Daily Market Outlook, January 17, 2025 

Munnelly’s Macro Minute...

"Markets Await Trump's Inauguration And A Potential Flood Of Executive Orders ”

The dollar strengthened overnight as the MSCI Asia Pacific Index ended its three-day winning streak as investors paid little attention to China's report of its fastest economic growth in six quarters. Following the announcement, China's benchmark CSI 300 Index fluctuated but ultimately closed higher in the afternoon session. Stocks in South Korea, India, Australia, and Japan fell. Despite the dollar appreciating against all Group of 10 currencies, it remained on track for its first weekly decline since November. China's economy met the government's growth target last year, supported by a last-minute stimulus package and an export surge. However, new US tariffs threaten a significant growth pillar moving forward. Asian markets fell despite being on course for weekly gains, with earlier increases driven by expectations of the Federal Reserve cutting interest rates sooner than expected. Japanese stocks are facing challenges, impacted by the yen's rise past 155 per dollar for the first time in nearly a month, as traders increase their expectations for a Bank of Japan rate hike next week.

UK retail sales data for December showed a significant decline, with volumes falling 0.6% m/m against expectations of a 0.3% increase. The previous month's figures were also revised down. Seasonal factors complicate the analysis, as the December data covers a period from late November to late December, including Black Friday. Despite an unadjusted increase of 10% m/m, the overall Q4 performance of -0.8% q/q confirms a disappointing trend. This poor retail performance is likely to negatively impact GDP growth, which was already projected to be flat for Q4. The recent economic news has favoured the MPC's doves over the hawks.

Since the ECB’s last policy meeting, markets have reduced expectations for rate cuts by ~25bps by April, despite no significant changes in economic fundamentals or ECB communication. This repricing is attributed to two factors: stronger-than-expected US economic data, which reduced Fed rate-cut expectations and lifted global developed market rates, and the market's initial overestimation of a 50 bps rate cut likelihood this quarter, despite the majority of ECB Governing Council members favouring a gradual easing approach. The December meeting minutes confirmed that most officials would require "negative shocks" to justify a larger cut. Barring significant surprises, the easing cycle is expected to extend beyond this quarter due to weak eurozone economic fundamentals, fiscal constraints, and geopolitical risks.

Today's key events include the Eurozone's November current account data and final December HICP figures, as well as US December housing starts, industrial production, and a speech from Bank of England Governor Andrew Bailey.

Looking to next week, US markets will be closed on Monday for Martin Luther King Day, but activity is expected to be lively as it coincides with President Trump's Inauguration Day. With a light week for US economic data and the Fed in a blackout period, the focus for markets will shift to policy updates from the new administration. Notably, Trump will participate in the Davos Forum via video link on Thursday after the UK market closes. The UK will be represented by Chancellor Reeves, and remarks from Lagarde are scheduled for Wednesday and Friday, likely to be among the last comments from the ECB before the upcoming policy decision the following week. Key UK events include the labour market report on Tuesday and December's public finances data on Wednesday. Employment indicators suggest a significant drop in payrolled employment in the near future. Following a series of Japanese data releases throughout the week, the BoJ's decision on Friday is anticipated, with a rate hike now considered more probable. The week will conclude with the crucial flash PMIs for January. The US Composite index is expected to remain comfortably above 50, indicating expansion. However, with the UK’s final December reading at 50.4 and the euro area’s at 49.6, unexpected fluctuations around the critical 50 mark could trigger significant market movements.

Overnight Newswire Updates of Note

  • China’s 2024 GDP Meets Official 5% Target On Stimulus Bump

  • Fall In China's Home Prices Slows As Risks Of Deflationary Spiral Loom

  • China Heads For Trump Showdown With Yuan, Stocks Under Threat

  • Economists: Japan's Ultra-Easy Monetary Policy Hurt Fiscal Discipline

  • Trump Plans To Designate Cryptocurrency As A National Priority

  • WTI Slips As Houthi Expected To Halt Shipping Attacks

  • Israel Braces For Return Of Hostages After 15 Months Of Pain

  • UK Companies Outpace US Businesses In Share Buybacks

  • European Stocks Gain As Richemont’s Sales Jump Lifts Luxury

          (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)

