Daily Market Outlook, November 1, 2023

Daily Market Outlook, November 1, 2023Munnelly’s Market Commentary… Asia –  stocks experienced predominantly higher trading conditions. However, the gains were limited for most indices ahead of the FOMC announcement. The region also faced a series of data releases, including disappointing Chinese Caixin Manufacturing PMI, which marked its first contraction in three months. The Nikkei 225 posted the most substantial gains, benefiting from reports of a new economic package in Japan totaling around JPY 17 trillion, as well as recent currency depreciation following the Bank of Japan's modest YCC adjustment. Conversely, Hang Seng and Shanghai Comp. saw choppy trading. Chinese Caixin Manufacturing PMI data mirrored the recent deterioration in the official release, and there was some disappointment after the People's Bank of China's open market operations resulted in a net daily drain, despite prior reports of the central bank's likely addition of further liquidity and expected declines in money market rates from the day.Europe – Today's October PMI manufacturing data for the UK and the Eurozone are second readings, and they are not anticipated to be revised. The initial estimates indicated a decline in the Eurozone measure. In contrast, the UK's index increased to its highest level in three months. Nevertheless, both readings remain significantly below the pivotal 50 level, indicating that economic activity is still in a contraction phase.US – Stateside,  October ISM manufacturing survey is a new release. In September, the overall index climbed to 49.0, its highest level since last November, and it's not far below the crucial 50 level. The reading for the alternative PMI measure also rose to 50 in October, suggesting the ISM could potentially follow suit. However, it is more likely to remain at 49.0. Both measures indicate that the decline in the manufacturing sector may be stabilising. This could be due to a combination of reduced inflationary pressures, some reshoring of activity, and government support for manufacturing as part of President Biden's green agenda. Additionally, the US will release the ADP employment measure for October and construction spending data for September. Today's Federal Reserve monetary policy update in the United States is anticipated to keep interest rates unchanged. Prior to entering their pre-announcement quiet period, multiple Fed officials expressed the view that the recent increase in bond yields effectively amounted to a tightening of monetary policy, reducing the necessity for another rate hike. The Fed is known for avoiding sudden market surprises in its rate decisions, so it is highly probable that US interest rates will remain unaltered for the second consecutive policy update. Nonetheless, the Federal Reserve finds itself in a challenging position. While inflation has moderated throughout the year, the US economy continues to perform strongly, and the job market remains highly competitive. This situation creates uncertainty about whether inflation will return to the Fed's target of 2.0% and remain there without the need for additional policy adjustments. Consequently, Fed Chair Powell is unlikely to rule out the possibility of future rate hikes or provide strong support for expectations of an imminent rate cut. Instead, he is expected to emphasise the ongoing uncertainty and avoid making definitive commitments about future policy actions.FX Positioning & Sentiment USD/JPY made significant gains, surging 1.6% following a perceived disappointment from the Bank of Japan (BoJ) and positive US economic data, pushing it toward the 2022 peak at 151.94. Notably, this level marked a 32-year high and triggered substantial Japanese Ministry of Finance (MoF) yen buying, leading to a decline in the USD/JPY price. The current high on Tuesday reached 151.715, potentially testing the waters for intervention by the MoF. The most recent intervention on October 21, 2022, occurred when USD/JPY reached an intraday low of 144.50. However, any intervention-driven sell-off in USD/JPY is likely to be short-lived if US data continues to outperform expectations. Positive economic reports are propping up expectations for the Federal Reserve's policy and