NY Fed Finds Softer Inflation Expectations in October

A sudden explosive growth in stock options trading in India this year has got the country's retail traders excited and regulators worried about the risks such speculative fervour could spawn.

The boom in derivatives trading in the country's historically conservative markets, where some products such as stock futures are still too expensive, has come after stock exchanges changed some options contracts to facilitate quicker and cheaper bets and as online retail trading platforms mushroomed.

Data from exchanges, which are big winners of this surge in demand, shows the daily average value of assets underlying these stock options more than doubled between March and October to $4.2 trillion. The ratio of the notional value of derivatives to cash trading is the highest in the world.

India's stock market regulator Securities and Exchange Board of India (SEBI) has so far not stepped in to curtail the trading but has issued warnings and said it is aware of the risks.

Market analysts are concerned.

The surge in options activity is more speculative than for hedging purposes, said Mihir Vora, chief investment officer at Trust Mutual Fund. "This can magnify any sharp falls in the market and act as a potential risk," he said.

SEBI and the top Indian exchanges, the National Stock Exchange of India Ltd (NSE) and BSE Ltd, did not respond to e-mails from Reuters.

But Ashish Chauhan, the head of the NSE, said in a message to investors: "Trade in derivatives by retail investors should be avoided because of the high risk involved. Be a long-term player."

Analysts point to historic examples of rookie retail investors being hurt by derivatives trading, notably in South Korea in the early 2000s when regulators had to enforce barriers to retail participation.

Moreover, India's more nascent derivatives markets lack guard rails. Regulators have so far not mandated any minimum net worth or investor qualifications for those trading stock options, and the stock markets almost always rise each year - both recipes for higher risk-taking and complacency.

Dozens of digital trading platforms such as Zerodha, Groww and AngelOne, have become the top brokerage firms in the past couple of years, as a fintech boom and the stay-home environment from the pandemic drives small investors seeking a quick return towards robo-trading and other low-cost platforms.

Axis Mutual Fund estimates there are 4 million active derivatives traders in the country. The traders are mostly small players, according to SEBI data.

Axis said in a report there is as much as 500 times leverage on some options, meaning a 2,000 Indian rupees ($24.01) bet gives the option holder 1 million rupees worth exposure, and often retail investors were holding these bets for just 30 minutes on average.

RETAIL FRENZY

The total number of derivative contracts traded on the National Stock Exchange - which accounts for a bulk of options trading volumes - was 39.85 billion between April and September, almost near the 41.76 billion traded in the financial year that ended in March 2023.

As much as 99% of these are options contracts, which allow holders to bet on a stock or index rising or falling by paying a fraction of the value of the shares.

The "stark" increase in daily options trading turnover raises issues of investor protection, said Ajay Tyagi, former SEBI chief. "There is froth in the market and retail investors are looking to make easy money with limited understanding."

Kailash Plaza, a building in Mumbai's eastern suburbs, has become one of the focal points of the boom, with hundreds of stock market traders, brokers and investment advisers crammed into offices spread across five storeys.

Bhavesh Shah sits in a tiny cubicle behind a translucent door in the plaza. A notice on his door promises that at 500 Indian rupees ($6.00) per month one could make up to 150,000 Indian rupees.

Shah says his youngest client is 21 years old and is investing small sums of money earned from odd jobs. "These youngsters play a lot of games; they think of this as a game as well," he said.

SEBI WARNS AND WATCHES

SEBI will soon mandate that all large brokerage firms give out specific warnings on market risks, said two sources who are familiar with the regulator's thinking. SEBI is also nudging stock exchanges to review incentives offered to large volume traders, they said.

There have also been preliminary discussions on an increase in taxes that might reduce speculative activity, said a third source familiar with the discussions.

However, decisions on taxes are taken by the government and the regulator can at best recommend such a change.

The sources declined to be named as they were not authorised to speak to the media.

Zerodha, one of India's largest discount trading platforms, says more than 65% of its users are first-time investors and over 60% of new accounts come from small towns. The average age of users that joined in the last year is 29.

The platform has seen an uptick in futures and options trading activity, Zerodha said in response to Reuters queries.

People dallying in financial markets in India's bustling small towns are usually less savvy than in trading hubs like Mumbai or Ahmedabad.

Despite the risks, many young investors remain fired up.

