Daily Market Outlook, January 16, 2024

Munnelly’s Market Minute…“UK Wage Dip May Provide Cover For BoE”

Asian stocks faced pressure in the absence of guidance from Wall Street, coupled with rising yields. The Nikkei 225 slipped below the 36k handle due to slightly higher yields and stronger-than-expected PPI data. Hang Seng and Shanghai Comp followed the subdued sentiment, though losses on the mainland were initially softened after a significant PBoC liquidity operation. Additionally, reports indicated that Beijing had advised some institutional investors in recent days not to sell stocks.

The latest UK labor data shows a slowdown in wage growth, with annual regular pay growth at 6.6%, down from the previous 7.2%. Uncertainties in the data have made it difficult to assess the overall state of the labor market. The Office for National Statistics plans to provide a more consistent set of series next month for better understanding. The experimental unemployment rate estimate for November remains unchanged at 4.2%. In the UK, the House of Commons is starting a two-day debate on the Rwanda Bill. Bank of England Governor Bailey will testify to a House of Lords Committee and is expected to maintain his stance on UK interest rates. The latest UK inflation data is set for release early tomorrow, with a further decline anticipated in headline and core CPI inflation rates for December. It is believed that headline inflation could return to the 2% target by spring, barring unexpected shocks.

The German ZEW survey, set to be released, will offer early insights into the Eurozone's economic strength in January. While the current conditions remained notably weak in December, the forward-looking expectations component witnessed a fifth consecutive monthly rise, reaching its highest level since March. Expectations are for another increase in the current month.

Stateside, The New York Fed's manufacturing survey for January will be closely monitored for indications of improvement following a notably weak performance in December. Meanwhile, in the United States, Congress is slated to discuss a temporary spending bill to avert a potential partial government shutdown starting the weekend.

Overnight Newswire Updates of Note

Trump Scores Easy Win In Iowa With Desantis A Distant Second
China To Reach 2023 Growth Goal As Focus Shifts To New Year
Beijing Tells Some Investors Not To Sell As Stock Rout Resumes
Japan’s Input Inflation Flatlines For Weakest Result Since 2021
Japan 4% Wage Gains To Pave For BoJ Hike, Ex-Official Says
Australia Consumer Sentiment Takes A Worse Turn In January
Sunak Signals Could Take Part In More Strikes Against Houthis
Iran Launch Missile Strikes Against Syria, Northern Iraq Targets
Oil Steady Despite Red Sea Tensions Heightening Market Risks

(Sourced from Bloomberg, Reuters and other reliable financial news outlets)

FX Options Expiries For 10am New York Cut

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

EUR/USD: 1.0900 (318M), 1.0920-25 (1.6BLN), 1.0965-75 (1.1BLN), 1.1025 (700)
GBP/USD: 1.2675 (346M), 1.2715 (331M)
EUR/GBP: 0.8595-0.8605 (478M)
AUD/USD: 0.6700-05 (480M), 0.6715-25 (635M)
NZD/USD: 0.6095 (277M), 0.6325-35 (560M)
USD/JPY: 145.50-55 (373M), 146.00 (410M), 146.80 (784M), 147.00-05 (1BLN)
EUR/JPY: 161.00 (350M)
EUR/NOK: 11.3200 (430M), 11.33 (436M), 11.40 (672M)
The stronger US dollar, comments from Feds Waller, and upcoming economic data are causing FX option premiums to rise. Feds Waller's speech and the release of US retail sales data are contributing to increased risk premium, leading to higher implied volatility for overnight option expiry. The firmer USD is also adding to the overall implied volatility.