Daily Market Outlook, May 14, 2024

Munnelly’s Macro Minute…

“Markets Consolidate Ahead of Powell & US PPI Catalysts”

Asian equity markets showed a mix of performance, while European futures displayed moderate softness. The global spotlight remains fixed on inflation, with anticipation surrounding today's release of US producer price data and tomorrow's consumer price report, as investors gauge potential shifts in central bank policies for the year. Later today, Federal Reserve Chair Powell is scheduled to deliver a speech. In the UK, attention is drawn to the latest monthly labor market figures, particularly wage growth.

Today's UK official data unveiled subdued labor market activity, with a decline of 178k jobs over the three months leading to March, and an anticipated increase in the unemployment rate to 4.3% from 4.2%. However, wage growth surpassed expectations, holding steady at 6.0% instead of the predicted decline to 5.9%. Notably, this data does not reflect the impact of April's National Living Wage and National Minimum Wage increases, which will be addressed in next month's report, preceding the Bank of England's June policy decision. Additionally, April and May CPI data will be included. The Bank of England has indicated a close monitoring of these figures before any decision regarding interest rates.

On the continent, the German ZEW survey, based on responses from financial professionals, offers insight into the economy's performance in May. Recent months have seen significant increases in the ZEW index's expectations component, suggesting optimism for a strengthening recovery. However, the current situation index is expected to remain negative, indicating ongoing tepid economic activity.

Stateside , attention is on today's release of producer prices data, the upcoming release of U.S. PPI on Tuesday will precede the CPI report on Wednesday, which is a rare occurrence, happening only six times out of 40 occasions since the beginning of 2021. Consequently, the PPI figures are expected to carry more weight than usual, as traders will use them to assess the potential outcome of the CPI report. The headline PPI figure is projected to increase slightly to 2.2% from 2.1%, with a monthly rate of 0.3%. On the other hand, the CPI headline rate is anticipated to decrease to 3.4% from 3.5%, while maintaining a monthly rate of 0.4%. Given the uncertainty surrounding policy easing in both the markets and among Federal Reserve officials, the upcoming inflation data holds significant importance. Historically, there is no strong predictive power in PPI for CPI based on monthly data since the beginning of 2021, as it is essentially a 50/50 chance. However, when the monthly PPI deviation from expectations is 0.2 percentage points or more, there is a 64% likelihood of CPI moving in the same direction. Therefore, a larger surprise in the monthly PPI figures makes it more probable for CPI to follow suit. Policymakers remain cautious as disinflation has shown minimal progress this year. Additionally, the NFIB small business optimism survey is due today.

Key central bank figures to watch include Bank of England Chief Economist Pill, who will deliver opening remarks at an event this morning. Federal Reserve Chair Powell and the ECB's Knot are also scheduled to appear at an event in the Netherlands.

Overnight Newswire Updates of Note

Investors Crowd Into Soft-Landing Trade Ahead Of Inflation Prints
Donald Trump Leads Pres Biden Across Crucial 2024 Swing States
Yellen Hopes China Doesn’t Mount A ‘Significant’ Trade Retaliation
US Senators To Seek Billions For AI Research, Push For Regulation
Top Biden Official Doubts Israel Can Achieve 'Total Victory' In Gaza
US Assesses Ample Troops Amassed For Full-Scale Rafah Incursion
Japan’s FinMin Suzuki Sees Need To Keep Close BoJ Coordination
Japan Wholesale Inflation Steady As Weak Yen Boost Import Costs
Japan 20-Year Yield Reaches Highest Since 2013 On BoJ Policy Bets
Oil Steadies As Traders Look To OPEC Report And US Inflation Data
Walmart To Cut Jobs And Ask Remote Workers To Return To Offices
Volkswagen Said To Eye Traton Stock Sale After Share Price Surges

(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: 1.0750-60 (2.3BLN), 1.0770-80 (903M), 1.0790-1.0800 (2BLN)
1.0820 (379M), 1.850 (1.2BLN)
USD/CHF: 0.9000 (521M), 0.9100 (1.9BLN)
GBP/USD: 1.2495-1.2500 (2BLN), 1.2525-30 (1BLN), 1.2550 (338M)
1.2650-55 (1.8BLN). EUR/GBP: 0.8585-90 (380M)
AUD/USD: 0.6590 (2.3BLN) , 0.6600 (576M)
USD/CAD: 1.3700 (735M), 1.3750-55 (800M)
USD/JPY: 155.15 (602M), 155.40-50 (455M), 156.95-157.00 (480M)

CFTC Data As Of 10/05/24

British pound net short position is -21,813 contracts
Euro net long position is 4,590 contracts
Japanese yen net short position is -134,922
Swiss franc posts net short position of -41,787
Bitcoin net short position is -783 contracts
Equity fund speculators increase S&P 500 CME net short position by 69,524 contracts to 238,456
Equity fund managers raise S&P 500 cme net long position by 44.751 contracts to 860,694
Gold NC Net Positions: $199.6K vs previous $204.2K