Siddharth Joshi, a 36-year old from Surat in western India, said he lost 200,000 rupees trading options on Adani Enterprises shares in January. But he's not giving up, he told Reuters by phone.

"In options trading, I know my loss is capped but there is an opportunity to make maximum profit," he said.

($1 = 83.2575 Indian rupees)

(Reporting by Ira Dugal and Jayshree P. Upadhyay Editing by Vidya Ranganathan and Raju Gopalakrishnan)

Article Source: zawya

Market did not enjoy the last BoJ meeting

Key data releases this week

Euro-yen continues higher undaunted

Source: XM

Bitcoin (BTC) will “most likely” see a serious price drawdown before a key date for institutional investors dawns, says gold bug Peter Schiff.

In recent X activity, the longtime Bitcoin skeptic sounded the alarm over recent BTC price gains.

Schiff bets on a BTC price "crash" before ETF launches

Bitcoin is a favoirte topic of criticism for Peter Schiff, the chief economist and global strategist at asset management firm Europac.

Throughout the years, he has repeatedly insisted that unlike gold, Bitcoin’s value is destined to return to zero, and that no one in fact wishes to hold it except in order to sell higher later on.

Now, with BTC/USD circling 18-month highs, he has turned his attention to what others say will be a watershed moment for cryptocurrency — the launch of the United States’ first Bitcoin spot price exchange-traded fund (ETF).

An approval is thought to be due in early 2024, while rumors that a green light could come in November are thought to have fueled last week’s ascent past $37,000.

While some believe that the announcement will be a “sell the news” event, where investors reduce exposure once certainty over the ETF hits, for Schiff, a BTC price comedown may not even wait for that.

In an X survey on Nov. 9, he offered two scenarios for a Bitcoin “crash” — before and after the ETF launch. Alternatively, respondents could choose “Buy and HODL till the moon,” which ultimately became the most popular choice with 68% of the nearly 25,000 votes.

Despite this, however, Schiff stood his ground.

“Based on the results my guess is that Bitcoin crashes before the ETF launch,” he responded.

“That why the people who bought the rumor won't actually profit if they wait for the fact to sell.”

AllianceBernstein: Bitcoin ETF "getting slowly priced in"

As Cointelegraph reported, the mood among the institutional sphere is lightening as the ETF debate looks increasingly set to end in Bitcoin’s favor.

Among the latest optimistic BTC price forecasts is that of AllianceBernstein, which last week predicted a peak of $150,000 next cycle.

“We believe early flows could be slower and the build up could be more gradual, and post-halving is when ETF flows momentum could build, leading to a cycle peak in 2025 and not 2024,” analysts wrote in a note quoted by MarketWatch and others.

“The current BTC break-out is just simply ETF approval news getting slowly priced in and then the market monitors the initial outflows and likely gets disappointed in the short run.”

An accompanying chart showed BTC price past and future behavior delineated by halving cycles.

BTC/USD cycle phases (screenshot). Source: AllianceBernstein/MarketWatch

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Article Source: COINTELEGRAPH

Markets

Core bond yields rallied in the run-up to the weekend. In doing so they even eked out a net weekly gain. Friday’s move higher was inspired by central bank members, not least Fed’s Powell and ECB’s Lagarde, leaning against the dovish market pivot. Another unexpected rise in consumer inflation expectations weighed additionally on the front end of the US curve. The one-year ahead gauge rose from 4.2% to 4.4% while the long-term indicator (5-10 yr at 3.2%) over the past 26 years was never higher but for two months in 2008 (3.4%). Yields in the country added 4.2-5.1 bps at the front and rose up to 2.7 bps at longer maturities. The 10-y yield moved further north of the 4.5% support level. Yields in German gained between 4.6-7.8 bps with some belly underperformance. Wall Street extended opening gains to 1.15-2.05% with bullish breaks in all three major indices. Risk-on supported the likes of oil (Brent bounced off the $80/b support) as well as the euro. EUR/USD strengthened from 1.067 towards but below 1.07. Poor UK GDP details caused EUR/GBP to test the October high but sterling prevented a break lower. The pair did close above the 50% EUR/GBP recovery of the 2023 decline around 0.8735. EUR/JPY hit a new 15-year high just shy of 162. USD/JPY was still an inch away from its previous YtD high (151.72) but powers through this morning. At 151.79 it is closing in on the 2022 intraday high of 151.95. If smashed, it brings about a technical graveyard for JPY with the next support only emerging at around 160. Asian news flow is thin but Moody’s downgrading the US outlook from stable to negative (with unchanged AAA rating) grabs some attention. Moody’s said risks to fiscal strength have increased and might no longer be offset by the countries credit strengths. Fiscal deficits are expected to remain very large while continued political polarization in Congress raised the risk that governments won’t be able to reach consensus on plans to slow the decline in debt affordability. Absent of significant measures, Moody’s expects the US government to run wide fiscal deficits of around 6% of GDP near term and around 8% by 2033, due to higher interest rate payments and aging related spending. Deficits averaged around 3.5% over the 2015-2019 period. They will raise the debt burden to around 120% of GDP by 2033 from 96% in 2022.

