflation outlook, particularly regarding second-round effects from domestic wages and prices.

Stateside, the focus today will be on the release of the weekly jobless claims data and the Philadelphia Fed manufacturing survey. The initial jobless claims figures have shown an uptick of late, indicating a potential slowdown in the labour market. The regional manufacturing surveys have exhibited volatility but have generally indicated a downward trend. However, there is potential for an improvement in the Philadelphia Fed survey following last month's unexpectedly weak outcome. There is a bevy of Federal Reserve speakers on deck today. Fed Vice Chair nominee Jefferson, a voting member with a neutral stance, will deliver a speech on the Economic Outlook. Fed's Barr, another voting member with a neutral stance, will provide the second part of his testimony at the Senate Banking Committee. Additionally, Fed's Logan, who is a voter in 2023 and holds a neutral stance, will also deliver remarks.

FX Options Expiries For 10am New York Cut

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

EUR/USD: 1.0775 (591M), 1.0800-05 (478M), 1.0810-20 (2.3BLN)
1.0850-60 (1.12BLN), 1.0900-10 (1.44BLN), 1.0925-30 (565M)
1.0935-45 (2.31BLN), 1.0975-85 (1.12BLN), 1.0995-05 (1.1BLN)
USD/JPY: 135.00 (447M), 136.00-05 (1.08BLN)
136.25-30 (851M), 137.00 (443M), 137.19-20 (515M)
137.50-51 (301M), 138.00 (591M)
GBP/USD: 1.2360 (200M), 1.2450-55 (300M)
EUR/GBP: 0.8715 (200M), 0.8790 (200M)
AUD/USD: 0.6500 (500M), 0.6665 (371M), 0.6680 (331M)
0.6700-20 (1.22BLN), 0.6745-50 (819M)
NZD/USD: 0.6500 (472M). USD/CAD: 1.2835 (1.7BLN)
1.3485 (299M), 1.3500 (498M), 1.3700 (1.1BLN)

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)