Daily Market Outlook, May 11, 2023

Asian equity markets traded with a mixed tone after yet another erratic performance on Wall Street, indices whipsawed and treasuries rallied as US CPI came in broadly in line with expectations, while the headline number dipped under the expected 5% level printing 4.9%. The Hang Seng and Shanghai Comp reflected broader risk sentiment indecision, the latest Chinese inflation data added further fuel to fears of a slower economic rebound, as consumer prices increased at the most sluggish levels not seen since February 2021, coupled with factory gate prices data suggesting further deflationary pressure .

The Focus for UK investors will be The Bank of England (BoE) policy announcement due today followed by Governor Bailey’s press conference. Money markets are pricing in a high probability of a 25bps increase to a headline 4.5% rate. If the BoE moves today it would be the twelfth rate rise in a row since the first move in the cycle in December 2021, representing 440bp of tightening. The decision comes amidst stubbornly elevated CPI inflation which remains significantly stronger than the BoE projected. While headline CPI in March retreated, it remained in double digits at 10.1% above BoE projections of 9.2%, while core CPI remained above 6% combined with wage data that also came in above forecast. The economy also appears to be demonstrating more resilience than expected with the latest activity data pointing to marginally positive growth in Q1 rather than the BoE’s previous forecast for a modest contraction. New BoE economic forecasts will be parsed for the latest take on medium-term growth and inflation outlook. In February, the Bank forecasted an imminent technical recession with the economy set to contract in every quarter this year, however, in addition to the possible positive print for Q1 GDP, sentiment surveys suggest that activity and optimism continued to uptick in the early weeks of Q2. Markets expect an upward revision to GDP forecasts, leading to a higher medium-term inflation although not sufficient to take the bank of course from their 2% target in 2024 and 2025. Given the bank's recent record in forecasting and projections it is likely markets will be reluctant to place too much emphasis on predictions one to two years out. Markets will also eye any changes to the BoE’s forward guidance which has been anchored in a data dependency mode, whereby more persistent inflation would require further policy action.

There is once again ono tier one data of note out of Europe this morning as such investors will parse comments from European Central Bank speakers De Cos, Schanbel and Guindos who are all slated to speak today, after yesterday’s Bloomberg report that the ECB are considering rate moves out to September, comments from officials will be eyed for confirmation of this.

In the US, the debt ceiling saga rolls on, Treasury Secretary Yellen is set to deliver comments ahead of the open in New York, where she is speaking in advance of the G7 finance ministers meeting in Japan, Yellen is expected to reiterate her dire warnings as to the financial implications of the failure of the US to meet its debt obligations. On the data docket, US investors will get Producer prices data this afternoon, as yesterday's headline CPI data showed a small downtick at the headline level, investors will be looking for additional cooling in producer inflation.

FX Options Expiries For 10am New York Cut

(In bold represent larger expiries, more magnetic when trading within daily ATR)

EUR/USD: 1.0895-1.0900 (1.7BLN), 1.0925 (1.7BLN), 1.0950 (1.1BLN)
1.0985 (1.5BLN), 1.1000 (1.5BLN), 1.1040-50 (1.4BLN), 1.1100 (1.3BLN)
USD/CHF: 0.8800 (240M), 0.8840 (446M), 0.9000 (224M)
GBP/USD: 1.2435 (485M), 1.2550-65 (300M).
EUR/JPY: 143.80 (477M)
AUD/USD: 0.6650-60 (1.1BLN), 0.6725 (250M), 0.6750 (408M), 0.6800 (660M)
USD/JPY: 133.00 (514M), 134.00 (909M), 134.65-75 (630M), 135.00 (441M)
135.15-25 (800M), 135.55 (561M)

CFTC Data As Of 02/05/2023

USD spec net short cut in Apr 26-May 2 period, $IDX +0.11%
EUR$ +0.36% in period, specs +4,089 contract now +173,489 ahead of ECB hike
$JPY +1.98%, specs +420 contract, now -68,324; Fed rate path uncertain
GBP$ +0.43%, specs -4,774 contracts now +1,065, sellers into strength
AUD$ +0.54% spec short grows by 5,548; $CAD 0.04% spec short grows to 50,096
AUD, CAD under pressure amid global growth concerns, oil hit hard in period
BTC +2.56% in period flips to positive as specs buy 461 contracts on dip early in period (Source RTRS)