Daily Market Outlook, May 8, 2025 

Patrick Munnelly, Partner: Market Strategy, Tickmill Group

Munnelly’s Macro Minute…

Stock-index futures and Asian shares soared on Thursday as Trump revealed plans to unveil a significant trade deal, raising optimism about progress in negotiations. The pound initially rose before reversing as rumours regarding a US/UK trade deal were confirmed by UK officials; however, disappointment in the details or lack thereof has seen investors book quick profits on the pound's pop in a buy the rumour, sell the news trade. Trump revealed the agreement in a tweet on Truth Social, but he didn't specify which country was involved. Sources familiar with the matter indicated that the administration intends to announce a deal with the UK. Asian markets rebounded from losses of as much as 0.5% to increase by 0.3%. Bitcoin surged by 2.7% to reach $99,355, its highest price in three months. Treasuries and gold have been sold overnight. Since early April, market instability has significantly decreased, aided by Trump's trade concessions and a series of positive US economic reports that bolstered bullish sentiment. The US president had imposed tariffs on Chinese imports, which led to retaliatory actions from China. Upcoming talks in Switzerland this weekend will be a major focus. Earlier, the president expressed his reluctance to lower tariffs on China to engage in more meaningful trade discussions with Beijing. Stocks climbed on Wednesday after China and the US announced plans for trade negotiations in Switzerland this weekend.

Aside from the trade deal announcement, UK investors will eye the BoE decision today. A 25 basis point rate reduction and a more dovish tone are anticipated, yet the market seems to have already accounted for this. Following a two-minute pause to commemorate the 80th anniversary of VE Day, the Bank of England (BoE) is expected to declare a 25 basis point reduction in the Bank Rate to 4.25% at 12:02 PM. The likelihood of a 50 basis point cut appears exaggerated, though one or two dovish dissenters in that regard would not be surprising. The BoE might also consider removing 'gradual' from its language, similar to how the European Central Bank (ECB) adjusted its guidance to remove the term 'restrictive' in response to the US trade shock. However, it remains uncertain whether alternative phrasing would extend beyond a slight dovish adjustment. A scenario analysis akin to the Bank of Canada (BoC) could obscure the policy picture. Decreased energy prices and a stronger exchange rate should help reduce the 2-year CPI projection in the May Monetary Policy Report (MPR) relative to the 2.3% forecast made in February. Expect Bailey to address the complexities of operating in a ‘trade-off’ situation, where inflation exceeds targets while GDP falls short of potential, complicating decision-making. Nonetheless, the governor has recently emphasised the negative impact of tariffs on growth, which likely contributes to an overall dovish shift in guidance. That said, the market seems to be well-prepared for this outlook, pricing in nearly four 25 basis point cuts for the remainder of 2025, including the May meeting. Given the inherent uncertainties, it is difficult to envision the BoE signalling intentions to accelerate or go further than this. The preliminary June Purchasing Managers' Index (PMIs) will be released shortly after the June meeting, but if the May surveys remain below 50, the market will likely support the notion of a June cut.

Last night the Fed maintained the Fed Funds rate in the 4.25-4.50% range, with Powell indicating a 'wait and see' approach. In line with expectations, there were no rate changes this time, and Powell seems to have no immediate plans to alter the current policy. The statement minimised the negative impact of net exports on GDP, with Powell highlighting that domestic demand remains relatively strong. Furthermore, the statement suggested a cautious approach by recognising the heightened risks of rising unemployment and inflation. This implies that more time is required to determine which risks might materialise first and need policy intervention. Powell expressed readiness to respond quickly to developments regarding a potential rate cut in June yet also suggested that there might not be any rate changes for the rest of the year. Essentially, all enquiries kept returning to the prevailing uncertainty, which suggests a longer wait to observe how situations unfold. The market is still pricing with expectations of three 25-basis-point rate cuts by year-end, reflecting participants' own outlook on economic progression rather than directives from the Fed.

