Daily Market Outlook, August 6, 2024

Munnelly’s Macro Minute…

“Margin Call Monday To Turnaround Tuesday?”

Despite the generally negative cues from global markets overnight, Asian stock markets are mostly up on Tuesday. This is because most markets recovered strongly from the worst sell-off since 2008 amid concerns about the world's largest economy going into recession in the wake of some recent disappointing data on US jobs and manufacturing activity. After printing the largest losses since 1987,the Japanese stock market surged on Tuesday, reversing some of the sharp losses in the previous three sessions. The Nikkei 225 increased up 3,000 points to be well above the 34K level, with strong gains across all sectors led by index heavyweights and technology stocks. Remarkably, given the convergence of events that sparked the selloff, Japan's rate hike, an unwinding of global transactions financed by yen, weakening in U.S. jobs, and concerns in the Middle East, all it took was a reassuring statement from central bank officials to turn things around.

The first response from bears is to highlight that Japan is not the canary in the mine because it has consistently recovered quickly from sell-offs. The carnage could not be done given continuing worries about inflated tech earnings and the belief that the Fed may have kept rates too high for too long. In addition, there is still a significant excess of yen-funded assets worldwide, not only in US stocks but also in high-yielding emerging market currencies like the rand, peso, and rupee of South Africa, Mexico, and India.

The Nikkei volatility index remains twice as high as it was the previous week. While S&P volatility is still high, the STOXX volatility index closed on Monday near its highest point since March 2022. Germany's safe-haven two-year bond rate might rise much more when the anxiety fades. On Monday, it fell to its lowest point since March 2023. Datawise, markets will get June industrial orders in Germany; July UK S&P global construction PMI; June retail sales in the eurozone; Q2 consumer debt and credit report from the Federal Reserve Bank of New York; U.S. trade data

Overnight Newswire Updates of Note

RBA Leaves Interest Rates On Hold At 4.35%
Japan Real Wages Rise In June, In The Last 27 Months
US's Biden Convenes Security Team, Fears Of Iran Attack Grow
Fed's Daly: More Confident Inflation Is On Path To 2%
UK Chancellor Leaves Door Open To Higher Borrowing
Japan To Offer $2B In Trade Support For Asia Projects
Kiwibank Recommends RBNZ Cuts Rates Next Week
Japan Stocks Rebound 10% As Yen Falls Against Dollar
Bitcoin Bounces To $55K After Brutal Sell-off
(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: 1.0815-20 (2.18BLN), 1.0830-40 (1.1BLN)
1.0885 (628M), 1.0895-00 (828M), 1.0920 (352M)
1.0935 (786M), 1.0965-75 (437M)
USD/JPY: 144.00 (680M), 144.30 (380M), 144.50 (220M)
150.00 (1.071BLN)
EUR/JPY: 156.00 (660M), 162.00 (1.12BLN)
USD/CHF: 0.8535 (238M), 0.8960 (650M)
GBP/USD: 1.2595-00 (442M), 1.2750 (400M), 1.2910-20 (600M)
AUD/USD: 0.6580-90 (482M), 0.6600 (245M), 0.6625 (297M)
AUD/NZD: 1.0950 (382M), 1.0975 (386M), 1.1000 (280M)
NZD/USD: 0.5890 (284M)
USD/CAD: 1.3675 (426M), 1.3700 (500M), 1.3840-50 (563M)

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