Daily Market Outlook, November 5, 2024
Munnelly’s Macro Minute…
"Markets Cautious Ahead Of knife Edge US Election Outcome”
Stock markets remained largely stable, while an air of uncertainty persisted in currencies and bonds as investors awaited the outcome of the United States' presidential election, which appeared to be a close race according to surveys. Oil prices rose overnight due to delays in producers' plans to raise supply, with Brent oil futures trading at $75.08 per barrel following a 3% increase on Monday. Asian equities largely advanced, with Japan's Nikkei index surging over 1% as traders resumed trading after an extended holiday break. China's Shanghai Composite index climbed around 2%, and Hong Kong's Hang Seng index rose 1.3%, buoyed by economic optimism after Chinese Premier Li Qiang expressed full confidence in the country achieving its economic targets this year and scope for further stimulus. The Standing Committee of the National People's Congress, the country's highest legislative body, is expected to announce a specific figure for the stimulus during its meeting this week. A private survey revealed that China's service sector activity experienced the fastest growth rate since July, which implies that consumer demand may be on the rebound. The dollar experienced a decline as the close presidential race resulted in the unwinding of "Trump trades." Gold experienced a slight decline as a result of diminished anticipations of interest rate reductions.
The US election day has finally arrived, since mid-September, US Treasury yields have been rising as Trump's chances of victory have recovered. This suggests a 'Trump trade' is associated with higher yields, likely due to the threat of import tariffs. The Open Interest Positioning Indicator shows this move to higher yields has been characterised by the closing of long positions in 10yr UST futures, rather than the opening of new shorts, especially in October. This indicates a reduction in risk exposure leading up to the election, which makes sense given the closeness of the opinion polls. The impact on markets will depend not only on the election outcome, but also the potential for continued uncertainty in determining the final result.
The impact of the US election on the UK rates market ahead of the Bank of England meeting may be more evident in the GBP/EUR spread than in the outright levels. The UK's sensitivity to US rates markets could affect the BoE's decision and future policy guidance. The relative performance of the UK rates market compared to the EUR rates market may provide more insight into the outcome of the BoE meeting, as both should be impacted by the US election news to a similar extent. The 10-year gilt-Bund spread at over 200 bps suggests that UK rates markets are already braced for a hawkish MPC.
Strategists predict that the dollar will strengthen if Trump wins and weaken if he does not, with the exception of bitcoin, which is anticipated to increase in value due to Trump's perceived leniency on crypto regulation. Options implied volatility for the offshore yuan against the dollar was at record highs, reflecting the tension and ambiguity regarding the potential consequences of another protectionist shift from the United States on global trade.The battleground states of Georgia, North Carolina, Pennsylvania, Michigan, Arizona, Wisconsin, and Nevada will be the primary focus upon the release of the results. The polls in Georgia shut at midnight GMT.
Overnight Newswire Updates of Note
RBA Keeps Cash Rate Steady At 4.35%; As Expected
Australian Services Activity Expands In October
China’s Deputy Projects Confidence in Economic Recovery
China Set To Issue Dollar Bonds Offshore After 3Y Hiatus
China Reviews Plan To Increase Local Government Debt
China Caixin PMI Signals Pickup in Service Sector Activity
Japan PM Vote; Parties Intensify Lobbying Ahead Of Next Week
RBNZ: New Zealand’s Economic Downturn Could Get Worse
Ahead Of US Election, Asians See Little Difference Policies
BofA CEO: US Economy Will Maintain Steady 2% Growth In 2025
UK Chancellor To Join EU Finance Meeting Next Month
Boeing Union Accepts Latest Contract Offer Ending Strike
(Sourced from reliable financial news outlets)
As the US elections draw near, the financial markets are bracing for potential volatility, presenting both opportunities and challenges for traders. To help navigate this crucial period, we have launched the US Elections - Traders Hub, a comprehensive resource tailored to meet the needs of traders at every level.
FX Options Expiries For 10am New York Cut
(1BLN+ represents larger expiries, more magnetic when trading within daily ATR)
EUR/USD: 1.0850 (2BLN), 1.0870 (285M), 1.0900 (1.7BLN), 1.0925 (543M)
1.0950 (1.3BLN)
USD/CHF: 0.8605 (405M), 0.8640 (430M), 0.8690-0.8700 (667M), 0.8750 (896M)
EUR/GBP: 0.8350 (391M), 0.8425-30 (817M)
GBP/USD: 1.2940 (385M), 1.2950-60 (340M), 1.2975 (340M), 1.3000 (709M)
AUD/USD: 0.6600 (715M). NZD/USD: 0.6000 (410M)
USD/CAD: 1.3905 (587M)
USD/JPY: 152.00 (1.1BLN) , 152.25 (200M), 152.50 (510M)
CFTC Data As Of 1/11/24
Net USD G10 long +$8.88bn to +$18.7bn in Oct 23-29 IMM period; $IDX +0.13%
EUR +0.17%: speculative positions decreased by 21.8k contracts, now at -50.3k, lower ECB view weighs on EUR
JPY +1.55%; speculative positions decreased by 37.6k contracts, now at +25k, on hawkish Fed, less dovish BoJ
GBP +0.27%; speculative positions decreased by 8.2k contracts, now at +66.4k; less-dovish BoE lends support. Note large sterling dip post-budget not accounted for in this report
CAD +0.62%; speculative positions decreased by 26.9k contracts, now at -168k; shorts eyes July ATH -196k
AUD -1.78%; speculative positions decreased by 163 contracts, now at +27.5k; for now RBA least dovish c.bank
Equity fund managers cut S&P 500 CME net long position by 20,435 contracts to 1,045,389
Equity fund speculators trim S&P 500 CME net short position by 12,576 contracts to 292,035
Speculators increase CBOT US 10-year Treasury futures net short position by 52,992 contracts to 901,183
Technical & Trade Views
SP500 Bullish Above Bearish Below 5745
Daily VWAP bearish
Weekly VWAP bearish
Below 5720 opens 5660
Primary support 5660
Primary objective 5950
EURUSD Bullish Above Bearish Below 1.09
Daily VWAP bullish
Weekly VWAP bearish
Above 1.09 opens 1.0980
Primary support 1.0750
Primary objective 1.0750
GBPUSD Bullish Above Bearish Below 1.3050
Daily VWAP bullish
Weekly VWAP bearish
Below 1.29 opens 1.27
Primary support is 1.29
Primary objective 1.31
USDJPY Bullish Above Bearish Below 148
Daily VWAP bullish
Weekly VWAP bullish
Below 148 opens 144
Primary support 148
Primary objective is 156
XAUUSD Bullish Above Bearish Below 2680
Daily VWAP bearish
Weekly VWAP bullish
Below 2670 opens 2600
Primary support 2550
Primary objective is 2800
BTCUSD Bullish Above Bearish Below 69500
Daily VWAP bullish
Weekly VWAP bullish
Below 69000 opens 64000
Primary support is 58000
Primary objective is 80000
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!