The new week kicks off very quietly, paving the way for some technically inspired trading without a clear direction. A few central bank speeches are worth following up, but fade to nothing compared to the avalanche that is due all week. Economic data include US CPI tomorrow and retail sales on Wednesday. The UK continues last week’s economic update with the labour market report tomorrow, inflation numbers on Wednesday and retail sales to end the week. We hold on to our expectations for a topside break in EUR/GBP.

News & Views

According the people familiar with the matter mentioned by Bloomberg, UK Chancellor of the Exchequer is set to extend major tax breaks for UK businesses in its upcoming fiscal plan as he aims to support investment and revive the UK economic growth. In concreto, Hunt is said to consider prolonging the ‘full expensing policy’ which gives UK companies 100% tax relief for capital spending beyond current expiration of the measure in the fiscal year 2025/26. According to people with knowledge of the measure, the measure would cost the Treasury about £10 bln per each year it is extended.

Rating agency Fitch on Friday affirmed Italy’s BBB rating with a stable outlook. In its assessment, Fitch expects the country’s public debt-to-GDP ratio to stabilize over its forecast horizon near the levels of 2022. It also expects the country’s growth to receive moderate support from the pick-up in the execution of EU-funded projects. Ongoing broad stability in the government coalition is seen limiting more marked policy risk. Even so, a significant loosing of the fiscal targets has weakened the deficit path. The rating agency also sees associated risks of higher yields on new debt issuance and non-compliance with EU fiscal rules. Later this week, rating agency Moody’s is expected to update its assessment of the Italian credit rating. Moody’s has a Baa3 rating for the country with a negative outlook.

Article Source: ACTIONFOREX

What everyone – most investors, every household and every politician want to see and to sense right now is the end of the global monetary policy tightening cycle, and the beginning of the end starts mostly with the Federal Reserve (Fed).

Until the beginning of this month, we have seen a pricing that reflected the market’s belief that the Fed is going to keep the rates high for long because the world is now braced for an extended period of high inflation. And the rapid rise in the US long term yields because of this very belief that the Fed will keep rates high for long helped the Fed keep its rates steady, at least at the latest meetings. The US 10-year yields spiked above the 5% mark in the second half of October, stagnated close to this peak for a week.

Then, a sufficiently soft set of jobs data from the US at the start of the month, combined with a record but lower-than-expected Treasury borrowing plans slowed down the sharp selloff in US Treasuries and reversed market sentiment. Investors, since the beginning of this month, began flocking back into the US long-term papers. The US 10-year yield tipped a toe below the 4.50% level, this time. We are talking about a plunge of more than 50bp for the 10-year paper in about two weeks.

And finally, last week, two bad 10- and 30-year bond auctions in the US, and Fed Chair Powell’s warning that the Fed could opt for more rate hikes if needed, brought bond investors back to earth. And the 10-year yield rebounded from a dip. This is where we are right now – a period of heavy treasury selloff, followed by significant inflows, and uncertainty.

The uncertainty regarding when the Fed will be done hiking the rates is killing everyone, but even the Fed itself doesn’t know when tightening will/should end. It will depend on crucial economic data, like inflation, jobs, and growth figures. The US jobs data is giving signs that the US labour market has started loosening. The US growth numbers are off the chart, but spending isn’t necessarily sitting on solid ground, as the US credit card loans go from peak to peak and the credit card delinquencies have taken a lift. The delinquency rate is above the pre-pandemic levels, and just around the post-GFC levels – this means that the Americans spend on debt that they can’t pay back anymore. And the US government debt is – as you know – growing exponentially, and Americans pay significantly higher interest on their debt because the rates went from near zero to above 5% in less than two years.

