Daily Market Outlook, January 20, 2025 

Munnelly’s Macro Minute...

"US Markets Closed As Trump 2.0 Officially Starts, Executive Orders Eyed ”

Asian markets rallied after a conversation between Donald Trump and Xi Jinping sparked optimism for easing US-China tensions. Stock markets in Australia, Japan, and China saw gains, with a key index of major Chinese companies listed in Hong Kong climbing as much as 2.5%. The rally followed Trump’s description of the discussions with Xi as "very good." Meanwhile, US stock futures dipped slightly during Asia trading hours after Wall Street remained closed on Monday for a holiday. The Dollar index extended last week’s decline, ending a six-week streak of gains.Investor appetite for risk assets was boosted by Trump and Xi’s talks, which touched on trade, TikTok, and fentanyl, potentially setting a balanced tone for their early interactions. Positive sentiment was further supported as TikTok resumed operations in the US on Sunday, after Trump announced a three-month delay in enforcing a law requiring its Chinese owner to secure a buyer.Additionally, Bank of Japan officials indicated a strong possibility of raising interest rates, contingent on Trump avoiding immediate disruptive policies, according to sources familiar with the matter.

This week, Donald Trump's inauguration as U.S. President will be the main event. Once Trump takes the oath of office as the 47th President of the United States, a flurry of executive orders could be anticipated. When President Biden took his oath in 2020, he began issuing executive orders within hours and released a fact sheet detailing them at that time—similar activity is expected from Trump. Reports suggest that over 100 executive orders will be announced starting on Monday, many likely to be issued before the inaugural ball. Key areas expected to be addressed include border security, immigration enforcement, pardons, energy development, vaccine mandates, the future of TikTok, and various social policy priorities.

Economic developments will also be significant, including the release of global flash PMIs, inflation data from Japan and Canada, and labour market statistics from the UK. The Central bank in Japan is expected to announce interest rate decisions. Moreover, Monday coincides with the Martin Luther King Jr. federal holiday in the U.S., leading to the closure of all markets. Throughout the week, confirmation hearings for Trump's cabinet nominees will take place, and the World Economic Forum in Davos will begin on Monday, lasting until Friday. Notable figures from the European Central Bank, including President Lagarde, are expected to participate in discussions at the World Economic Forum in Davos.

In terms of economic data, the global flash PMIs set for release on Friday stand out as a key focus. Bloomberg consensus forecasts suggest a recovery in manufacturing activity in Germany and France, although indices for both nations remain below 45. Other important European indicators include UK labor market data on Tuesday and the ZEW survey for Germany on the same day, with consumer confidence reports scheduled for the UK on Friday and for the Eurozone on Thursday.The Bank of Japan is expected to raise interest rates on Friday while presenting new forecasts and policy guidance. Among analysts surveyed by Bloomberg, 26 predict a 25 basis point increase, one anticipates a 10 basis point hike, and thirteen expect the rate to remain unchanged. The markets are pricing in approximately an 80% chance of a quarter point hike. Should the BoJ proceed with a 25 basis point increase, this would bring the total increase in the policy rate to 60 basis points since March of last year, when the rate was at -0.1%. The central bank’s move away from negative interest rates is becoming increasingly evident.

As the incoming U.S. administration's plans unfold, any remaining momentum in the market will largely be influenced by earnings risks. A total of 37 companies within the S&P 500 are set to report their earnings, including major names such as 3M, Netflix, Capital One, Johnson & Johnson, and General Electric. More influential companies that could significantly impact the overall S&P index will report their earnings in the weeks to come.

Overnight Newswire Updates of Note

  • Bitcoin Retraces To $100K, TRUMP Meme Coin Tanks 30%

  • Trump Unlikely To Impose Trade Tariffs On UK, Says Treasury Minister

  • Trump’s Tariff Threats Push Europe To Gear Up For Trade Fight

  • Trump To Sign Executive Orders On Immigration, Energy, Govt Hiring

  • First Israeli Hostages Released Under Gaza Cease-Fire

  • Gold Trims Losses, Investors Await Trump's Inauguration Speech

  • Oil Steadies Near $81 As Market Braces For Trump Presidency

  • China Leaves Benchmark Lending Rates Unchanged

  • Bank Of Japan Poised To Raise Rates To Highest In 17 Years

  • Japan Nov Machinery Orders Rises On Strong Factory Investment

  • UK Rightmove: New Year Asking Prices Rise At Record Rate

  • Lofty Expectations Pose Tough Earnings Test For Wall Street

  • TSMC CFO: Confident CHIPS Act Funding Will Continue Under Trump

          (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: 1.0300 (EU1.78b), 1.0325 (EU1.08b), 1.0500 (EU799.4m)

  • USD/JPY: 152.00 ($588.1m), 155.00 ($550m), 158.75 ($400m)

  • AUD/USD: 0.6185 (AUD780.7m), 0.6300 (AUD748.8m), 0.6350 (AUD357.9m)

  • USD/CNY: 7.0056 ($500m), 7.3000 ($357.7m), 7.4000 ($304.1m)

  • USD/CAD: 1.3850 ($730m), 1.3760 ($312m)

  • GBP/USD: 1.2300 (GBP559.6m), 1.2100 (GBP315m)

CFTC Data As Of 17/1/25

This summary provides an overview of the trading positions held by equity fund managers and speculators in various futures markets as of the reporting period ending January 14:

  1. S&P 500 Futures:

    • Equity fund managers reduced their net long positions by 70,424 contracts, leaving them with a total of 923,997 contracts. A "net long position" means they hold more contracts betting on a rise in the S&P 500 index compared to those betting on a decline.

    • Equity fund speculators reduced their net short positions by 38,472 contracts, bringing the total net short position down to 311,085 contracts. A net short position indicates that these speculators are betting on a decline in equity prices. The reduction in their positions suggests a lessened bearish outlook compared to previous levels.

  2. Currency Positions:

    • Japanese Yen: Speculators have a net short position of 29,411 contracts, meaning they expect the Yen to weaken.

    • Euro: Net short position of 60,397 contracts, indicating expectations of a weakening Euro.

    • British Pound: A net long position of 438 contracts suggests a minor expectation for the Pound to strengthen.

    • Swiss Franc: A net short position of 38,701 contracts implies expectations of a weaker Franc.

    • Bitcoin: A net long position of 1,335 contracts shows a favourable outlook on Bitcoin’s price increasing.

  3. CBOT US Treasury Futures:

    • Ultrabond: The net short position decreased by 4,966 contracts to 242,422, suggesting some reduction in bearish bets.

    • 2-year Treasury: Increased net short position by 64,188 contracts to 1,257,206, indicating a stronger expectation for rising yields (or falling prices).

    • 10-year Treasury: Net short position trimmed by 104,511 contracts to 567,935, showing reduced bearish sentiment.

    • 5-year Treasury: Decreased net short position by 23,282 contracts to 1,777,621, also indicating less bearishness.

    • Treasury Bonds: Shifted from a net short position of 16,827 contracts to a net long position of 52, indicating a switch to an expectation of rising bond prices (or falling yields).

Technical & Trade Views

SP500 Pivot 6040

  • Daily VWAP bullish

  • Weekly VWAP bullish

  • Seasonality suggests bullishness Into Feb 6th

  • 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 bearish

  • 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 volatile bullishness into Feb 22nd

  • Above 2725 target 2762

  • Below 2692 target 2475

BTCUSD Pivot 101,960

  • Daily VWAP bullish

  • Weekly VWAP bullish 

  • Seasonality suggests bullishness into Apr 9th

  • Above 104,020 target 110,000

  • Below 101,942 target 86,266