Daily Market Outlook, December 18, 2024 

Munnelly’s Macro Minute...

"Markets Muted Ahead Of Fed’s Final Meeting Of 2024”

Asian stocks saw a slight increase in a stable trading environment as investors prepared for the Federal Reserve's last policy decision of the year. The MCSI Asian regional stock index rose by 0.3% after a three-day decline, with gains in Hong Kong and mainland China balancing losses in Japan and Australia.  Nissan's shares soared by as much as 24%, marking the largest increase since at least 1974, amid speculation that the struggling car manufacturer may be contemplating a merger with Honda, whose stock experienced a decline.

UK CPI inflation rose to 2.6% y/y in November, exceeding the BoE's forecast and market expectations. Services inflation remained at 5.0% y/y, slightly below consensus but above BoE predictions. Core CPI at 3.5% y/y surprised markets, influenced by soft airfares. Overall, inflation measures are higher than anticipated, with goods prices shifting from -0.3% y/y deflation to +0.4% y/y inflation. This situation complicates the MPC's messaging, despite differing employment indicators.

While the Fed is largely anticipated to cut interest rates by another 25 basis points on later Wednesday, the focus is on its outlook for the upcoming year, especially in light of Donald Trump's proposed initiatives that could potentially trigger inflation. Strong retail sales shouldn't dissuade the Fed from implementing a rate cut. Recently, it has been challenging to find any weak demand indicators in the US, and this holds true for the November retail sales report. Advance sales increased by 0.7% month-over-month, surpassing the 0.6% forecast and building on an upwardly adjusted 0.5% increase from the previous month (previously 0.4%). The core metrics showed more modest growth, with sales excluding autos and gas both rising by 0.2%, falling short of the 0.4% median, while the control group met expectations at 0.4%. Overall, these figures keep year-over-year changes within recent trends—strong but not compelling enough to catch the Fed's attention. This report aligns well with the soft-landing narrative, and with labor market data indicating improved balance, the FOMC should feel confident in executing another 25 basis point rate cut. The recent persistence of inflation is likely to have a more significant impact on the policy outlook for next year, as monetary adjustments approach the 'appropriate' levels that policymakers are targeting. This 'neutral' assumption is expected to continue rising, including projections for the long-term rate.

Overnight Newswire Updates of Note

  • China 30Y Bond Futures Sink 1% On Report Of PBoC Curbing Risks

  • Abrdn Bets On Chinese Long Bonds With 10-Year Yield Target Of 1%

  • Japan’s Exports Rise As Weak Yen Helps Amid Uncertainties

  • M&A Speculation Spurs Rally In Japanese Automaker Stocks

  • FOMC Set To Cut Interest Rates At Final Meeting Of 2024

  • US Congress Prepares Stopgap Bill To Prevent Shutdown

  • Fonterra CEO: US Tariff Policy May Hurt Customer Demand

  • Trump’s Ukraine Envoy Traveling To Kyiv, Open To Moscow Visit

  • German Ifo Drops To Worst Mark Since 2020 On Sharp Fall In Outlook

  • German ZEW Jumps On Prospects Of Rate Cuts, Snap Elections

  • Chile Cuts Rates By Quarter-Point With Economy Below Potential

          (Sourced from reliable financial news outlets)

FX Options Expiries For 10am New York Cut

(1BLN+ represents larger expiries, more magnetic when trading within daily ATR)

  • EUR/USD: 1.0450 (780M), 1.0490 (628M), 1.0500 (1.7BLN), 1.0510 (371M)

  • 1.0525-35 (581M), 1.0550 (1.2BLN)

  • USD/CHF: 0.8900 (702M), 0.8955-55 (245M), 0.8965-75 (494M)

  • EUR/CHF: 0.9350 (471M)

  • GBP/USD: 1.2600 (340M), 1.2640-50 (300M), 1.2745-50 (425M)

  • 1.2800-15 (1.4BLN)

  • AUD/USD: 0.6350 (1BLN). NZD/USD: 0.5750 (465M)

  • USD/CAD: 1.4280 (608M), 1.4300 (796M), 1.4350 (646M)

  • USD/JPY: 152.00 (607M), 153.00-10 (602M), 154.50-60 (890M)

  • AUD/JPY: 98.00 (204M)

CFTC Data As Of 13/12/24

  • Equity fund managers cut S&P 500 CME net long position by 10,616 contracts to 1.086,295

  • Equity fund speculators trim S&P 500 CME net short position by 61,936 contracts to 308,395

  • Speculators trim CBOT US 10-year Treasury futures net short position by 16,185 contracts to 875,716

  • Speculators trim CBOT US 5-year Treasury futures net short position by 70,670 contracts to 1,790,430

  • Speculators increase CBOT US 2-year Treasury futures net short position by 52,025 contracts to 1,254,924

  • Japanese yen net long position is 25,752 contracts

  • Swiss franc posts net short position of -34,992 contracts

  • British pound net long position is 27,125

  • Euro net short position is -75,573 contracts

  • Bitcoin net short position is -720 contracts

Technical & Trade Views

SP500 Bullish Above Bearish Below 6000

  • Daily VWAP bearish

  • Weekly VWAP bullish

  • Below 5990 opens 5930

  • Primary support 5795

  • Primary objective 6200

EURUSD Bullish Above Bearish Below 1.0450

  • Daily VWAP bbullish

  • Weekly VWAP bearish

  • Above 1.0590 opens 1.0728

  • Primary resistance 1.0950

  • Primary objective 1.0728

GBPUSD Bullish Above Bearish Below 1.26

  • Daily VWAP bullish

  • Weekly VWAP bearish

  • Above 1.2760 opens 1.2859

  • Primary resistance 1.3050

  • Primary objective 1.2859

USDJPY Bullish Above Bearish Below 154

  • Daily VWAP bullish

  • Weekly VWAP bearish

  • Below 150 opens 148

  • Primary support 150

  • Primary objective is 157.50

XAUUSD Bullish Above Bearish Below 2600

  • Daily VWAP bearish

  • Weekly VWAP bearish

  • Below 2530 opens 2467

  • Primary support 2530

  • Primary objective is 2800

BTCUSD Bullish Above Bearish Below 92000

  • Daily VWAP bullish

  • Weekly VWAP bullish

  • Below 91000 opens 87500

  • Primary support is 85000

  • Primary objective is 112,000