Daily Market Outlook, April 17, 2024

Munnelly’s Macro Minute…

“Another Powell Flip Flop On Rate Cut Timing Weighs On Risk”

On Wednesday, global markets continue navigating through some volatility, especially with the anticipation of the Federal Reserve's actions regarding interest rates. The fluctuation in Asian currencies and the recovery of the MSCI Asia Pacific Index suggest a mixed sentiment among investors. The decline in the dollar after its recent surge is noteworthy, particularly in its impact on emerging-market currencies. The varied performance of Asian stocks, with Japan facing losses and mainland China seeing gains, reflects regional differences in market dynamics. The efforts by the Chinese securities regulator to address concerns over new stock exchange rules likely contributed to the recovery of Chinese stocks. The stability of Treasury rates, despite reaching new highs for the year, indicates a cautious approach among investors following Federal Reserve Chairman Powell's remarks regarding the timeline for achieving the central bank's inflation target. The persistence of inflationary pressures, as indicated by key inflation indicators surpassing estimates for the third consecutive month, underscores the challenges facing central banks in managing monetary policy in a post-pandemic economic environment.

The latest UK March CPI inflation data has just been released, revealing a decrease to 3.2% from February's 3.4%. Although slightly higher than the expected 3.1%, it marks the lowest rate since September 2021. The core measure, which excludes energy and food, also saw a drop to 4.2% from 4.5%. Services inflation decreased to 6.0% from 6.1%, surpassing market expectations of 5.8%. The decline in food prices and softer retail prices, particularly in clothing and footwear, contributed to the overall CPI decrease, partially offset by petrol prices. Looking ahead, April's inflation is expected to sharply decrease to around the 2% target with the incorporation of a lower Ofgem energy price cap.

Eurozone March CPI inflation figures are anticipated to confirm the preliminary estimate, when released today. The preliminary estimate indicated a decline to 2.4%, surpassing expectations, while core CPI fell to 2.9%, the lowest in over two years. The ECB has indicated the possibility of a rate cut in June, ahead of the BoE or the Fed, given progress in inflation and sluggish growth.

Today, much market participant attention will be on central bank speakers, many of whom are in Washington DC for IMF and other meetings. Notably, BoE Governor Bailey will take part in a moderated discussion and ECB President Lagarde will join a conversation at 19:00. Other speakers include the BoE’s Greene and Haskel, and the Fed’s Mester and Bowman.

Overnight Newswire Updates of Note

Fed’s Powell: Likely To Take Longer To Meet Conditions To Cut Rates
Fed's Barkin: CPI Data Has Not 'Been Supportive' Of Soft Landing
BoC’s Macklem: March CPI Data Shows Econ. Moving In Right Direction
Lagarde Says Germany May Have Turned Corner After Major Shocks
ECB’s Villeroy: ECB To Cut More In 2024 And 2025 After June
Bank Of England's Bailey Sees Strong Evidence Of Falling UK Inflation
Jeremy Hunt Says Rate Cuts Would Lift UK Mood, Hints At Autumn Vote
Inflation In New Zealand Eases But Near-Term Rate Cuts Unlikely
United Airlines Cuts 2024 Aircraft Plan During Growth Challenges
LVMH Sales Growth Slows Along With Demand For Handbags
Israel Reportedly Finalizes Plans For Counter-Strike Against Iran

(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: 1.0600-10 (1.1BLN), 1.0630-35 (1.8BLN), 1.0650 (482M)
1.0675 (435M), 1.0700 (2.1BLN)
USD/CHF: 0.9100 (1.2BLN). EUR/CHF: 0.9725 (248M), 0.9750 (310M)
GBP/USD: 1.2500 (938M), 1.2745-60 (1BLN)
EUR/GBP: 0.8480 (429M), 0.8520 (330M)
AUD/USD: 0.6470-80 (1.4BLN), 0.6560 (330M), 0.6575 (617M)
AUD/NZD: 1.0750 (462M). NZD/USD: 0.5900-05 (1.4BLN)
USD/CAD: 1.3800 (1.4BLN)
USD/JPY: 153.00 (936M), 153.50 (721M), 155.00 (572M)
EUR/JPY: 163.85 (273M). CHF/JPY: 167.00 (200M)
The potential for a significant increase in the value of the dollar is increasing. The likelihood of a rate cut by the U.S. in September has decreased to 63%. The expected amount of easing in 2024 has also been reduced to 39 basis points, with the prospect of only one cut in that year. It is expected that the U.S. interest rate will likely remain higher than that of other major currencies. The U.S. dollar is considered to be more liquid and safer, and the U.S. has a larger number of asset markets compared to other nations. As a result, investors are more inclined to consider the greenback as a favorable option for parking their cash.

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