Daily Market Outlook, January 30, 2024

Munnelly’s Market Minute…“Eurozone Q4 GDP Eyed”

Asian markets saw a mixed trading session with the momentum from Wall St's record highs offset by weakness in China. The Nikkei 225 initially rose after a surprise drop in Japan's unemployment rate, but later gave up most of its gains. This evening, the Bank of Japan will release a summary of this month’s policy meeting, during which interest rates were left unchanged and remain in negative territory. However, in comments following the meeting, BOJ Governor Ueda appeared to suggest that rates could begin to rise starting from the spring. Consequently, today's summary will be closely scrutinized for indications of whether this is indeed a realistic possibility.Hang Seng and Shanghai Comp were under pressure as attention shifted to earnings releases, with Hong Kong experiencing losses in property and tech sectors. Additionally, the Hong Kong government initiated the process of passing new national security laws.

The upcoming Eurozone Q4 GDP data will give us an understanding of the level of economic activity at the end of 2023. If there is a further decline following the 0.1% decrease in Q3, it could signal a recession at the year-end. We predict that there will be no change in overall output for the region, narrowly avoiding meeting the technical definition of a recession (which requires at least two quarters of negative growth). However, certain member countries, particularly Germany, may see declines in their GDP. Given the recent update on monetary policy, it is expected that the European Central Bank will cut interest rates in April, and today's data is unlikely to change those expectations. Furthermore, we will also receive January's consumer and business confidence data for the Eurozone. The consumer confidence figure, which is a second reading, initially showed a decrease from December but remained higher than recent lows. It is anticipated that business confidence will show a more positive outlook for the services sector compared to the industrial sector, which is still under significant pressure.

Before the Bank of England's update on Thursday, today's readings on money supply and lending will provide insights into how past interest rate hikes have impacted the economy. Of particular interest will be the figures on lending in the housing market, as there are indications that recent decreases in market interest rates are benefiting this sector. Expect that mortgage approvals will increase for the third consecutive month in December, reaching their highest level in four months.

Stateside, a crucial measure of consumer confidence is expected to increase for the third consecutive month in January, reaching its highest level since last July. This likely reflects the impact of lower inflation rates and expectations of interest rate cuts.

Overnight Newswire Updates of Note

Japan Job Market Remains Tight, Keeping Hopes For Wage Hikes
Australia December Retail Sales Slump, Sending Bonds Higher
DUP Agrees Deal With UK Government To Restore Power Sharing To Northern Ireland
RBNZ Chief Economist Says MonPol Working But Still Work To Be Done
Japan PM Keeps Up Push For Higher Wages As Election Talk Swirls
DOJ And SEC Unveil Charges In $1.9 Bln HyperFund Cryptocurrency Fraud
Binance Bows To Trader Demands To Keep Their Assets Elsewhere
Boeing Withdraws Bid For Safety Exemption For Boeing 737 MAX 7
Northrop Grumman Announces $1 Bln Accelerated Share Buyback Agreement
Toyota Holds Lead As World’s No. 1 Carmaker For Fourth Year

(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: 1.0800 (235M), 1.0815-25 (1.1BLN), 1.0865-75 (889M)
GBP/USD: 1.2875 (388M)
AUD/USD: 0.6635-40 (414M), 0.6675 (328M)
USD/JPY: 146.60-70 (600M), 147.20 (580M), 148.00 (548M)
AUD/JPY: 94.00 (1.2BLN)
The increase in EUR/USD option prices reflects concerns about potential downside risk and upcoming data releases before the Federal Reserve meeting. The decline in the EUR/USD spot price has led to an increase in demand for options and higher premiums. Implied volatility has risen across the entire curve since Friday, with traders also keeping an eye on upcoming economic data from the Eurozone and the U.S. The U.S. Federal Reserve's upcoming decisions are also a factor, although they may not significantly impact foreign exchange volatility. The benchmark 1-month expiry now stands at 6.5, up from a long-term low of 6.0, while the 1-year expiry has increased to 7.0 from 6.85, with recent support from U.S. election risk. There has also been a slight increase in demand for downside strike premiums this week.