Daily Market Outlook, August 22, 2024

Munnelly’s Macro Minute…

"Dovish Fed Minutes Send Dollar To One-Year Lows”

Following the generally positive signals from global markets overnight, Asian stock markets are mostly up on Thursday. The Japanese market reversed the losses from the previous session and is now much higher on Thursday. The Nikkei 225 is trading back above the 38k handle supported by financial, technology, and exporter firms. The market leader SoftBank Group is flat, while Fast Retailing, the company that runs Uniqlo, is up about 3%. Among automakers, Honda is slightly increasing by 0.1% while Toyota is losing 1.5%. However, traders are cautious after revised data revealed that US job growth was lower than previously reported in the year ending in March 2024, raising some growth concerns. Nonetheless, it is anticipated that the US Federal Reserve will lower interest rates next month. The minutes of the US Federal Reserve's most recent meeting on monetary policy appeared to lend further credence to predictions of a September interest rate reduction. Following the release of the minutes, interest rate cuts by the Fed are expected to occur next month. According to CME Group's FedWatch Tool, there is a 61.5 percent likelihood of a quarter point rate drop and a 38.5 percent chance of a half point rate cut.

Since U.S. short-term rates are currently on the back foot, traders have been gradually selling the dollar, believing that they still have more room to fall. By year-end, the markets have priced in 161 basis points of easing in Europe and 135 bps in Britain, compared to 222 bps in the United States. The euro and sterling have both breached significant resistance, and the dollar has reached one-year lows as investors speculate about the possibility of a cyclical decline in the currency. The relative momentum in each economy may be determined by purchasing managers' index data for the United States and Europe, which are expected later on Thursday.

The purchasing managers indexes shocked last month when the manufacturing sector experienced a steeper decline than anticipated. Germany continued to be the pressure point. The UK, on the other hand, has shown itself to be resilient; in May, manufacturing resumed its expansionary trajectory. It is anticipated that the increase in production (52.0 from the 52.1 reading in July) will continue. An crucial factor will be whether or not the decline in services activity happens again this month. According to the median forecast, services will increase in Britain while falling a few percentage points in the Eurozone. It is possible, though, that UK activity will also weaken (52.4 from 52.5) as part of the (short) bounce in post-election activity unwinds. Less weight is given to the US PMIs, which are thought to be a worse indicator than the more reliable ISM surveys. However, the disparity between better and worse services and manufacturing should also be apparent. Given the enduring weakness of manufacturing and the dependence of service firms on the production side (manufacturing should lead services in a business cycle), it is worthwhile to contemplate the longevity of this imbalance. That point of risk is reinforced by the fact that this disparity is worldwide.

Overnight Newswire Updates of Note

Fed Minutes Point To ‘Likely’ Rate Cut Coming In September
Dollar Doldrums Deepen On Dovish Fed Minutes
Hawkish RBA Struggles To Sway Market That Expects Rate Cuts
Strong Australian PMI Data Argues Against RBA Rate Cuts
BoJ’s Ueda Is Set To Face Intense Scrutiny After Market Chaos
PBoC Warnings On Long-dated Bonds To Curb Systemic Risks
US Job Growth In Year Till March Was Far Lower Than Estimated
Deutsche Bank Sees €430M Gain After Deal In Postbank Case
Ford Slows EV Production Plans To Cut Costs
PwC Braced For 6-month Ban In China Over Evergrande Audit
Rise In Tech And Mining Stocks Extend ASX’s Winning Streak
Oil Prices Slow Sell-off As Expectations Of Fed Rate Cut Grow
Oil Tanker On Fire And Adrift In Red Sea After Multiple Attacks
China’s Plunging Coal Plant Approvals Signal Energy Policy Pivot
New Binance CEO: No IPO Need, Plots 100Y Exchange Strategy
Global Investors Pile Into Chinese Bank Bonds
Enbridge CEO Ebel Sees ‘Colossal’ AI Power To Double LNG Use
Israeli Strikes In Gaza, Blinken Visits Shows No Breakthrough
Biden, In Call With Israel’s PM, Stresses Urgency Of Gaza Ceasefire
Zelenskiy: Ukraine Is Boosting Its Forces To Resist Russian Advance
EU Top Diplomat Calls For Lifting Weapons Restrictions For Ukraine

(Sourced from reliable financial news outlets)

FX Options Expiries For 10am New York Cut

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

EUR/USD: 1.1040-50 (1.3B), 1.1060-70 (1.0B), 1.1100-10 (2.6B), 1.1160 (350M)
USD/JPY: 145.60-70 (1.4B), 146.20 (1.2B), 147.00-10 (1.3B), 148.00 (1.6B)
USD/JPY: 148.65 (1.7B). EUR/JPY: 159.95-160.00 (1.6B)
AUD/JPY: 98.83 (300M), 101.75 (300M)
USD/CHF: 0.8800 (396M), 0.8950 (382M)
EUR/CHF: 0.9400 (750M), 0.9500-10 (1.3B)
EUR/GBP: 0.8350 (1.3B), 0.8475 (833M), 0.8485 (395M)
AUD/USD: 0.6600 (422M), 0.6630 (1.2B), 0.6650 (1.4B), 0.6650-60 (2.5B)
AUD/USD: 0.6670 (794M). NZD/USD: 0.5920 (500M), 0.5940 (1.3B), 0.5955 (307M)
AUD/NZD: 1.0920-25 (451M), 1.1050 (513M)
USD/CAD: 1.3625-35 (1.1B), 1.3650 (500M)

CFTC Data As Of 16/8/24

Japanese Yen net long position is 23,104 contracts
Euro net long position is 26,983 contracts
Bitcoin net long position is 395 contracts
British Pound net long position is 47,812 contracts
Swiss Franc posts net short position of -21,664 contracts
Equity fund speculators increase S&P 500 CME net short position by 63,926 contracts to 286,781
Equity fund managers raise S&P 500 CME net long position by 70,558 contracts to 952,091