Overnight Newswire Updates of Note

  • German Banks Face Scrutiny On Currency Crunches After US Turmoil

  • BoE Set To Cut Rates As Trade Tensions Fuel Uncertainty

  • UK Government On Course To Breach Its Fiscal Rules, Says Think-Tank

  • Trump Teases Major Trade Deal, Expected To Be With UK

  • Trump To Pitch Sweeping Medicare Drug Price Plan

  • Trump: He Hasn’t Decided If Iran Can Enrich Uranium In A New Deal

  • Asian Bonds Are More Sensitive To Treasury Rallies Than Routs

  • Nvidia Shares Climb On Report Trump Will End Chip Export Restrictions

  • Apple's Plan To Offer AI Search On Safari A Blow To Google Dominance

  • Arm Gives Tepid Forecast, Adding To Caution From Chipmakers

  • Boeing Vows To Deliver New Air Force One By 2027, US Official Says

  • A Resilient US Economy Can Withstand The Trump Tariff Shock

  • EU To Hit Boeing, US Cars With Tariffs If Trade Talks Fail

  • EU Want Retaliation Against Trump Delayed To Avoid NATO Summit Clash

          (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: 1.1200 (4.2BLN), 1.1225 (1.1BLN), 1.1250 (2.4BLN), 1.1300 (1.5BLN)

  • 1.1350 (847M), 1.1390-1.1400 (6.2BLN), 1.1410 (545M), 1.1420-25 (2.4BLN)

  • USD/CHF: 0.8200 (380M), 0.8270 (385M)

  • EUR/CHF: 0.9430 (318M), 0.9470 (363M)

  • GBP/USD: 1.3200 (284M), 1.3400 (725M)

  • EUR/GBP: 0.8425-35 (491M), 0.8465 (300M), 0.8510-15 (248M), 0.8565 (360M)

  • EUR/SEK: 10.90 (310M). NZD/USD: 0.6015-25 (1BLN)

  • AUD/USD: 0.6300 (1.1BLN), 0.6400 (631M), 0.6445 (411M), 0.6500 (416M)

  • USD/CAD: 1.3630-40 (1BLN), 1.3700 (390M)

  • USD/JPY: 142.00 (1.3BLN), 143.00 (1.7BLN), 144.00 (420M)

  • 144.50-60 (1.5BLN), 145.00 (1.7BLN)

  • EUR/JPY: 162.00 (200M), 162.20 (463M). AUD/JPY: 91.75 (1BLN), 93.50 (690M)

CFTC Data As Of 2/5/25

  • Equity fund managers have increased their net long position in S&P 500 CME by 18,407 contracts, bringing the total to 826,250. Meanwhile, equity fund speculators have reduced their net short position in S&P 500 CME by 10,014 contracts, now totaling 249,462. 

  • Speculators have also decreased their net short position in CBOT US Treasury Bonds futures by 22,131 contracts, which now stands at 85,556. Conversely, speculators have raised their net short position in CBOT US Ultrabond Treasury futures by 3,792 contracts, reaching 251,394. The net short position in CBOT US 2-year Treasury futures has been trimmed by 91,618 contracts, totaling 1,206,377. Additionally, there has been an increase in the net short position for CBOT US 5-year Treasury futures by 101,110 contracts, now at 2,292,544. Speculators have also cut their net short position in CBOT US 10-year Treasury futures by 34,569 contracts, down to 871,537. 

  • The net long position for Euro stands at 75,797 contracts, while the Japanese yen's net long position is 179,212 contracts. The Swiss franc holds a net short position of -24,314 contracts, and the British pound has a net long position of 23,959 contracts. Lastly, Bitcoin's net short position is -1,231 contracts.

Technical & Trade Views

SP500 Pivot 5610

  • Daily VWAP bullish

  • Weekly VWAP bullish

  • Above 5640 target 5790

  • Below 5500 target 5385

EURUSD Pivot 1.11

  • Daily VWAP bearish

  • Weekly VWAP bullish 

  • Above 1.12 target 1.19

  • Below 1.1070 target 1.0945

GBPUSD Pivot 1.28

  • Daily VWAP bearish

  • Weekly VWAP bullish 

  • Above 1.34 target 1.38

  • Below 1.29 target 1.27

USDJPY Pivot 147.70

  • Daily VWAP bearish

  • Weekly VWAP bullish

  • Above 1.52 target 153.80

  • Below 146.53 target 139

XAUUSD Pivot 3100

  • Daily VWAP bullish

  • Weekly VWAP bullish 

  • Above 3200 target 3640

  • Below 3000 target 2950

BTCUSD Pivot 96.7k

  • Daily VWAP bullish

  • Weekly VWAP bullish 

  • Above 97k target 105k

  • Below 95k target 65k