Daily Market Outlook, May 29, 2024

Munnelly’s Macro Minute…

“Markets Rattled By Hawkish Fed Rhetoric Prompting Higher Yields”

On Wednesday, Asian markets were evaluating the consequences of the overnight increase in Treasury yields, yesterday saw a jump in US consumer confidence, while hawkish-sounding remarks from a Fed official also weighed on Treasuries and broader risk sentiment. Markets have pushed out the first fully priced Fed rate cut until December after the US elections, resulting in a drop in stocks and bonds across Asia. The MSCI Asia Pacific Index declined for a second consecutive day, with Hong Kong equities experiencing the greatest losses, while benchmark rates on Japanese bonds reached their highest point since 2011.

Today marks the first significant indication of Eurozone CPI inflation for May as German figures are set to be released. Regional inflation data from Germany will be reported throughout the morning, culminating in the national report at 13:00 BST. It is anticipated that the annual rate of Germany’s EU-harmonised inflation measure will rise to 2.7% from 2.4%, primarily due to base effects from energy prices and public transport ticket prices. Tomorrow at 10:00 BST, the Eurozone flash CPI report for May will be released. Similar to Germany, it is expected that the downtrend in Eurozone annual inflation will be temporarily interrupted, mainly due to an energy price base effect. Ahead of the Eurozone data, national data from France and Spain will also be released. While these inflation figures are not expected to change the outlook for the ECB's interest rate cut next week, they may contribute to caution regarding further easing in the latter half of the year. Additionally, Eurozone money and credit data will be released this morning. The latest data from March confirmed subdued monetary dynamics, with M3 money supply growth at 0.9% and private sector loans growth at 0.4%. It is projected that M3 money supply growth will increase to 1.3% in April.

Stateside, the Fed will release its Beige Book, which contains anecdotal comments on economic conditions. Given the mixed nature of recent economic data, it will be interesting to see if this provides any clarity. Fed speakers today include Bostic, who will discuss the economic outlook.

Overnight Newswire Updates of Note

Australia’s Elevated Inflation Suggests RBA To Extend Pause
BoJ’s Adachi: Further Policy Changes Need To Proceed Carefully
NZ Business Confidence Weakens Further As Strain Felt
IMF Lifts China Growth Forecast To 5% Citing Fast Start To 2024
Fed’s Kashkari: Interest-Rate Hikes Not Entirely Ruled Out
Yen Nears Record Low Versus Euro On Carry, Interest Rate Outlook
10-Yr Treasury Yield Rises Above 4.5% Following Weak Auction
Oil Extends Gain As Geopolitical Risks Simmer Before OPEC+ Meet

(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)

USD/JPY: 161.20 ($980.2m), 154.75 ($872.5m), 158.00 ($711.4m)
EUR/USD: 1.0875 (EU1.47b), 1.0800 (EU1.32b), 1.0890 (EU923.8m)
USD/CNY: 7.2200 ($974.5m), 7.2474 ($499.5m), 7.2500 ($354.7m)
AUD/USD: 0.6600 (AUD411.4m)
USD/CAD: 1.4050 ($1.02b), 1.3800 ($721.8m), 1.3550 ($510m)
USD/BRL: 5.2500 ($359.6m), 5.1690 ($332.1m)
USD/MXN: 17.23 ($382.8m), 16.94 ($325.5m)
GBP/USD: 1.2650 (GBP844.3m)
NZD/USD: 0.5575 (NZD310m)

CFTC Data As Of 24/05/24

Japanese Yen net short position is -144,367 contracts
British Pound net long position is 1,053 contracts
Euro net long position is 41,475 contracts
Bitcoin net short position is -890 contracts
Swiss Franc posts net short position of 40,645 contracts
Equity fund managers raise S&P 500 CME net long position by 25,714 contracts to 946,576
Equity fund speculators increase S&P 500 CME net short position by 38,575 contracts to 317,912
Gold NC Net Positions: $229.8K vs $204.5K