Gold Prices Slide as Rate Cut Prospects Diminish; Copper Gains on China Stimulus Hopes 
Bank of Canada Holds Interest Rate at 2.25% Amid Trade and Global Uncertainty 
BOJ Rate Decision in Focus as Yen Weakness and Inflation Shape Market Outlook 
Bank of America Posts Strong Q4 2024 Results, Shares Rise 
Bank of Japan Signals Cautious Path Toward Further Rate Hikes Amid Yen Weakness 
RBI Holds Repo Rate at 5.25% as India’s Growth Outlook Strengthens After U.S. Trade Deal 
UBS Predicts Potential Fed Rate Cut Amid Strong US Economic Data 
Federal Reserve Faces Subpoena Delay Amid Investigation Into Chair Jerome Powell 
Wall Street Analysts Weigh in on Latest NFP Data 
S&P 500 Relies on Tech for Growth in Q4 2024, Says Barclays 
U.S. Treasury Yields Expected to Decline Amid Cooling Economic Pressures 
Bank of England Expected to Hold Interest Rates at 3.75% as Inflation Remains Elevated 
Moldova Criticizes Russia Amid Transdniestria Energy Crisis 
Oil Prices Dip Slightly Amid Focus on Russian Sanctions and U.S. Inflation Data 
Gold Prices Fall Amid Rate Jitters; Copper Steady as China Stimulus Eyed 
On the eve of Bank of England’s monetary policy today, let’s begin by recalling as to how the UK central bank confused the markets in previous MPS. There was the widespread surprise when the MPC chose to leave rates unchanged in the last monetary policy meeting.
For now, there is no reason in pretending otherwise: the Brexit vote would be a hard blow for the UK economy in the months to come. Although the economy developed in Q2, the collapse in Q3 and forward guidance has been very painful.
The PMI in the UK has provided a first taster. Manufacturing sector eased significantly from 55.5 points in the previous month to the current 54.3 points; the final estimate now resulted in a real collapse (consensus 54.6). The PMI for the construction sector managed to produce upbeat flashes at 52.6 versus consensus at 51.9 and previous prints at 52.3, where service PMIs would be announced today but had collapsed from 52.9 to 52.6 in October and points in the same direction.
Please be noted that GBPJPY skew is not ready to smoothen too much ahead of central banks inflation report and monetary policy, the GBP volatility in 1-3m tenors normalized considerably.
The liquidity recovered and the extreme positioning was ultimately absorbed. The price action is not taking the direction of an imminent new trend. As a result, the option market aggressively unwound smile positions.
In our recent hedging portfolios we had advocated ITM put shorts when underlying FX price was at 127.35 levels, now you could probably guess that from the spot FX of GBPJPY, the yields from these shorts are certain by now.
Negatively skewed GBPJPY 1w IVs for now signify the interests of ATM put holders and their competitive edge in PRBS as an optimal hedge, consequently, we uphold -0.49 delta ATM puts.
Please be noted that the 1m GBPJPY IV skews are more biased towards OTM put strikes.
From the IV nutshell, one can understand that the negatively skewed IVs in 1m contracts would imply that the underlying spot FX is less likely to remain in ITM territory or in other words spot FX would shift towards OTM strikes.
There was also a valuation issue at play, in that yen, vols had lagged the sharp collapse in VXY prior to BoJ –held up in all likelihood by the outside chance of a policy regime shift in Japan –and were ripe for a sell-off if the meeting proved uneventful.
