Daily Market Outlook, January 14, 2025
Munnelly's Macro Minute...
"Trump's new round of tariff stimulus drives Asian market recovery"
Chinese stocks led gains in Asia as the dollar weakened on reports that Trump's economic team may take a cautious approach to raising tariffs. The dollar index fell for the first time in six days, with the New Zealand dollar outperforming other G20 currencies. Stocks in China and Hong Kong rose, as did stocks in Sydney and Taiwan, while U.S. futures rose, extending the S&P 500's modest gains from Monday. The possibility of a gradual implementation of U.S. tariffs is fueling optimism in Asian markets as Trump threatens to impose tariffs of up to 60% on Chinese goods. With the Federal Reserve retaining room to cut interest rates, such an approach could help ease inflation concerns and reduce elevated U.S. Treasury yields. Meanwhile, traders are closely watching U.S. inflation data due this week that could provide further clues on the Fed's rate outlook. In Japan, 40-year bond yields surged to their highest level since its launch in 2007, driven by a global debt sell-off and speculation that the Bank of Japan could raise rates in the future. Elsewhere in Asia, China's top securities regulator unveiled plans to establish a market stabilization mechanism aimed at managing expectations by 2025 after a rocky start. Investors are also awaiting briefings from central bank and SAFE officials on Tuesday afternoon, which are expected to outline financial support measures for high-quality economic development.
Prime Minister François Bayrou submitted his policy plan to parliament today, which could lead to a vote of confidence in his government and enter a critical phase in France's fiscal crisis. This comes after negotiations between the government and parliamentary parties last week to resolve controversial policies. Bayrou is likely to propose a modest budget deficit target of around 5.5% of GDP this year, down from 6.1% last year and 5.0% promised by Michel Barnier. Analysts had predicted a change in this budget target. Compromises in the current budget proposal are crucial for legislative approval. The center-left Socialist Party would support the budget if pension reforms are reversed or weakened. Despite the political noise, OATs have been trading range-bound against German bunds this year, but an unfavorable outcome could increase volatility and send the 10-year spread back to highs around 90 basis points. A budget passage could boost OATs, but economic and political realities will still hurt them in the medium term.
U.S. markets will be closely watching U.S. producer prices and factors affecting the Federal Reserve's PCE deflator, which is due later. This comes ahead of Wednesday's more important Consumer Price Index report as expectations grow for higher inflation when President-elect Donald Trump unveils his tariff, immigration and tax policies, perhaps as early as his inauguration next week. Investor anxiety has increased since Friday's notably strong U.S. jobs report, which sent yields higher and reduced the odds of a rate cut from the Federal Reserve. Currently, markets are pricing in just 29 basis points of rate cuts from the Fed this year.
Overnight news updates worth watching
ECB President Rehn: Policy restrictions will be relaxed in mid-2025
EU reassesses technology investigation into Apple, Google and Meta
UK Prime Minister Starmer unveils AI strategy
US dollar falls on prospect of gradual tariff increase by Trump team
US LNG industry expected to expand; Trump vows to lift restrictions
Amazon races to implant generative AI into Alexa's "brain"
BoJ Deputy Governor: Rate hikes if prospects materialize
Goldman Snead: Waiting for China stimulus plan
US restrictions on AI weigh on chip stocks, Japan's Nikkei plunges
Australia's consumer confidence index falls 0.7% in January
NZIER survey: Confidence improves but activity remains weak
(Source: reliable financial news media)
10 a.m. New York options expiration date
(1BLN+ represents a longer expiry date, making it more attractive when trading within the daily ATR)
EUR/USD: 1.0200 (3.6BLN), 1.0250 (610M), 1.0275 (620M)
USD/CHF: 0.9050 (640M)
GBP/USD: 1.2200 (241M), 1.2295-1.2300 (300M)
AUD/USD: 0.6225 (324M). USD/CAD: 1.4300 (517M)
USD/JPY: 156.50 (800M), 157.00 (475M), 159.00 (591M)
AUD/JPY: 99.00 (1.8BLN)
CFTC data 10/1/25
Currency Futures Positions
CHF: Net short -28,382 contracts.
GBP: Net long 19,323 contracts.
EUR: Net short -68,507 contracts.
JPY: Net long 2,311 contracts.
Crypto Futures
Bitcoin: Net short -129 contracts.
Treasury Futures
CBOT Treasuries: Decreased by 19,961 contracts to a net short of 26,342.
CBOT U.S. Ultra: Decreased by 15,012 contracts to a net short of 204,292.
CBOT U.S. 2-Year: Decreased by 6,298 contracts to a net short of 1,252,975.
CBOT US 10-Year Note: Decreased by 141,543 contracts to 591,374 net short contracts.
CBOT US 5-Year Note: Decreased by 1,895 contracts to 1,760,422 net short contracts.
Equity Futures Positions
S&P 500 CME (Fund Managers): Net long position increased by 2,531 contracts to 1,042,431.
S&P 500 CME (Speculators): Net short position increased by 78,396 contracts to 347,102.
Key Highlights
Currency Futures: Bearish outlook (net short positions) persists for EUR and CHF, but slightly bullish sentiment for GBP and JPY.
Cryptocurrencies: Bitcoin futures show minimal speculative net short positions.
Treasury futures: Overall, speculators are reducing their net short exposure across all categories of Treasuries, showing less bearish sentiment on U.S. debt.
Equity futures: There is a split in views between equity fund managers (more bullish on S&P 500 futures) and equity speculators (increasing bearish bets).
Technical and Trading Views
SP500 Short 6040
Daily VWAP Bullish
Weekly VWAP Bearish
Seasonal factors suggest bearish trend continues until Jan 20
Long above 6075 target 6165
Short below 6045 target 5743
EURUSD Short 1.0435
Daily VWAP Bearish
Weekly VWAP Bearish
Seasonal factors suggest bearish trend continues until Mar 30
Above 1.0505 target 1.0634
Below 1.0435 target 0.9758
GBPUSD Short 1.2614
Daily VWAP Bearish
Weekly VWAP Bearish
Seasonal factors suggest bearish trend continues until Mar 10
Above 1.2685 target 1.2812
Below 1.2615 Target 1.1878
USDJPY long 153.77
Daily VWAP bearish
Weekly VWAP bullish
Seasonal factors suggest bearish until Jan 23
Above 1.5377 target 165.50
Below 152.41 target 150
XAUUSD short 2692
Daily VWAP bearish
Weekly VWAP bullish
Seasonal factors suggest bearish until Jan 15
Above 2725 target 2762
Below 2692 target 2475
BTCUSD short 101,960
Daily VWAP bearish
Weekly VWAP bearish
Seasonal factors suggest bearish until Jan 15
Above 104,020 target 110,000
Below 101,942 Target 86,266
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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!