Daily Market Outlook, May 10, 2024

Munnelly’s Macro Minute…

“Jobless Claims Uptick Boosts Rate Cut Hopes Supporting Risk Sentiment ”

The Asia-Pacific equity markets showed overall optimism following a positive session in the US. The MSCI Asia Pacific Index rose by 0.7%, with Hong Kong's benchmark index reaching its highest level since September. Shares in Japan, South Korea, and Australia also advanced. US futures slightly increased as the S&P 500 index finished less than 1% below its all-time high on Thursday. The Hang Seng rose after authorities considered excluding private investors from paying taxes on income earned from Hong Kong equities purchased through Stock Connect. Onshore Chinese equities dipped as investors reviewed a story claiming that the US President Joe Biden's administration is set to announce a broad decision on China tariffs as early as next week. Unexpectedly strong US weekly initial jobless claims, reaching their highest level since August, added to expectations of potential easing in Fed policy later this year. Concurrently, the Bank of England hinted at the possibility of an interest rate cut next month, although it's not assured and depends on forthcoming data.

Earlier official UK data confirmed a robust rebound in Q1 following a technical recession late last year. The Office for National Statistics reported a 0.6% increase in Q1 GDP, surpassing both our and consensus forecasts of 0.4%. This rise was significantly stronger than anticipated earlier in the year, driven by a solid 0.4% monthly increase in March, surpassing forecasts of 0.1%, primarily fueled by services activity. Moreover, the February data was revised upwards. Looking forward, PMI survey evidence indicates continued momentum in UK activity early in Q2. Business confidence, as indicated by the Lloyds Business Barometer, remained above its long-term average in April, and the GfK consumer confidence index improved. The Bank of England expects Q2 expansion to continue, albeit at a slower pace of 0.2%. Following the recent Bank of England policy announcement, Chief Economist Pill and fellow MPC member Dhingra are scheduled to speak today. Pill, who voted with the 7-2 majority for no rate change, stated yesterday that the Bank is not yet inclined to cut interest rates. In contrast, Dhingra, voting for an immediate cut for the third consecutive meeting, was joined by Ramsden this time.

On the European front, the ECB will publish the minutes of its last April policy meeting, where interest rates remained unchanged. However, a rate cut at the June meeting has been heavily suggested. What remains uncertain is the extent of policy easing in the latter half of the year and beyond, with divergent opinions within the Governing Council. The minutes will be scrutinized for any indications regarding the potential policy outlook beyond June.

In the US, various Fed speakers are scheduled, with the University of Michigan consumer sentiment report being the only notable data release. Expect a slight decline in the headline sentiment index, although recent drops in global oil prices might pose an upside risk to the forecast and could potentially lead to a decrease in one-year ahead inflation expectations.

Overnight Newswire Updates of Note

Biden Poised To Impose Tariffs On China EVs, Strategic Sectors
Japan’s Households Cut Outlays As Inflation Remains Sticky
Japan’s Suzuki: Appropriate Actions Will Be Taken On FX If Needed
New Zealand’s Manufacturing Sector Remains In Contraction
AUD/USD Pulls Back Due To An Upward Correction In The US Dollar
Yields Ease On Solid Demand At Treasury Bond Auction
Fresh Gush Of US Oil Drives Down The Price Of Crudes In Europe
Biden Urged To Halt Oil Export Projects After Terminal Approved

(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: 1.0730 (384M), 1.0750 (306M), 1.0770-80 (324M), 1.0825 (1.3BLN)
USD/CHF: 0.9115 (351M)
GBP/USD: 1.2500 (812M), 1.2525 (1.1BLN), 1.2600 (518M)
1.2625 (383M), 1.2650 (405M)
EUR/GBP: 0.8550 (400M), 0.8600 (536M), 0.8645-55 (600M()
AUD/USD: 0.6540 (721M)
USD/CAD: 1.3645-50 (2.2BLN), 1.3680-85 (3.1BLN), 1.3700-10 (1.4BLN)
1.3750 (1BLN), 1.3770 (1.1BLN),1.3795 (1.5BLN)
USD/JPY: 155.08 (300M), 155.50 (300M), 156.00-05 (395M), 156.50 (253M)

CFTC Data As Of 5/05/24

Japanese Yen net short position is -168,388 contracts
British Pound net short position is -28,990 contracts
Euro net short position is -6,777 contracts
Bitcoin net long position is 6 contracts
Swiss Franc posts net short position of -41,786 contracts
Equity fund managers cut S&P 500 CME net long position by 17,130 contracts to 815,943
Equity fund speculators trim S&P 500 CME net short position by 14,932 contracts to 168,931
Gold NC Net Positions increased to $204.2K from previous $202.9K