Daily Market Outlook, April 29, 2024

Munnelly’s Macro Minute…

“JPY Intervention Sees A Volatile Open To FX Trading”

In early trading, the JPY experienced significant volatility, rallying strongly after reaching its lowest point in 34 years. Initially dropping below the 160 per US dollar mark for the first time since 1990, the yen's decline was attributed to thin liquidity due to a public holiday in Japan. However, it has since staged a partial recovery, hinting at possible intervention by Japanese authorities to bolster the currency. Meanwhile, equities in the Far East are generally seeing supportive sentiment.

Eurozone data shows a rebound in early 2024 activity, but inflation trends differ from the US, possibly leading to an interest rate cut by the European Central Bank (ECB) in June. German inflation figures expected today are likely to show a modest increase in both headline and core inflation, which may not change the ECB's view on disinflation. Comments from ECB members are expected to confirm this stance.

In the week ahead the U.S. Federal Open Market Committee meeting and April jobs report are expected to have a significant impact on market sentiment. This follows a series of strong U.S. data and hawkish comments from Fed officials, leading to a shift in expectations since the March FOMC meeting. It is widely anticipated that the Fed will maintain its current stance during the meeting on Wednesday. The market's probability of a 25 basis-point rate cut at the June meeting has decreased to just 10%, compared to nearly 85% after the March meeting. The market will closely monitor the Fed's accompanying statement and Chair Jerome Powell's press conference for indications of the Fed's data-dependent approach and its stance on policy easing. The bond market's reaction to the Fed's tone is expected to influence movements in other asset classes. Attention will then turn to Friday's U.S. jobs report, with expectations of 210,000 non-farm payrolls being added to the economy, a steady unemployment rate of 3.8%, and a 0.3% month-on-month increase in average hourly earnings. In addition to these key events, a packed week for data includes U.S. ISM manufacturing and non-manufacturing reports, S&P Global final PMIs, consumer confidence, factory orders, international trade, and ADP jobs data.

The UK has only final April PMIs scheduled, with no significant Bank of England speeches planned for the week.

Japan will release industrial production, employment, and retail sales data in a holiday-shortened week. The minutes of the March Bank of Japan meeting will be overshadowed by Friday's BOJ decision and press conference. China's official April PMIs and Caixin manufacturing PMI will be closely watched ahead of the Labour Day break from May 1-3.

Overnight Newswire Updates of Note

Fed’s Powell Poised To Keep US On Higher-For-Longer Path
US Debt-Sale Plan To Benefit From Fed That ‘Stops Hurting’
Israel May Delay Assault On Rafah In Exchange For Hostages
Hamas Says No Major Truce Issues, Delegation Due In Cairo
Split BoE Faces Political Heat On Calls For Interest Rate Cuts
Tory Rebels Aim To Oust Sunak If Party Suffer Election Losses
German Economy Sees Signs Of Life But Industry Struggling
Macron Dodges Debt Warning As Firms Hold Views On France
Yen Rebounds After A Slide Past 160 For First Time Since 1990
Oil Declines As US Steps Up Efforts To Secure Truce In Gaza
BHP To Consider Improved Anglo Proposal After Bid Rejected
Deutsche Bank To Assess For Possible Postbank Settlement

(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: 1.0645-50 (1.2BLN), 1.0695-1.0700 (574M), 1.0710-15 (824M)
1.0720-25 (1BLN), 1.0750 (1.4BLN), 1.0775 (450M), 1.0800 (441M)
GBP/USD: 1.2600 (532M)
AUD/USD: 0.6480-85 (440M), 0.6500-05 (604M)
AUD/NZD: 1.0900 (1.1BLN), 1.1100 (866M)
USD/CAD: 1.3700 (613M), 1.3835 (939M)
USD/JPY: 157.00 (365M). AUD/JPY: 100.00 (410M)
FX options are ready for potential volatility related to the Federal Reserve and Non-Farm Payrolls (NFP) reports. Shorter-term FX option volatility is supported by the anticipation of significant events. The market is cautious about the possibility of increased actual volatility resulting from the Federal Reserve meeting and NFP release this week. One-week expiration options have gained interest following the Federal Reserve meeting on Thursday and the NFP report on Friday. Implied volatility for one-week options in major G10 currencies is at its highest level since January. One-month contracts are positioned between recent lows and highs. The USD/JPY stands out due to intervention and volatility risk, reaching its highest level since July.

CFTC Data As Of 26/04/24

Japanese yen net short position is -179,919 contracts
Euro net short position is -9,989 contracts
Swiss Franc posts net short position of -42,562 contracts
British Pound net short position is -26,233 contracts
Bitcoin net position is 0 contracts
Equity fund managers cut S&P 500 CME net long position by 16,969 contracts to 833,074
Equity fund speculators trim S&P 500 CME net short position by 9,927 contracts to 183,864
Gold NC Net Positions: $201.9K vs previous $202.4K