Daily Market Outlook, January 7, 2024 

Munnelly’s Macro Minute...

"Trump Switch & Bait On Tariffs Leaves Markets Mixed Ahead Of FOMC & Jobs Data Deluge”

Asian stocks rose, continuing the tech-driven rally from Wall Street, with support from a weaker yen that prompted caution from Japan's finance minister. A regional stock index saw an increase of 0.4%, driven by chip-related shares gaining momentum following Nvidia CEO Huang's unveiling of new products that boosted optimism regarding AI demand. However, US futures dipped in Asia after the S&P 500 advanced by 0.6% and the Nasdaq 100 rose by 1.1% on Monday. Mainland Chinese and Hong Kong stocks, conversely, faced challenges. Tencent fell by as much as 7.3%, and Contemporary Amperex Technology dropped over 6% after the Pentagon included them on a list of Chinese companies identified as military enterprises. The yen regained some strength as Japanese Finance Minister Kato stated that appropriate measures would be taken against what he considers one-sided and unexpected fluctuations in foreign exchange. In the wake of Trump’s denial, an index measuring dollar strength saw its losses diminish. The US dollar had fallen by as much as 1% on Monday before tapering that decline to 0.6%, remaining stable in Asia on Tuesday.

In the US and UK, the primary focus is on the labour market, while in the euro area, attention will be directed towards the flash inflation figures for December. The harmonised index of consumer prices (HICP) for the euro zone is expected to show a 2.4% increase for December, up from 2.2% in November. Recent data point to rising inflation, particularly in Spain and Germany, where prices have surged more than anticipated. This release will serve as the last update before the European Central Bank (ECB) convenes on January 30. If the data indicates a continued decline in inflation, it may present the ECB with a chance to ease its policies to support the struggling economy. However, energy prices could present a challenge for the ECB, as natural gas prices have hit their highest levels in 14 months. The faster-than-expected inflation in Germany in December has been linked to a smaller-than-expected reduction in energy costs. While a repeat of the price increases experienced in 2022 seems unlikely, high prices are anticipated to persist due to lower gas storage levels compared to previous years and the end of a long-term agreement allowing Russia to supply gas to Europe through Ukraine.

The UK is also experiencing similar pressures, with wage growth contributing to inflation. On Monday, British 30-year government bond yields approached their highest level since 1998. In the U.S., markets continue to speculate that President-elect Donald Trump’s tariff policies may not be as severe as initially thought, despite Trump denying a Washington Post report suggesting a softer approach.

In addition to the Fed minutes being released on Wednesday, the labour market spotlight will begin with job openings today, followed by ADP data on Wednesday, jobless claims on Thursday, and the monthly employment report on Friday. In light of the upcoming inauguration and considering Powell's remarks at the last FOMC meeting that further easing hinges on progress in the labour market and inflation, even a disappointing employment report may not significantly alter market expectations. Conversely, labour market indicators are a key focus in the UK, with the latest REC/KPMG and BoE Decision Maker Panel surveys set to be released on Thursday. Last month, the latter indicated a notable drop in employment intentions immediately after the budget. A similarly weak follow-up result could reinforce expectations for a rate cut in 2025.

Overnight Newswire Updates of Note

  • Nvidia Announces Next-Gen RTX 5090 And RTX 5080 GPUs

  • UK Retail Sales Growth ‘Minimal’ In Final Quarter Of 2024, Data Shows

  • Fed's Barr To Resign Early To Avoid 'Dispute' Over Role

  • Trump Keeps His Negotiating Powder Dry Amidst Tariff Turmoil

  • CTA Predicts Record 2025 Tech Spending If Trump Tariffs Don’t Hit

  • US Corporate Bankruptcies Hit 14-year High As Rates Take Toll

  • Fidelity To Convert $180M Bond Index Fund Into ETF

  • Aussie Building Approvals Fall, Denting Hopes Of Supply Recovery

  • Dollar-Yen Bulls Retain Control, Japanese Intervention Risks Loom

  • Hedge Funds Catapult Aussie Short Bets To Near Three-Year High

  • Tencent Shares Decline; US Adds Company To Blacklist

  • Samsung Sets Date To Unveil Galaxy S25

          (Sourced from reliable financial news outlets)

FX Options Expiries For 10am New York Cut

(1BLN+ represents larger expiries, more magnetic when trading within daily ATR)

  • EUR/USD: 1.0300 (3.5BLN), 1.0325 (790M), 1.0350 (767M)

  • 1.0375 (805M), 1.0420-25 (1.2BLN), 1.0500 (1.4BLN)

  • USD/CHF: 0.8805 (480M)

  • GBP/USD: 1.2465 (406M). EUR/GBP: 0.8285 (406M)

  • AUD/USD: 0.6180 (236M), 0.6190 (780M), 0.6200 (206M), 0.6270-75 (300M)

  • AUD/NZD: 1.0975 (270M), 1.1000 (276M)

  • USD/JPY: 156.85 (459M), 158.35 (442M)

  • AUD/JPY: 99.05 (280M)

TO REVIEW THE LATEST INSIGHTS FROM FX OPTIONS ACTIVITY CLICK HERE

CFTC Data As Of 3/1/25

  • Swiss franc has a net short position of -28,382 contracts.

  • The British pound shows a net long position of 19,323 contracts.

  • The euro has a net short position of -68,507 contracts.

  • The Japanese yen reflects a net long position of 2,311 contracts.

  • Bitcoin is in a net short position of -129 contracts.

  • Speculators have reduced the net short position in CBOT US Treasury bonds futures by 19,961 contracts, bringing it to 26,342.

  • The net short position in CBOT US ultrabond Treasury futures has been trimmed by 15,012 contracts to 204,292.

  • The net short position in CBOT US 2-year Treasury futures has decreased by 6,298 contracts to 1,252,975.

  • The net short position in CBOT US 10-year Treasury futures has been cut by 141,543 contracts to 591,374.

  • The net short position in CBOT US 5-year Treasury futures has been reduced by 1,895 contracts to 1,760,422.

  • Equity fund managers have increased the S&P 500 CME net long position by 2,531 contracts to 1,042,431.

  • Meanwhile, equity fund speculators have raised the S&P 500 CME net short position by 78,396 contracts to 347,102.

Technical & Trade Views

SP500 Short Against 6045

  • Daily VWAP bullish

  • Weekly VWAP bearish

  • Seasonality suggests bearishness Into Jan 20th

  • Long above 6075 target 6165

  • Short Below 6045 target 5743

EURUSD Short Against 1.0435

  • Daily VWAP bullish

  • Weekly VWAP bearish

  • Seasonality suggests bearishness into March 30th

  • Above 1.0505 target 1.0634

  • Below 1.0435 target 0.9758

GBPUSD Short Against 1.2614

  • Daily VWAP bullish

  • Weekly VWAP bearish

  • Seasonality suggests bearishness into March 10th

  • Above 1.2685 target 1.2812

  • Below 1.2615 target 1.1878

USDJPY Long Against 153.77

  • Daily VWAP bearish

  • Weekly VWAP bullish

  • Seasonality suggests bearishness into jan 23rd

  • Above 1.5377 target 165.50

  • Below 152.41 target 150

XAUUSD Short Against 2692

  • Daily VWAP bullish

  • Weekly VWAP bullish

  • Seasonality suggests bearishness into Jan 15th

  • Above 2725 target 2762

  • Below 2692 target 2475

BTCUSD Shortl Against 101,960

  • Daily VWAP bullish

  • Weekly VWAP bearish

  • Seasonality suggests bearishness into Jan 15th

  • Above 104,020 target 110,000

  • Below 101,942 target 90,600