Daily Market Outlook, July 12, 2024

Munnelly’s Macro Minute…

“Nasdaq Takes A 2% Hit, In Biggest One Day Move Since Jan 2021”

Asian tech shares fell on Friday, following Wall Street's decline due to slowing US inflation. The yen was volatile. Asian technology stocks dropped by up to 3.2%, with Japan and South Korea seeing the biggest losses. The Nasdaq 100 fell 2.2% as inflation data suggested a potential rate cut, leading to an exodus from tech megacaps.. Chinese shares in Hong Kong rose on hopes of policy support from the mainland's approaching Third Plenum, with Chinese property developers seeing a rise of over 6%. Despite the setback, global equities are on track for their sixth weekly gain, driven by Fed easing expectations. Treasury yields rose after the possibility of lower US interest rates drove 10-year yields down by seven basis points. Government bonds in Australia and New Zealand rose in response. The dollar index remained stable after a significant drop on Thursday.

The yen fluctuated as the Bank of Japan conducted rate checks, leading to speculation of market intervention, as usual, officials were not forthcoming with information, but Tokyo has clearly demonstrated its ability to intervene in the market at the right time. The sudden increase in the yen on Thursday followed data showing a lower-than-expected cooling of U.S. consumer inflation in June, leading analysts and traders to initially attribute the surge to options-related activity. However, the scale and speed of the movement eventually alerted the markets to the possibility of a Japanese intervention, which was similarly reported by local media. Given that recent interventions have had short-lived effects, Thursday's move likely provided the most impact for Tokyo. The absence of authorities from the currency market after the April-May intervention had raised questions about their restraint as the yen continued to reach new lows, but Thursday's developments have once again put traders on edge. It is also timely that Japan has a national holiday on Monday, which could result in low liquidity and potentially provide another opportune moment for Tokyo to take action. The focus on the yen briefly diverted attention from the main story, which remains on rates, with a September rate cut from the Federal Reserve almost fully expected. Even Fed Chair Jerome Powell, in his recent testimony before Congress, seemed to hint at the possibility of an easing cycle beginning in September, stating that the U.S. economy was no longer overheated. Stateside, President Joe Biden faced some challenges as he mistakenly mixed up the names of Vice President Kamala Harris and his Republican rival Donald Trump, just hours after referring to Ukrainian President Volodymyr Zelenskiy as Russian President Vladimir Putin before correcting himself at the NATO summit in Washington.

Overnight Newswire Updates of Note

June Price Drop May Shorten The Fed's Last Mile On Inflation
Biden: Israel, Hamas Have Agreed To My Ceasefire Deal Framework, But Gaps Remain
UK's Starmer Urges NATO Allies To Boost Defence Spending
Japan Top FX Diplomat Says Authorities To Take Action As Needed On Yen
China Trade Balance (M/M) Jun: $+99.05 Bln
Japan’s Industrial Production (M/M) May: 3.6% (prev 2.8%)
New Zealand’s Business Manufacturing PMI (M/M) Jun: 41.1 (prevR 46.6)
Singapore Q2 GDP (Y/Y): 2.9% (est 2.7%; prev 2.7)
Ericsson Beats Estimates On Cost Cutting In Tough Market

(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 (1.7BLN), 1.0820-30 (1.5BLN), 1.0850 (2.4BLN)
1.0870-80 (1.1BLN), 1.0890-1.0900 (1.3BLN)
USD/CHF: 0.8900 (636M), 0.8970-80 (481M), 0.9000 (587M)
EUR/CHF: 0.9625-35 (1.8BLM). EUR/GBP: 0.8375 (300M)
GBP/USD: 1.2850 (831M), 1.2905-10 (352M), 1.2925 (215M)
AUD/USD: 0.6715 (493M), 0.6750-55 (525M), 0.6770 (590M)
0.6790-0.6800 (1.4BLN)
AUD/NZD: 1.1060 (1.2BLN), 1.1100 (503M)
USD/CAD: 1.3630 (1.1BLN), 1.3645-55 (1.6BLN)
USD/JPY: 158.80 (501M), 159.00-05 (886M), 159.30 (441M), 160.00 (1.2BLN)
AUD/JPY: 106.25 (500M), 107.50 (400M)

CFTC Data As Of 5/7/24

JPY: -184,223 contracts
EUR: -9,519 contracts
GBP: 62,041 contracts
CHF: -43,443 contracts
Bitcoin: -912 contracts
Equity fund managers cut S&P 500 CME net long position by 24,005 contracts to 953,130
Equity fund speculators trim S&P 500 CME net short position by 5,025 contracts to 293,675