Daily Market Outlook, September 19, 2024 

Munnelly’s Macro Minute…

"Fed Delivers, BoE On Deck”

In response to the US Federal Reserve's decision to rapidly cut interest rates by half a percentage point for the first time in over four years, Asian stock markets are mostly up on Thursday despite Wall Street's off its best levels into the close, US futures in unison with Asian markets have recovered overnight. Thursday's significant increase in the Japanese market is a continuation of yesterday's advances. Index heavyweights, financial and technology firms are leading the advances across most sectors, as the Nikkei 225 is just above the 37K handle. The market leader SoftBank Group is up over 2%. Real estate developers and spirits manufacturers led the rebound in China equities from modest early losses on Thursday, as investors anticipated that the commencement of long-awaited U.S. rate cuts would provide Beijing policymakers with additional flexibility to stimulate the faltering Chinese economy. Through the overnight discount window, the Hong Kong Monetary Authority reduced its base rate by 50 basis points to 5.25%. The monetary policy of Hong Kong is in strict accordance with that of the United States, as the city's currency is pegged to the USD at a rate of 7.75–7.85 per dollar.

The Federal Reserve determined that a more assertive 50bp rate reduction this time, with less dovish language regarding future moves, was a more suitable beginning to the easing cycle than a gentler 25bp cut with more dovish guidance. Powell minimised the importance of the "dot plot," but the fact that it indicated that the majority of participants would experience either 25 bps or 50 bps of additional reductions in the final two meetings of 2024 served to emphasise his assertion that it would be erroneous to interpret this action as the "new pace" of rate cuts. Nevertheless, the statement offered a clear indication that additional reductions are imminent, as it mentioned the possibility of "additional adjustments to the target range" rather than the previous statement of "any" adjustments. Additionally, the new economic projections suggested a preference for additional easing, despite the fact that the headline forecasts for GDP and inflation were only modestly revised in comparison to the June edition, due to a significant change in the evaluation of risks regarding the labour market outlook. Given that the market has been ahead of the Fed in pricing in cuts thus far, it appears unlikely that the gradual dot plot profile will be accepted at face value. Powell defended the 50-basis point move as a demonstration of the Federal Reserve's determination to remain ahead of the curve. This implies that the market should anticipate a comparable reaction to weaker labour market data.

The Bank of England is expected to remain at 5%, with the primary focus on the QT decision today, which is anticipated to be £100 billion. The absence of a surprise in yesterday's inflation data only served to further concentrate expectations for no change in the Bank Rate when it was announced by the MPC at noon BST today. The MPC's deliberation on the amount of QT in the upcoming year is the primary focus. The total amount will be £100bn, which will result in active gilt sales of only £13bn due to the passive QT spike to £87bn. The primary justification for refraining from exceeding £100 billion in total is the anticipated unwind of approximately £90 billion in TFSME loans, which will result in a further reduction in the central bank's balance sheet. The range of 8-1 to 6-3 should accommodate nearly all expectations in terms of the vote divide on the decision to maintain the Bank Rate at 5%. The guidance language is anticipated to remain non-committal and unaltered, referring solely to "determining the appropriate degree of monetary policy restrictiveness at each meeting." Consequently, the majority of the market reaction is anticipated to occur in gilts, further along the curve, in response to QT news, rather than in terms of front-end policy rate expectation changes.

Overnight Newswire Updates of Note

  • Fed Cuts Rates By 50Bps, Aggressive Start To First Easing Campaign In 4-Years

  • Israel Detonates Hezbollah Walkie Talkies In Second Wave After Pager Attack

  • Bank Of Canada Officials Are Split On Balance Of Inflation Risks

  • Poilievre To Introduce Non-Confidence Motion To Trigger Canadian Election

  • ECB’s Nagel: ECB Must Remain Patient To Fully Reach 2% Price Goal

  • Japan Says Economy Recovering At Moderate Pace

  • China Scraps Tariff Exemptions On Some Taiwan Imports

  • SEC Cuts Tick Size For Stock Market Trades To A Half Penny

  • General Mills Posts Smaller Drop In Quarterly Sales Than Expected

  • T-Mobile Sees EBITDA Of As Much As $39 Bln By 2027

  • Boeing To Temporarily Furlough Tens Of Thousands Of Employees

  • GM Electric Vehicles Can Finally Access Tesla Superchargers

          (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: 1.1060-70 (1.5BLN), 1.1075-85 (916M)

  • 1.1090-95 (1.24BLN), 1.1100-05 (4.8BLN)

  • 1.1115-25 (2.0BLN), 1.1130-40 (2.1BLN), 1.1145-50 (2.4BLN)

  • 1.1175 (396M), 1.1200 (3.0BLN), 1.1215-30 (1.21BLN)

  • 1.1250 (396M), 1.1285 (420M)

  • USD/CHF: 0.8365-75 (2.41BLN), 0.8500 (1.7BLN), 0.8525 (456M)

  • 0.8610 (260M), 0.8700 (674M)

  • EUR/NOK: 11.45 (810M), 11.60-65 (510M)

  • GBP/USD: 1.3070-80 (829M), 1.3120 (200M), 1.3175 (426M)

  • 1.3200-10 (640M), 1.3240-50 (1.14BLN), 1.3300 (1.17BLN)

  • EUR/GBP: 0.8460 (485M). EUR/CHF: 0.9545 (264M)

  • AUD/USD: 0.6685-95 (1.5BLN), 0.6700 (348M), 0.6715-25 (982M)

  • 0.6740-45 (2.54BLN), 0.6785 (501M)

  • NZD/USD: 0.6035 (600M), 0.6140-50 (1.53BLN)

  • AUD/NZD: 1.0900 (960M), 1.1110 (454M)

  • USD/CAD: 1.3500-05 (432M), 1.3590-00 (1.22BLN)

  • 1.3655-60 (402M)

  • USD/JPY: 141.00 (1.5BLN), 141.40-50 (922M), 141.95-00 (908M)

  • 143.00 (890M). EUR/JPY: 154.30 (415M), 158.25 (243M)

  • USD/ZAR: 17.50 (600M), 17.7500 (241M)

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 5620

  • 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 141.50

  • Daily VWAP bullish

  • Weekly VWAP bearish

  • Above 143.70 opens 144.30

  • Primary resistance 143.70

  • Primary objective is 138.50

XAUUSD Bullish Above Bearish Below 2530

  • Daily VWAP bearish

  • Weekly VWAP bullish

  • Below 2500 opens 2460

  • Primary support 2430

  • Primary objective is 2598 - TARGET HIT, NEW PATTERN EMERGING

BTCUSD Bullish Above Bearish Below 58000

  • Daily VWAP bullish

  • Weekly VWAP bullish

  • Below 54000 opens 50000

  • Primary support is 500000

  • Primary objective is 700000