Daily Market Outlook, September 18, 2024 

Munnelly’s Macro Minute…

"Fed Decision Day”

The odds of a super-sized Federal Reserve interest rate cut later in the day were the subject of traders' consideration, as Asian equities displayed a mixed performance. The U.S. currency experienced a significant decline against the yen, reversing Tuesday's rally. This decline was attributed to the unexpectedly robust U.S. retail sales data, which was perceived as undermining the case for aggressive Fed easing. Additionally, the euro improved, recouping nearly the entirety of the previous day's decline. The probability of the Federal Reserve initiating its easing cycle with a sizable 50 basis point reduction fluctuated in Asia, falling from 67% at the same time on Tuesday to 63% early in the day. Nevertheless, the odds were once again at 65% highlighting market nervousness. The Nikkei stock initially rose 0.72% to erase Tuesday's 1% decline, as Japanese equities were the only ones in the region to post significant gains. The benchmark index continued to be influenced by the dollar-yen exchange rate; as such, the Nikkei reversed early gains to trade in the red down 0.6%. Upon their return to the market following a holiday-extended weekend, Chinese investors remained shunned blue chips, leaving the market modestly lower, The Hang Seng was the only major Asian market trading in the green up 1.3%.

Bloomberg has reported that Novo Nordisk anticipates that its diabetes drug Ozempic will be included in the U.S. government's 2027 list of price negotiations. This development will be closely monitored in the European corporate news section. Commerzbank may continue its recent volatility. The German finance ministry denied a report that it was still committed to selling its complete stake in the bank, despite UniCredit's potential interest in acquiring the lender. The only data of note in the Eurozone is regional inflation data releases. 

In the UK August inflation data came in broadly in line with consensus. The core rate increased by 0.3 percentage points to 3.6% year-over-year, while the headline CPI remained unchanged at 2.2% year-over-year. The services CPI also increased by 0.4 percentage points to 5.6% year-over-year, which was consistent with the consensus. Therefore, it seems that the MPC will likely maintain rates at 5% at tomorrow's meeting.

Turning to the Fed, the manner in which the FOMC communicates its decision will be significant, as market pricing for the Fed decision fluctuates between a 25-50bps cut. It will be essential to consider the updates to the Summary of Economic Projections and how they are incorporated into the dot plot.  The PCE and core PCE forecasts could be mildly adjusted downward, reversing the June increase, in light of the improvement in inflation data over the summer.  However, it would also appear that a minor reprofiling of the growth outlook (lower) and an increase in the Fed's assumptions for unemployment, the critical component of the other side of the "dual mandate," would be necessary to justify a larger cut.  That process may have commenced in June, when the jobless rate was anticipated to increase by a tenth of a percentage point for the upcoming year. However, since then, the reported jobless rate has increased to 4.2%, and the trend of slowing hiring has continued. That should surely cause the Federal Reserve to adjust its expectations for that level in the coming years. Subsequently, this would substantiate the case for expediting the adjustment of the current restrictive monetary policy setting by front-loading rate cuts.

Overnight Newswire Updates of Note

  • US Retail Sales Advance (M/M) Aug: 0.1% (est -0.2%; prev 1.0%)

  • US Industrial Production (M/M) Aug: 0.8% (est 0.2%; prev R -0.9%)

  • Canada CPI NSA (M/M) Aug: -0.2% (est 0.0%; prev 0.4%)

  • Dozens Of Hezbollah Members Wounded After Pagers Explode In Lebanon

  • Israel Adds Securing Northern Front Against Hezbollah To War Aims

  • Ukraine’s Allies Are Starting To Look At How A Cease-Fire Could Work

  • Bond Traders Favor Half-Point Cut In Fed’s ‘Coin Flip’ Decision

  • Traders Step Up Bets On Bank Of England Interest Rate Cut

  • Bank Of France Predicts Inflation Will Slow To 1.5% Next Year

  • US To Seek 6 Mln Barrels Of Oil For Reserve, Amid Low Oil Price

  • iPhone 16 Already Selling At A Discount In China, As AI Delay Cools Demand

  • JPMorgan In Talks With Apple To Take Over Credit Card From Goldman

  • Accenture To Delay Bulk Of Promotions By Six Months On Outlook

          (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: 1.0950-55 (758M), 1.0985-95 (1.01BLN)

  • 1.1000-10 (2.43LN), 1.1020-25 (637M), 1.1050-60 (533M)

  • 1.1100 (721M), 1.1125-35 (1.45BLN), 1.1175-85 (355M)

  • 1.1200 (1.3BLN)

  • USD/CHF: 0.8415 (450M), 0.8550 (260M), 0.8640 (390M)

  • EUR/CHF: 0.9535 (200M), 0.9575 (351M)

  • EUR/GBP: 0.8380 (1.04BLN), 0.8500 (253M)

  • GBP/USD: 1.3000 (2.1BLN), 1.3050 (706M)

  • AUD/USD: 0.6600 (319M), 0.6650 (262M), 0.6750 (443M)

  • NZD/USD: 0.5950 (565M). USD/CAD: 1.3500-10 (316M)

  • 1.3550 (370M), 1.3570 (375M)

  • EUR/JPY: 159.55 (395M). EUR/SEK: 11.30 (601M)

  • USD/JPY: 140.00 (612M), 140.45-50 (500M), 141.00 (1.12BLN)

  • 141.25 ( 200M), 141.50 (500M), 142.00 (682M)

  • 142.25 (918M), 142.50 (625M), 143.00 (1.5BLN)

CFTC Data As Of 13/9/24

  • Euro net long position is 81,433 contracts

  • Japanese Yen net long position is 55,770 contracts

  • Swiss Franc posts net short position of -21,304 contracts

  • British Pound net long position is 90,288 contracts

  • Equity fund managers cut S&P 500 CME net long position by 6,179 contracts to 985,040

  • Equity fund speculators trim S&P 500 CME net short position by 18,194 contracts to 253,368

  • Speculators increase CBOT US 10-year Treasury futures net short position by 19,278 contracts to 1,022,105

Technical & Trade Views

SP500 Bullish Above Bearish Below 5600

  • Daily VWAP bullish

  • Weekly VWAP bullish

  • Below 5550 opens 5500

  • Primary support 5475

  • Primary objective is 5700

EURUSD Bullish Above Bearish Below 1.1140

  • Daily VWAP bullish

  • Weekly VWAP bearish

  • Below 1.09 opens 1.0850

  • Primary resistance 1.1150

  • Primary objective 1.0950

GBPUSD Bullish Above Bearish Below 1.3190

  • Daily VWAP bullish

  • Weekly VWAP bullish

  • Below 1.3050 opens 1.2960

  • Primary support is 1.2730

  • Primary objective 1.3390

USDJPY Bullish Above Bearish Below 141

  • Daily VWAP bullish

  • Weekly VWAP bearish

  • Above 141 opens 143.70

  • Primary resistance e143.70

  • Primary objective is 138.50

XAUUSD Bullish Above Bearish Below 2530

  • Daily VWAP bullish

  • Weekly VWAP bullish

  • Below 2500 opens 2460

  • Primary support 2430

  • Primary objective is 2598

BTCUSD Bullish Above Bearish Below 58000

  • Daily VWAP bullish

  • Weekly VWAP bullish

  • Below 54000 opens 50000

  • Primary support is 500000

  • Primary objective is 700000