Daily Market Outlook, January 26, 2024

Munnelly’s Market Minute…“China Stimulus Bid Fades”

Asian markets have experienced broad declines following a recent period of gains. The negative sentiment follows disappointing projections from chipmaker Intel, despite a strong finish to trading on Wall Street. U.S. markets were lifted by a robust GDP report, showing annualized growth of 3.3% in Q4, further bolstering hopes for a soft landing of the economy. Overnight, Japan reported a sharper-than-expected decline in Tokyo CPI to 1.6% from 2.4%, as the Bank of Japan mulls over potential interest rate increases this year. Hang Seng and Shanghai Comp experienced fluctuations as the impact of recent Chinese support measures diminished.

In the UK, overnight release of the GfK consumer confidence index showed a positive start to the year, with the headline index improving to -19 from -22, surpassing consensus (-21). This marks the best reading in two years, propelled by recent positive news on inflation and expectations of interest rate cuts. There are no other significant UK data releases today, with markets focusing on next week's Bank of England policy update, which is not expected to change interest rates. Attention will be on any communication changes regarding potential future policy adjustments.

European markets are still digesting yesterday’s ECB policy update, which saw no change in interest rates. President Lagarde stated that the Governing Council deemed it premature to discuss rate cuts. However, markets perceived a lack of strong resistance against speculation of a possible rate cut as early as April. This contrasts recent comments indicating no rate cut before summer. ECB speakers today include Simkus, Kazaks, and Vujcic. Kazaks, a hawk, cautioned against early rate cuts.

Stateside, the December data for the US PCE deflator, the Fed's preferred inflation gauge, will be released. It has shown lower inflation trends compared to the CPI. Positive PCE inflation would boost hopes for an early Fed rate cut, despite Q4 GDP growth data surpassing expectations at 3.3% annualized growth. Headline PCE inflation is expected to rise from 2.6% to 2.7%, while the core measure is anticipated to fall from 3.2% to 3.0%, the lowest since early 2021.

Overnight Newswire Updates of Note

UK Consumer Confidence Hits Two-Year High As Inflation Cools
BoJ Saw Need In December For Debate On Future Rate Hike Pace
US Tsy Sec. Yellen: 2024 Is Going To Be A 'Very Good' Year For The Economy
Yellen Says Biden Would Seek Extension Of Some Trump Tax Cuts
WH Sullivan To Meet China’s Wang Yi To Discuss Houthi Attacks In Red Sea
China Presses Iran To Rein In Houthi Attacks In Red Sea, Sources Say
Badenoch To Challenge UK PM Over Brexit Freedoms Sacrifice For N.Ireland
UK Halts Trade Negotiations With Canada Over Hormones In Beef Ban
Biden Set To Halt Review Of Natural Gas Export Approvals On Friday
Intel Plunges After Bleak Forecast Casts Doubt On Comeback Bid
T-Mobile Earnings Miss, But Subscriber Adds Top AT&T, Verizon
Visa Profit Climbs Amid Higher Payments Volume
Capital One's Profit Drops On Higher Credit Loss Provisions, FDIC Charge
FTC Launches Inquiry Into AI Deals By Tech Giants
Nintendo’s Next Switch Coming This Year With LCD, Omdia Says

(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: 1.0800 (1.3BLN), 1.0825 (530M), 1.0850 (1.2BLN), 1.0875 (1BLN)
1.0890 (620M), 1.0925 (957M), 1.0950 (1BLN)
USD/CHF: 0.8610 (225M), 0.860 (260M), 0.8660 (359M), 0.8760 (821M)
EUR/CHF: 0.9400 (459M), 0.9425 (275M)
AUD/USD: 0.6600-05 (675M). NZD/USD: 0.6070 (220M),0.6220 (524M)
USD/CAD: 1.3390 (1.2BLN), 1.3500-10 (696M), 1.3600 (928M), 1.3620-25 (836M)
USD/JPY: 147.30 (579M), 148.00 (331M), 148.50 (321M)
One-week expiry options are influenced by the volatility risk associated with the Federal Reserve (Fed) and the Non-Farm Payrolls (NFP) report. The implied volatility for one-week options has increased after the Fed policy decision and the inclusion of NFP, but the price increase has been limited due to the recent lack of realized volatility in the foreign exchange (FX) market. The realized volatility for one-week options is significantly lower than the implied volatility in major currency pairings. Option holders are hoping for realized volatility to exceed implied volatility, and buyers are anticipating that any surprises from the Fed and NFP reports could boost FX volatility.