Daily Market Outlook, February 14, 2024

Munnelly’s Market Minute…“US CPI Upside Surprise Leads To Selloff”

Most Asian equity indices are trading in negative territory, reflecting the downturn observed in the United States.The significant change in Federal Reserve expectations, first triggered by a strong U.S. jobs report and then reinforced by Tuesday's unexpected increase in inflation, has led to a decrease in market expectations for 2024 interest rate cuts from approximately 160 basis points at the end of last year to just under 90 basis points currently.This shift has had a ripple effect globally, with traders now anticipating only one interest rate cut from the Reserve Bank of Australia this year, compared to the previous expectation of two cuts. Furthermore, the anticipation of higher U.S. interest rates for a longer period is expected to constrain the potential for central banks in emerging markets to implement easing measures, especially those that had previously raised rates in an attempt to stabilize their currencies against a strengthening dollar.

UK January CPI held steady at 4.0%, contrary to expectations for a slight increase to 4.1%. Core inflation, excluding energy and food prices, remained at 5.1%. Higher utility and petrol prices contributed to the inflation rate, partially offset by lower food and furniture costs. A downward trend in CPI inflation is anticipated next month, aiming for the 2% target by spring. The Bank of England is likely to be cautious about premature interest rate cuts

Eurozone Q4 GDP figures are expected to confirm stagnant growth. Modest growth is forecasted for the Eurozone in Q1, with Germany expected to experience stagnation. German IFO and Eurozone flash PMI surveys will provide further insights into early 2024 economic activity. In the UK, tomorrow we are likely to see a 0.3% decline in December GDP and a 0.2% quarterly contraction in Q4 overall. BoE Governor Bailey may reiterate that any recession is likely to be shallow and emphasize reliance on positive forward-looking growth indicators.

Japan's Q4 GDP is expected to rebound with a 1.1% annualized increase following the Q3 contraction. The impact on the Bank of Japan's policy normalization decision remains uncertain, as the expected rebound may be driven by temporary factors.

Overnight Newswire Updates of Note

Japan Will Take Appropriate Actions On Forex If Needed, Kanda Says
Japan’s FinMin Suzuki: Rapid FX Moves Are Undesirable
New Zealand See’s Retail Spending Rebound In January
Germany To Lower 2024 Economic Growth Forecast, Source Says
Global Bonds Erase All Gains Since Powell’s Pivot In December
Oil Drifts Down On Sticky Inflation, Larger-Than-Exp US Crude Build
China Stocks In Hong Kong Gain, Erase Initial Post-Holiday Drop
Amazon’s Jeff Bezos Sold $4Bln In Amazon Stock Over The Past Week
AIG Earnings Beat Estimates As Firm’s Investment Income Grows
Airbnb Plans $6Bln In New Share Buybacks As It Looks To ‘Reinvent’ Itself
Lyft Shares Go On Wild Ride After An Earnings Release Error
Cairo Talks On Hostages End Without Tangible Progress

(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: 1.0625 (600M), 1.0700 (1.5BLN), 1.0825 (800M)
GBP/USD: 1.2550 (550M). AUD/USD: 0.6465 (650M)
USD/JPY: 149.00 (1BLN), 150.00 (1BLN), 151.00 (900M)
On Friday, February 16, there are significant FX option strike expiries. Here are the key levels:
EUR/USD: 1.0615 (1.6 billion), 1.0670-75 (2 billion), 1.0700 (1.8 billion), 1.0750-55 (1.4 billion), 1.0800 (3.1 billion), 1.0820 (1 billion)
GBP/USD: 1.2650-60 (1.7 billion), 1.2720 (500 million)
USD/CHF: 0.8780 (800 million)
AUD/USD: 0.6400 (500 million), 0.6535 (700 million)
USD/JPY: 149.00 (1.1 billion), 150.00 (1.1 billion), 152.00 (800 million)
USD/CAD: 1.3500-05 (1.8 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.