pushing short-term Treasury yields higher. Wednesday's calendar includes crucial data releases such as the ADP employment report, ISM manufacturing data, JOLTS job openings, and several events leading up to the non-farm payrolls (NFP) release and ISM non-manufacturing data on Friday. Federal Reserve Chair Powell is expected to maintain a stance of steady interest rates while refraining from discussing easing measures. If US data persistently beat forecasts, and the MoF remains silent, the market may attempt to break the 155 level. However, even if there's no intervention, verbal interventions from Japanese authorities are likely above 152. The market sees significant expiries around 151 and 152 as the week concludes, with 150 now considered a key support level. This push toward 2022 highs in USD/JPY comes despite the narrowing spreads between US Treasury (Tsy) and Japanese government bond (JGB) yields compared to the levels seen in October.CFTC Data As Of 27-10-23USD net spec long up a touch in Oct 18-24 period; $IDX rose 0.03% in periodSince period closed ECB dovish hold & Japan CPI may moot period adjustmentsEUR$ +0.12% in period, specs -2,843 contracts; weak growth trump inflation$JPY +0.05%, specs +3,029 contracts now -99,629; pair hovers near 150GBP$ -0.16% in period specs -18,636 contracts; dovish BoE rate view weighsAUD, NZD net spec short grew amid low rates, growth view; weak China growth$CAD +0.67% in period, weak glbl growth and stagnant BoC rates weighBTC +18.2% period, specs sell 781 contracts flip to short, BTC steady sinceEnd of developed mkt hikes and global growth remain key determinants ( Source Reuters)FX Options Expiries For 10am New York Cut (1BLN+ represent larger expiries, more magnetic when trading within daily ATR)EUR/USD: 1.0445-50 (740M), 1.0500 (753M)1.0540 (450M), 1.0575-85 (823M), 1.0590-05 (1.86BLN)1.0625 (226), 1.0665-75 (1.42BLN), 1.0700 (255M)USD/JPY: 148.00-10 (1.29BLN), 148.25-35 (1.51BLN)148.40-50 (1.7BLN), 149.25-30 (909M), 149.50 (412M)149.70-80 (959M), 150.00 (1.25BLN), 150.50-60 (2.52BLN)151.00 (867M), 151.50 (230M)EUR/JPY: 159.00-10 (426M), 160.00 (280M)USD/CHF: 0.8900 (262M). EUR/GBP: 0.8675 (500M)GBP/USD: 1.2175 (245M), 1.2190-1.2210 (395M)AUD/USD: 0.6250 (257M), 0.6325 (359M)0.6400 (470M), 0.6430 (348M), 0.6460 (309M)USD/ZAR: 18.86 (300M)USD/CAD: 1.3650 (300M), 1.3750 (425M)Overnight Newswire Updates of NoteChina’s Manufacturing Production Falls Slightly In OctoberJapan’s Manufacturing Conditions Continue To Deteriorate In OctoberJapan 'On Standby' To Take All Possible Steps Amid Yen DeclineJapan Plans Economic Measures Worth JPY17 TlnRBNZ's Hawkesby: NZ Can Handle Higher Rates Of UnemploymentRBNZ Says Full Impact Of Interest-Rate Hikes Still To Be SeenChina’s Central Bank Drains Liquidity After Overnight Rate SurgeBoJ Spurs Bets Against Yen, Testing Threshold For InterventionBoJ Steps Into Bond Market To Slow Rising YieldsS&P 500 Logs First 3-Month Losing Streak Since March 2020AMD Gives Soft Q4 Guidance, Expects To Sell $2 Bln Of AI Chips Next YearToyota More Than Doubles Quarterly Profit, Shares SurgeToyota To Pour A Further $8bn In North Carolina Battery PlantEvergrande Proposes Offshore Creditors Get 30% Equity Stake In Subsidiaries(Sourced from Bloomberg, Reuters and other reliable financial news outlets)Technical & Trade ViewsSP500 Bias: Bullish Above Bearish Below 4130Above 4195 opens 4240Primary resistance  is 4280Primary objective is 407520 Day VWAP bearish, 5 Day VWAP bullishEURUSD Bias: Bullish Above Bearish Below 1.06Below 1.0550 opens 1.0480Primary support is 1.05Primary objective is 1.0420 Day VWAP bearish, 5 Day VWAP bearishGBPUSD Bias: Bullish Above Bearish Below 1.22Below 1.21 opens 1.1950Primary support  is 1.21Primary objective 1.2420 Day VWAP bearish, 5 Day VWAP bearishUSDJPY Bias: Bullish Above Bearish Below 150Below 149 opens 148.50Primary support 144.50Primary objective is 152.5020 Day VWAP bullish, 5 Day VWAP bullishAUDUSD Bias: Bullish Above Bearish Below .6400Above .6475 opens .6525Primary resistance  is .6620Primary objective is .627020 Day VWAP bearish, 5 Day VWAP bearishBTCUSD Bias: Bullish Above Bearish below 32000Below 27100 opens 26500Primary support  is 30000Primary objective is 3700020 Day VWAP bullish, 5 Day VWAP bullish