Daily Market Outlook, August 5, 2024

Munnelly’s Macro Minute…

“Monday Market Massacre”

Following the massive sell-off in global markets on Friday, Asian stock markets are a sea of red on Monday as traders react to weak monthly jobs data from the United States and recent weak manufacturing activity data from the US that fueled fears that the largest economy in the world may enter a recession as the US Fed appears to have waited too long to cut interest rates. Taiwan, South Korea, and Japan's markets are all down more than 5%.

Investors are expecting that a worldwide version of the Fed put will come to the rescue through central banks. According to futures, there is a 73% likelihood that the Fed will reduce rates by 50 basis points in September and 115 basis points overall by Christmas. By the end of the following year, rates will be close to 3%.

Markets have factored in an additional 74 basis points of ECB and 47 basis point of BoE rate reduction. Additionally, it is doubtful that the Bank of Japan would raise rates once more in October—less than a week after shifting to a more aggressive stance. Consequently, JGBs recovered all of their previous losses, bringing 10-year rates back to their April levels.

There is market chatter of a Fed inter-meeting relaxation seems to be wishful thinking on the part of investors in the negative. Along with San Francisco President Daly, the Fed's Goolsbee downplayed the significance of the payrolls number on Friday. He will have another opportunity to do so on Monday. At 4.25 percent, the unemployment rate is still historically low, and experts predict that it will decline again in August. People who use the Sahm rule should keep in mind that, despite its best efforts, economics is not a science. Negative interest rates were thought to be unattainable not too long ago.

Stateside, U.S. ISM services index is due today, which analysts are expecting to rebound from June's unexpected decline. Given the size of the workforce in the industry, it is obvious that its jobs index would be closely watched. If there are any indications of lending hardship, the Fed's survey of senior loan officers will receive greater attention than normal. It is noteworthy that the massive surge in Treasuries on Friday has not continued, with 10-year rates returning to 3.78% after earlier hitting a low of 3.723%. Additionally, early gains in Fed fund futures were trimmed, especially in the 2025 contracts.

Overnight Newswire Updates of Note

BoJ Made Hawkish Tilt, Debated Inflation Risk In June
Asian Stocks Plunge Into Bear Market Territory
EU Capitals Set To Back Tariffs On Chinese Electric Cars
UK Chancellor To Court Investors In New York Visit
Ex-Trump White House Officials Endorse Harris
Growth Scare Sets Up Markets For Fresh Bout Of Volatility
RBNZ To Ease Rates In October And November 2024
New Zealand Scraps Green Policies To Boost Economy
China On Edge Over US Missile Deployment In Asia
Ukraine Intensifies Strikes, Sinks Russian Submarine
Yemen’s Houthi Rebels’ Attack On Cargo Ship In Gulf Of Aden
Iran Rebuffs Restraint Calls, Response To Killing Hamas Leader

(Sourced from 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: 1.0775 (275M), 1.0790-00 (383M)
1.0810-20 (1.04BLN), 1.0850 (241M), 1.0900-10 (820M))
1.0930 (275M), 1.0975 (802M), 1.1075 (677M)
USD/CHF: 0.8395 (525M), 0.8700 (270M)
GBP/USD: 1.2720-25 (352M), 1.2750 (264M), 1.2915 (300M)
1.3000 (580M)
EUR/GBP: 0.8425 (635M), 0.8550 (222M)
AUD/USD: 0.6600 (3.56BLN). NZD/USD: 0.5800 (300M)
AUD/JPY: 93.20 (600M), 95.00 (356M)
USD/CAD: 1.3650 (450M), 1.3950 (432M), 1.3990 (243M)

CFTC Data As Of 30/7/24

Equity fund managers CUT S&P 500 CME net long position by 55,687 contracts to 938,842
Equity fund speculators trim S&P 500 CME net short position by 32,188 contracts to 248,167
Euro net long position is 17,799 contracts
Japanese yen net short position is -73,460 contracts
Swiss franc posts net short position of -34,520
British pound net long position is 111,471 contracts
Bitcoin net short position is -1,002 contracts