  • USD/JPY: 154.40 (426M), 155.00 (2.1BLN), 155.50 (958M)

  • 156.00 (800M), 156.95-05 (3.05BLN), 157.50 (250M)

  • 157.90-00 (681M), 158.35 (430M)

  • USD/CHF: 0.9000 (500M), 0.9050 (251M), 0.9100 (1.03BLN)

  • 0.9130 (331M). EUR/CHF: 0.9460 (284M)

  • GBP/USD: 1.2080 (460M), 1.2200 (930M2), 1.2500 (1.2BLN)

  • EUR/GBP: 0.8265-70 (670M), 0.8325 (1.0BLN)

  • AUD/USD: 0.6110 (660M), 0.6250 (1.14LN), 0.6300 (362M)

  • AUD/JPY: 99.65 (300M). NZD/USD 0.5750 (201M)

  • USD/CAD: 1.4295-05 (2.4BLN), 1.4345-50 (1.5BLN)

  • 1.4365 (332M), 1.4370-80 (717M), 1.4395-00 (1.3BLN)

  • 1.4415 (752M), 14(235M) 1.4490 (748M)

CFTC Data As Of 10/1/25

  • Currency Futures Positions

  • Swiss Franc: Net short of -28,382 contracts.

  • British Pound: Net long of 19,323 contracts.

  • Euro: Net short of -68,507 contracts.

  • Japanese Yen: Net long of 2,311 contracts.

  • Cryptocurrency Futures

  • Bitcoin: Net short of -129 contracts.

  • US Treasury Futures

  • CBOT US Treasury Bonds: Reduced by 19,961 contracts to 26,342 net short.

  • CBOT US Ultrabond Treasuries: Reduced by 15,012 contracts to 204,292 net short.

  • CBOT US 2-Year Treasuries: Reduced by 6,298 contracts to 1,252,975 net short.

  • CBOT US 10-Year Treasuries: Reduced by 141,543 contracts to 591,374 net short.

  • CBOT US 5-Year Treasuries: Reduced by 1,895 contracts to 1,760,422 net short.

  • 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: There is a continued bearish outlook (net short positions) on the Euro and Swiss Franc, but slight bullish sentiment for the British Pound and Japanese Yen.

  • Cryptocurrency: Bitcoin futures show a minimal speculative net short position.

  • US Treasury Futures: Overall, speculators are reducing net short exposure across all categories of Treasury bonds, showing less bearish sentiment on US debt.

  • Equity Futures: Diverging views between equity fund managers (more bullish on S&P 500 futures) and equity speculators (increasing bearish bets).

Technical & Trade Views

SP500 Pivot 6040

  • Daily VWAP bullish

  • Weekly VWAP bearish

  • Seasonality suggests bearishness Into Jan 20th

  • Long above 6075 target 6165

  • Short Below 6045 target 5743

EURUSD Pivot 1.0435

  • Daily VWAP bullish

  • Weekly VWAP bearish

  • Seasonality suggests bearishness into March 30th

  • Above 1.0505 target 1.0634

  • Below 1.0435 target 0.9758

GBPUSD Pivot 1.2614

  • Daily VWAP bearish

  • Weekly VWAP bearish

  • Seasonality suggests bearishness into March 10th

  • Above 1.2685 target 1.2812

  • Below 1.2615 target 1.1878

USDJPY Pivot 153.77

  • Daily VWAP bearish

  • Weekly VWAP bullish

  • Seasonality suggests bearishness into jan 23rd

  • Above 1.5377 target 165.50

  • Below 152.41 target 150

XAUUSD Pivot 2692

  • Daily VWAP bullish

  • Weekly VWAP bullish

  • Seasonality suggests bearishness into Jan 15th

  • Above 2725 target 2762

  • Below 2692 target 2475

BTCUSD Pivot 101,960

  • Daily VWAP bullish

  • Weekly VWAP bearish

  • Seasonality suggests bearishness into Jan 15th

  • Above 104,020 target 110,000

  • Below 101,942 target 86,266