Daily Market Outlook, April 16, 2024
Munnelly’s Macro Minute…
“Asian Markets Follow Wall Street Into The Red”
On Tuesday, Asian stock markets experienced widespread declines, mirroring the sell-off on Wall Street the previous day. This was driven by a surge in bond yields after a report revealed stronger-than-expected U.S. retail sales growth in March. The data raised concerns that the US Fed may delay lowering interest rates in June. Additionally, traders remained wary of geopolitical tensions in the Middle East. Most Asian markets ended Monday with lower closing prices. In light of the latest data, CME Group's FedWatch Tool currently suggests only a 21.6 percent likelihood of a quarter point rate cut in June. In China, Q1 GDP growth came in at 5.3% year-on-year, surpassing forecasts, although March retail sales and industrial production fell short of expectations.
Turning to the UK, recent labor market data showed a mixed picture. While the unemployment rate rose to 4.2% in the three months to February, exceeding predictions, annual wage growth remained steady at 5.6%, defying expectations of a slight decrease. Underlying wage growth, excluding bonuses, declined less than anticipated to 6.0% from 6.1%. These wage figures, alongside expected continued CPI inflation decreases, may impact the timing and magnitude of potential Bank of England rate adjustments. Tomorrow morning, the UK will release March CPI data. Headline inflation is anticipated to edge closer to the 2% target, with a projected decrease to 3.1% from February's 3.4%. This aligns with expectations of a drop below 2% in April figures, factoring in Ofgem price reductions. Service sector price pressures appear weaker compared to the previous year, while moderation in food price inflation and softer retail prices, such as clothing and footwear, are expected due to adverse weather conditions. However, petrol prices saw an increase in March compared to the previous year.
The German ZEW survey of professional investors will also be released today, with anticipation of further improvements in the expectations index for economic activity, while the current economic situation index is expected to remain weak.
Later today, market focus will shift to US housing data and industrial production, following recent positive surprises in economic indicators, including stronger-than-expected retail sales. Consequently, expectations for Federal Reserve rate cuts this year have been scaled back.
This week will see several central bank speakers, partly due to the IMF/G-20 meetings. Bank of England Governor Bailey is set to speak later today, with markets assigning roughly even odds to the possibility of the first rate cut occurring as early as June. Federal Reserve Chair Powell will participate in a moderated Q&A session.
Overnight Newswire Updates of Note
China First-Quarter GDP Grows 5.3%, Beating Estimates
Israel’s Military Chief: Will Respond To Iran’s Weekend Attack
US, Europe Seek To Dissuade Israel From Striking Back Against Iran
US Speaker: House Will Vote On Ukraine And Israel Aid This Week
Fed’s Daly Says No Urgency To Cut, Policy In A Good Place
Japan's Yen Hits A Fresh Three-Decade Low Of 154
China Loosens Grip On Yuan By Weakening Fix Amid USD Strength
Tesla Plans To Lay Off More Than 10% Of Workforce
Lockheed Wins US Missile Defence Contract Worth $17 Bln
(Sourced from Bloomberg, Reuters and other reliable financial news outlets)
FX Options Expiries For 10am New York Cut
(1BLN+ represent larger expiries, more magnetic when trading within daily ATR)
EUR/USD: 1.0610-20 (1.2BLN), 1.0650 (801M), 1.0660-70 (2.6BLN)
1.0700 (1.2BLN, 1.0750 (1.5BLN), 1.0800 (2.7BLN), 1.0820-25 (1.8BLN)
USD/CHF: 0.9050 (350M), 0.9140 (476M)
GBP/USD: 1.2450 (321M). 0.8530 (200M),0.8550 (225M)
AUD/NZD: 1.0900 (594M)
AUD/USD: 0.6500 (1.1BLN), 0.6600 (740M)
USD/CAD: 1.3700 (890M), 1.3715-25 (800M)
USD/JPY: 153.00 (510M), 153.50 (310M), 154.05-10 (480M)
AUD/JPY: 97.60 (805M)
FX option risk premiums are trading at January highs, with implied volatility showing a risk premium compared to realised volatility. The premiums have increased for all currencies and expiration dates, with the 1-month expiry being the benchmark. G10 implied volatility for 1-month expiry has reached new highs since January, compared to 2+year lows in mid-March. There has been a significant increase in volatility premium for USD and JPY calls compared to puts, indicating risk aversion and the potential for further USD gains, as well as potential JPY intervention. Key barrier levels are at EUR/USD 1.0600 and USD/JPY 155.00.
CFTC Data As Of 12/04/24
Equity fund managers raise S&P 500 CME net long position by 9,236 contracts to 939,368
Equity fund speculators trim S&P 500 CME net short position by 32,395 contracts to 333,288
Japanese yen net short position is -162,151 contracts
Euro net long position is 32,723 contracts
British pound net long position is 28,252 contracts
Swiss franc posts net short position of -31,764 contracts
Bitcoin net short position is -153 contracts
Gold NC Net Positions climbed from previous $199.3K to $207.3K
Technical & Trade Views
SP500 Bullish Above Bearish Below 5104
Daily VWAP bearish
Weekly VWAP bearish
Above 5110 opens 5150
Primary resistance 5180
Primary objective is 5000
EURUSD Bullish Above Bearish Below 1.0720
Daily VWAP bearish
Weekly VWAP bearish
Above 1.0730 opens 1.0760
Primary resistance 1.0740
Primary objective is 1.0550
GBPUSD Bullish Above Bearish Below 1.25
Daily VWAP bearish
Weekly VWAP bearish
Above 1.2560 opens 1.2650
Primary resistance is 1.2650
Primary objective 1.2350
USDJPY Bullish Above Bearish Below 153.40
Daily VWAP bullish
Weekly VWAP bullish
Below 153.40 opens 152
Primary support 152
Primary objective is 155
XAUUSD Bullish Above Bearish Below 2395
Daily VWAP bullish
Weekly VWAP bullish
Below 2380 opens 2330
Primary support 2284
Primary objective is 2430 TARGET HIT NEW PATTERN EMERGING
BTCUSD Bullish Above Bearish below 66000
Daily VWAP bearish
Weekly VWAP bullish
Below 59900 opens 55900
Primary support is 60000
Primary objective is 78000
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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!