Daily Market Outlook, November 7, 2024
Munnelly’s Macro Minute…
"Time For Trump 2.0”
Asian equities markets saw mixed results Thursday as investors weighed the potential effects of a second Donald Trump presidency. They also eye the U.S. Federal Reserve and other major central banks' monetary policy decisions due today.
All three major U.S. share indexes surged to record highs, but Asia did not experience significant increases, despite the possibility of a Republican sweep that would swiftly bring in significant fiscal expenditure. On the fear of larger deficits, U.S. Treasury rates surged, which helped push the dollar to its largest one-day gain in almost two years against key peers on Wednesday.
German Chancellor Olaf Scholz's dismissal of Finance Minister Christian Lindner, which led to the dissolution of the government's three-party coalition, further put pressure on the euro.
The Japanese stock market has retreated from its recent gains, closing lower on Thursday despite the positive signals from Wall Street overnight. The Nikkei 225 saw declines in major index constituents and technology stocks only partially offset by advances in exporting and financial firms. Chinese markets rebounded in the overnight session after losing ground on Wednesday due to the likelihood of higher tariffs under another Trump presidency. Hong Kong's Hang Seng rose 2% and mainland blue chips added 4%. China's week-long National People's Congress Standing Committee meeting concludes on Friday, and market participants anticipate fresh details on stimulus measures. Chinese trade data released Thursday showed outbound shipments grew at the fastest pace in over two years in October as manufacturers rushed inventory to major export markets in anticipation of further tariffs from the U.S. and the European Union.
BoE Governor Bailey and the MPC will have to take a tough line to out-hawk the market. A 25bp cut in Bank Rate to 4.75% today by the BoE is widely expected but there is probably less consensus on the vote split and especially on the outlook that will be signalled from here. A CPI forecast of around 2% at the 2yr horizon seems likely. The MPC minutes and Bailey's press conference may signal a more hawkish message, but surely the market has got its retaliation in first on this occasion. With services CPI and private sector average earnings tracking beneath August MPR projections, the risk is that the market has more than factored in the Budget's fiscal stimulus.
The 2024 US election resulted in a convincing victory for Trump, who returned to power with a radical manifesto. Republicans retained control of the House and regained the Senate, giving Trump an overwhelming mandate to deliver on his campaign promises and removing many checks that Democrat control could have imposed. Trump's protectionist ideology and transactional approach will be problematic for surplus economies, generating uncertainties around inflation and disrupting supply chains. Geopolitically, a more isolationist US leadership coincides with conflict and pariah-state expansionism, raising risks but also reinforcing the positive US dollar trend.
The Federal Reserve is likely to cut interest rates by 25 basis points, with Powell emphasising the economy's soft-landing credentials. The Fed will continue easing policy as inflationary pressures subside and the labour market remains balanced, with growth around 2.5%. The Fed will maintain its current tone, reacting to data and events rather than presumptions about the incoming administration.
Overnight Newswire Updates of Note
German Coalition Collapses, Chancellor Scholz Sacks FM
BoE In No Hurry To Keep Up With Its Rate-Cutting Peers
FOMC Set To Continue Rate Cut Cycle As Election Dusts Settles
Trump Win Wreaks Havoc On Global Rate-Cut Expectations
Asian Currency Traders Brace For Risk Fed And China Disappoint
Australia Goods Trade Surplus Narrows To A$4.6B In Sept
Japan’s Biggest Base Pay Rise in 31 Years Keeps BoJ On Track
BHP Chief Sees Signs Of Recovery In China After Stimulus
China Tells Banks To Lower Interbank Deposit Rates
Qualcomm, Arm Results Show Industry Uneven Comeback
(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: 1.0650 (1.6BLN), 1.0700 (332M), 1.0725 (1.1BLN), 1.0775 (2.3BLN)
1.0800 (595M), 1.0820-25 (413M), 1.0845 (608M)
AUD/USD: 0.6600 (394M), 0.6690-0.6700 (517M)
USD/CAD: 1.3800 (860M), 1.3820-25 (504M), 1.3900 (732M)
1.3950 (420M), 1.0400 (425M), 1.4050 (1.6BLN)
USD/JPY: 152.50 (1BLN), 153.00 (592M), 155.00 (227M)
EUR/JPY: 165.90 (434M)
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 5850
Daily VWAP bullish
Weekly VWAP bullish
Below 5720 opens 5660
Primary support 5800
Primary objective 5950
EURUSD Bullish Above Bearish Below 1.09
Daily VWAP bearish
Weekly VWAP bearish
Above 1.09 opens 1.0950
Primary resistance 1.0950
Primary objective 1.0750 - TARGET HIT NEW PATTERN EMERGING
GBPUSD Bullish Above Bearish Below 1.3050
Daily VWAP bearish
Weekly VWAP bearish
Below 1.29 opens 1.27
Primary resistance 1.3050
Primary objective 1.27
USDJPY Bullish Above Bearish Below 151
Daily VWAP bullish
Weekly VWAP bullish
Below 150 opens 148
Primary support 148
Primary objective is 157.50
XAUUSD Bullish Above Bearish Below 2680
Daily VWAP bearish
Weekly VWAP bullish
Below 2590 opens 2530
Primary support 2600
Primary objective is 2800
BTCUSD Bullish Above Bearish Below 71500
Daily VWAP bullish
Weekly VWAP bullish
Below 70000 opens 68000
Primary support is 60000
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!