Daily Market Outlook, April 18, 2024

Munnelly’s Macro Minute…

“Scant Econ Data, CB Speakers On Deck Along With Tech Earnings”

Asian stocks rose on Thursday as authorities' resistance to a strengthening dollar helped stabilize exchange rates and restore public confidence in the region's financial systems. Following a joint statement by US Treasury Secretary Janet Yellen and the finance ministers of Japan and South Korea expressing concerns about the weakening of the two Asian currencies, the value of the yen and won increased against the dollar. A global measure of emerging market currencies was set for a second day of gains after hitting a low point for the year earlier in the week, indicating some stabilization. The dollar index fell for a second day, while Treasuries remained relatively unchanged after a rally on Wednesday. Equities in China and Japan saw gains. The oil price has retreated, with Brent crude falling below $88 per barrel, nearing its lowest level in three weeks. This reflects optimism that tensions between Iran and Israel will not escalate further. Additionally, more US Federal Reserve policymakers have cautioned that persistent US inflation could delay interest rate cuts.

Looking at the day ahead, economic data is light in the UK and the Eurozone. In the US, focus will be on the weekly jobless claims data, which has been trending at unusually low levels in recent weeks, indicating a resilient labor market. However, this may not reassure markets regarding potential interest rate cuts by the Federal Reserve. The release of existing home sales for March in the US will also be watched. While sales saw a significant rise in January and February, a modest decline is expected for March. Nonetheless, the overall trend suggests that the housing sector has stabilized, although rising bond yields could pose a threat to this recovery.The April Philadelphia Fed survey will offer insight into current economic conditions, although its volatility makes it challenging to discern underlying trends.

Global financial leaders continue to provide commentary at the International Monetary Fund and World Bank Spring meetings in Washington. ECB vice-president Luis de Guindos presents the bank's annual report, joined by colleagues Joachim Nagel, Isabel Schnabel, Mario Centeno, Gediminas Simkus, and Boris Vujcic at various venues. Megan Greene of the Bank of England has taken a hawkish tone in recent comments, warning of inflation risks from the Middle East and pushing back against expectations of quicker rate cuts compared to the United States. Later today US investors will parse earnings from Netflix and TSMC as tech earnings get underway.

Overnight Newswire Updates of Note

Traders Pile Into Contrarian Bet That Fed Will Front-Run Cuts
Fed's Bowman: Inflation Progress Slows And Possibly Halts
Mester Says Fed Can Hold Rates Steady, Not In a Hurry to Cut
Lagarde Says Euro-Zone Economy Is Showing Signs Of Recovery
ECB’s Nagel: Probability Of ECB June Rate Cut Is Increasing
ECB's Vasle Sees Rates Much Closer To 3% At Year-End
ECB’s Centeno Says It’s About Time To Change Monetary Policy
BoE’s Andrew Bailey Insists UK ‘On Track’ To Quell Inflation
BoJ's Noguchi: Short-Term Policy Rate Adjustment Likely To Be Slow
Australian Jobs Surprisingly Fall, Giving RBA Scope For Patience
Japan's Kanda: G7 Statement Reconfirmed Commitment On FX Stance
China Reiterates Need For Steady Yuan Amid Fragile Confidence
US Reimposes Oil Sanctions On Venezuela After Broken Election Promises
Israel Reportedly Considered Striking Iran On Monday But Decided To Wait

(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: 1.0625 (609M), 1.0635-40 (1.1BLN), 1.0650 (909M)
1.0670-75 (623M), 1.0700 (910M)
USD/CHF: 0.9000 (928M), 0.9100 (200M).
EUR/CHF: 0.9700 (649M), 0.9725 (239M), 0.9750 (576M)
GBP/USD: 1.2390-1.2400 (1BLN), 1.2450 (705M), 1.2500 (230M), 1.2640 (720M)
EUR/GBP: 0.8490 (800M), 0.8535 (400M), 0.8590 (281M), 0.8650 (786M)
AUD/USD: 0.6370 (596M), 0.6435 (1.5BLN), 0.6500-15 (609M), 0.6540-45 (700M)
NZD/USD: 0.5900 (745M), 0.5995 (2.3BLN)
AUD/NZD: 1.0850 (304M), 1.0900 (302M). USD/CAD: 1.3750 (1BLN)
USD/JPY: 153.00 (6BLN), 153.80 (1BLN), 154.00 (755M), 154.50 (1BLN)
155.00 (895M). EUR/JPY: 164.00 (500M), 164.95 (489M). AUD/JPY: 99.25 (505M)
Thursday saw a dominance of sellers in the FX option markets, leading to a significant increase in implied volatility amid geopolitical risks and policy divergence, despite demand coming from long-term lows. It was challenging to assess the amount of risk premium each party demanded, while realized volatility remained relatively low throughout the week. Risk experienced a modest recovery, accompanied by a weakening USD. Sellers of option implied volatility reappeared, particularly in shorter dates. Without further escalation in the Middle East, there's potential for increased downside volatility. USD calls, notably for EUR/USD, witnessed substantial premium gains, although the easing process was gradual. The expiration of significant strikes on Thursday amplified their influence in calmer markets.

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