But uncertainty regarding the US debt does not mean that the US Treasuries will fall off grace, because there is nothing comparable to the US Treasuries that could replace US treasuries in a portfolio for low-risk allocations.

Volatility in this space is however unavoidable. This week, we will plunge back into the US political saga, as the government short-term funding deadline is due 17th of November and not much progress has been made to seal a fresh deal. And remember this, the last time the US politicians agreed on a short-term relief package, Joe Biden was forced to leave the funding for Ukraine outside of it. Since then, a new war in Gaza popped up, and the US is now expected to bring financial contribution there, as well.

We could see the US long-term yields recover from the past weeks’ decline. Depending on the new funding resolution – or the lack thereof – we could see the US 10-year yield return above 4.80%.

Happily, slower inflows into US treasuries will be a relief for the Fed, which needs the yields to remain high enough to restrict the financial conditions without the need for more action. But the US political shenanigans are only one part of the equation. The other part is…economic data.

The all-important inflation data due Tuesday is going to impact the inflow/outflow dynamics in US Treasuries before the worries grow into the Friday funding deadline. A sufficiently soft inflation read should keep bond traders in appetite for further purchases and mask a part of the political worries, while disappointment could keep buyers on the sidelines and amplify a potential political-led selloff. The good news is that the US headline inflation is expected to have eased to 3.3% in October, from 3.7% printed a month earlier. Core inflation is seen steady around the 4.1% level. The bad news is, the expectation is soft and could be hard to beat.

The US dollar sees resistance at around the 50-DMA, the US stocks continue to cheer the latest pullback in the US yields. The S&P500 closed last week with a beautiful rally, that led the index to above its 100-DMA for the weekly close. The big tech remains the driver of the S&P500 gains as Microsoft hit a fresh high on Friday and Nvidia remained bid a few points below its ATH on news that Chinese AI startup bought enough Nvidia chips before the US exports curbs kicked in. This week, US big retailers will announce their Q3 results and will give a hint on the US consumer trends, health and expectations. Earnings could be mixed but the overall outlook will likely be morose.

Article Source: ACTIONFOREX

Oil prices fell on Monday, erasing gains from Friday as renewed concerns over waning demand in the US and China, coupled with mixed signals from the Federal Reserve, dented market sentiment, according to Reuters.

Brent crude futures for January were down 61 cents, or 0.75 percent, at $80.82 a barrel at 11.00 a.m. Saudi time, while the US West Texas Intermediate crude futures for December were at $76.56, down 61 cents, or 0.79 percent.

Prices gained nearly 2 percent on Friday as Iraq voiced support for oil cuts by the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, but lost about 4 percent for the week, notching their third weekly losses for the first time since May.

“Investors are more focused on slow demand in the United States and China while worries over the potential supply disruptions from the Israel-Hamas conflict have somewhat receded,” said Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities.

The US Energy Information Administration said last week crude oil production in the country this year will rise by slightly less than previously expected while demand will fall.

Next year, per capita US gasoline consumption could fall to the lowest level in two decades, it said.

Markets were wary of potential US policy tightening after Federal Reserve Chair Jerome Powell said last week that it could raise interest rates again if progress on curbing inflation stalls.

With financial conditions looser after a Friday jump in stock markets, “there is a good chance of more hawkish Fed speak this week,” said Tony Sycamore, a market analyst at IG.

That is “not a prospect that crude oil will welcome given that recent data in China and the US has brought growth fears back to the surface,” he said.

Weak economic data last week from China, the world’s biggest crude oil importer, increased fears of faltering demand.

China’s consumer prices fell to pandemic-era lows in October, casting doubts on the strength of the country’s economic recovery.

Additionally, refiners in China asked for less supply from Saudi Arabia, the world’s largest exporter, for December.

Still, Kikukawa said oil prices would be supported if WTI approaches $75 a barrel.

“If the market falls further, we will likely see support buying on expectations that Saudi Arabia and Russia would decide to continue their voluntary supply cuts after December,” Kikukawa said.

Top oil exporters Saudi Arabia and Russia confirmed last week they would continue with their additional voluntary oil output cuts until the end of the year as concerns over demand and economic growth continue to drag on crude markets.

OPEC+ will meet on Nov. 26.

On the supply side, US energy firms cut the number of oil rigs operating for a second week in a row to their lowest since January 2022, energy services firm Baker Hughes said. The rig count points to future output.

Article Source: ARAB