Daily Market Outlook, February 12, 2024

Munnelly’s Market Minute…“Quiet Start To A Data Heavy Week”

Asia was quiet on Monday with several centers on holiday. It's also a public holiday for Lunar New Year in New York State for the first time, but that doesn't seem to include Wall Street. U.S. stock futures, European equity and Treasury futures are barely changed, and the dollar is a bit softer.

Looking ahead, major central banks, including the US Federal Reserve and the Bank of England, have gradually transitioned from hawkish positions to more neutral stances, signaling potential interest rate cuts later this year. However, they are cautious about prematurely declaring victory over inflation and advocate for patience, seeking further evidence of inflation’s decline before considering policy easing. In the UK, heightened concerns about persistent inflation may explain why markets anticipate a slightly delayed start to policy easing by the BoE compared to the Fed and ECB. The first rate cut is fully anticipated in August, rather than June. The release of January CPI data on Wednesday is expected to show a rise to 4.3%, marking a second consecutive increase.

Today's data docket lacks significant data releases. However, speeches from various central bank members may offer insights to financial markets. BoE Governor Bailey, who voted with the majority to maintain rates unchanged at 5.25% in February, is scheduled to deliver a lecture at Loughborough University this evening. Additionally, several ECB members, including de Cos, Lane, and Cipollone, are set to speak. In the US, Fed officials Bowman, Kashkari, and Barkin are also on the agenda.

Early tomorrow morning, the first of several key UK reports this week will be published, shedding light on developments in the UK labor market. The quality of the UK Labour Force Survey (LFS) remains uncertain due to low survey response rates. Revised figures published last week lowered the unemployment rate to 3.9% in the three months to November, suggesting a tighter labor market. Expectations suggest the updated unemployment rate to tick up to 4.0% for the three months to December. The BoE is likely to prioritize wage data, which are not LFS-based, anticipating a further decline in headline pay growth to 5.7% from 6.5%, and in regular pay growth to 6.0% from 6.6%. While the wage data are moving in the right direction from a monetary policy perspective, further progress is needed.

The main event Stateside is U.S. consumer price report for January, out on Tuesday, will impact the markets' expectations for Federal Reserve rate cuts in March or May. Headline CPI is expected to rise by 0.2% month-on-month, with core CPI up by 0.3%. Annual CPI is forecasted to return to 3.0%, while core CPI is expected to slow to 3.8%. Prices for used cars are expected to have a significant negative impact, and there is anticipation for a slowdown in rent growth. The range of estimates for core CPI suggests a downside risk. Futures indicate a reduced likelihood of a March rate cut (17% chance) and an increased likelihood of a May easing (around 80% chance). The market implies a total of 121 basis points of cuts for the year, down from 145 basis points a couple of weeks ago.

Overnight Newswire Updates of Note

ECB’s Panetta: Time For Interest Rate Cuts Is ‘Fast Approaching’
ECB’s March Projections Key For Rate Path, De Cos Says
EU Reaches Tentative Agreement On Fiscal Rules To Rein In Debt
CIPD Say UK Employers Plan Smaller Pay Rises For 2024
RBNZ’s Orr: Infl. Remains Too High, Is Why We've Kept Rates At 5.5%
New Zealand Government To Deliver Their Budget On May 30
Bitcoin Eyes Longest Winning Run In A Year As ETFs Attracts Inflows
Permian Rivals Near Deal To Create $50 Billion Oil-And-Gas Behemoth
Defying Biden, Netanyahu Doubles Down On Plans To Fight In Rafah
IDF Rescues Two Hostages In Special Operation In Gaza's Rafah
Iran’s ForMin: Gaza Conflict ‘Moving Toward Diplomatic Solution’

(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: 1.0725 (EU2.78b), 1.0800 (EU754.8m), 1.0925 (EU606m)
USD/JPY: 149.00 ($481.1m), 144.30 ($475m), 149.10 ($426.5m)
GBP/USD: 1.1800 (GBP300m)
NZD/USD: 0.6150 (NZD300.9m)
Euro sales had no impact this month as traders reduced around 30% of their bullish bets, resulting in a net long reduction from $12 billion to $8.3 billion. This is the smallest long position since October 2022. Although EUR/USD initially dipped to 1.0722, it later rebounded to the current level of 1.0796. In January, EUR/USD closed at 1.0818 after trading as low as 1.0795 on EBS. The EUR/USD rally in December was followed by profit taking, as bets on the rise exceeded $20 billion.

CFTC Data As Of 8/02/24

The British Pound had a net long position of 34,475 contracts.
The Euro had a net long position of 62,153 contracts.
The Japanese Yen had a net short position of -84,230 contracts.
Bitcoin had a net short position of -1,523 contracts.
The Swiss Franc had a net short position of -5,567 contracts.
Equity fund managers reduced their net long position in S&P 500 CME by 53,941 contracts to 912,862.
Equity fund speculators decreased their net short position in S&P 500 CME by 8,669 contracts to 423,955.