Market Update – 16th October

  • News: UK Core CPI at 2 AM,
  • Earnings: MS, USB

FX Markets:

  • Fed Fund futures implies almost 95% chance on 25bp rate cut in next meeting(11/7). The odds have been in this range for the past 1 week after the US PPI and CPI data last week. Therefore we have seen tight ranges across G10 pairs for the past week with no volatility from the US interest rate differential.
  • UK Core CPI was much cooler than expected, 1.7% vs 1.9%. Overall, BOE has been very cautious about the inflation and hence kept rates unch last meeting. This number along with the mixed unemployment number yesterday might give them some confidence to cut in next meeting. This news moved GBP/USD from its upper range of 1.031(1.0375) to the low of 1.02980 just after the news. It did recover some and was in its lower range of 1.30 after the news and up until expiry post which it found its low and stayed there for the remainder of the day. Overall, the volatility is still less than the last 2 months and therefore I would expect that GBP/USD might still stay range bound barring data release periods where we will see trending market. Earlier range was 1.3025 to 1.3075, post the number the range might be 1.2975 to 1.3015.
  • After breaking the 1.09 level on the downside yesterday, EUR/USD has not tried to breach 1.09 on upside all throughout Asia, Europe and US open. It has only been trending downwards since yesterday. For the past month, USD strengthening has been fairly strong against EUR even during bad US data. Therefore, I think even with a bad US Retail Sales data tomorrow(8:30 AM EST) we might still see USD strengthening for the remainder of the week unless ECB does not deviate from its expected 25bp cut tomorrow(8:15 AM EST).
  • USD/JPY, same as yesterday. Has been in tight range but stayed on the upper side of the range(149.6) all through out the day. JPY has found it difficult to strengthen against USD even during last week’s mixed US CPI and PPI number and hence I think if we have expected US Retail Sales data tomorrow, we might see USD/JPY breaking 150 tomorrow. Althought with BOJ meeting end of this month, it might not remain on that level for too long.

US Equity Markets:

  • Morgan Stanley just like the other banks also outperformed the estimates.
  • Few of the biggest gainers for today were NVDA and UNH which were bouncing back from yesterday’s drawdown.
  • Overall Banks and semi conductors which saw their biggest drawdown yesterday resulting in this uptick.
  • I think one of the interesting gains has been utilities in the past 2 days and it feels like people diversifying their portfolio at the the new highs.

Macro View: Still hold the bearish view on Equity Market. Retail Sales and NFLX, the first big tech earnings tomorrow is going to be the driver for the markets.

Last 2 Retail earnings have been more than the estimates by some margin and those were the ones that brought inflation risk on Fed cutting too fast back scenario back on the table.
I think if the print is again better than estimates, we might see the odds of 25bp rate cut next meeting reducing from 95%. This could amplify the current dollar strengthening strength and we might see EUR/USD breaching 1.08(if ECB rate decision is in-line) and USD/JPY also breaching 150. The Equity Market might see some uptick on this news as well but don’t expect >=1% move tomorrow given the reaction on the last 2 times as well as us being at all time highs.
Although, if the print is line to slightly less, USD might still stay strong given the current trend but Equity Market might see a significant drawdown.
No view on NFLX earnings but interested to see their balance sheet and their growth outlook as it could dictate the expectation of future tech earnings.

Tomorrow: Euro CPI at 5 AM EST, ECB rate decision at 8:15 AM EST, ECB Press Conference at 8:45 AM EST, US Retail Sales + Jobless Claims at 8:30 AM EST. BX(Blackstone) earnings before market open and NFLX earnings after market close.

Sources: Marketwatch(https://www.marketwatch.com/), Reuters(https://www.reuters.com/), finviz(https://finviz.com/), investing.com(https://www.investing.com/)

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