Daily Market Outlook, March 6, 2024
Munnelly’s Macro Minute…
“UK Budget & Powell Testimony Main Macro Drivers Today”
Asian equity markets exhibited a mixed performance ahead of Fed Chair Powell's congressional testimony. On Wednesday, a news conference featuring prominent Chinese officials aims to unveil the government's strategies to stimulate consumption. Pan Gongsheng, the central bank governor, alongside the ministers of commerce and finance, as well as the new top securities regulator, will address the media. In parallel, Japan's largest bank anticipates the central bank's departure from negative interest rates within two weeks and is making necessary preparations. Mitsubishi UFJ Financial Group's assessment contrasts with the swap market's evaluation, which places the likelihood of Bank of Japan Governor Kazuo Ueda altering policy this month at approximately 50%. The 'Super Tuesday' primaries in the US suggest a forthcoming electoral rematch between Biden and Trump. Data-wise, Australia reports a 0.2%q/q growth in Q4, aligning with forecasts, while German trade figures unveil a rebound in exports at the year's onset.
Today brings the UK Spring Budget, presented by Chancellor Hunt at approximately 12:30GMT, likely the final fiscal event before the general election. With hopes for additional fiscal headroom, Hunt's ambitions face constraints as the Office for Budget Responsibility limits his maneuverability. Despite considerations for tax cuts, such as a 2p reduction in National Insurance and a freeze on fuel duty, the Chancellor aims to balance these measures with tax increases and restrained public spending. The market response is anticipated to be less dramatic compared to the 2022 Mini-Budget, although implications on demand and potential impacts on BoE interest rates remain under scrutiny.
Stateside, Fed Chair Powell's semi-annual testimony to Congress begins today in the House. Recent market adjustments reflect diminished expectations of US monetary policy easing, with forecasts now projecting three rate cuts in 2024, down from six earlier in the year. Powell is expected to maintain a stance in line with current market sentiment, considering indications of resilient economic growth and stabilized inflation trends. Friday's US labor market report garners attention for 'normal' outcomes in nonfarm payrolls and wage growth, following January's unexpectedly robust report. The 'unofficial' ADP private jobs report today may offer insights into Friday's figures, albeit with recent accuracy limitations. Additionally, the Fed Beige Book release later today provides anecdotal insights into regional economic conditions.
Overnight Newswire Updates of Note
Biden-Trump Rematch Looks Certain After Pair Dominate Super Tuesday Votes
BoJ Seen Revising Down Assessment On Consumption And Output, Sources Say
RBNZ’s Conway: RBNZ May Be Able To Cut Sooner If Fed Eases First
2 NPC Members Urge More Party Control Over PBoC
Australian GDP Growth Slumps To 1.5% As Households Cut Back
EU Set To Allow Possible Retroactive Tariffs For Chinese EVs
Hunt Promises 'Permanent Cuts In Taxation' Before Pre-Election Budget
Saudi Arabia Slightly Raises Arab Light Crude Price To Asia
Toyota Will Respond To Union's Wage Demands On Mar 13, Spox Says
OpenAI Fires Back At Musk Allegations With Trove Of Emails
Bayer Notches More Wins In Roundup Weedkiller Cancer Trials
(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: 1.0875 (EU2.87b), 1.0800 (EU1.81b), 1.0950 (EU1.81b)
USD/JPY: 151.10 ($1.06b), 137.50 ($1b), 149.80 ($906.7m)
USD/CNY: 7.2500 ($339.3m)
USD/MXN: 16.85 ($400m)
AUD/USD: 0.6500 (AUD439.3m), 0.6615 (AUD382.5m), 0.6745 (AUD309.7m)
GBP/USD: 1.2400 (GBP397.6m)
USD/CAD: 1.3540 ($370.6m)
EUR/GBP: 0.8600 (EU486m), 0.8800 (EU318.2m)
USD/BRL: 4.9500 ($350.2m)
Low FX option implied volatility persists due to minimal FX realized volatility. The 1-month USD/CNH is approaching its lowest levels since 2015. Despite upcoming event risks, such as U.S. jobs data and U.S. CPI, the USD/G10 1-week implied volatility has struggled to increase. Fed chief Jerome Powell's testimony is not expected to bring surprises, but the EUR may be affected by any downgrade to inflation and growth forecasts from the ECB. The 2-week expiry date includes the March 19 Bank of Japan policy announcement, leading to higher perceived risk of tightening. JPY related implied volatility is higher, and 2-week expiry USD/JPY risk reversal premiums have increased their downside versus upside strike premium. The 2-month USD/JPY expiry has seen an increase in implied volatility and JPY call over put premiums since including the April 26 BoJ announcement. Societe Generale is recommending long 2-month expiry USD/JPY downside strike options that would benefit from JPY gains after BoJ action.
CFTC Data As Of 27/02/24
Euro net long position is 62,854 contracts
Japanese yen net short position is -132,705 contracts
Swiss franc posts net short position of -11,981 contracts
British pound net long position is 46,358 contracts
Bitcoin net short position is -1,967 contracts
Equity fund managers cut S&P 500 CME net long position by 5,157 contracts to 942,123
Equity fund speculators increase S&P 500 CME net short position by 14,679 contracts to 434,512
Technical & Trade Views
SP500 Bullish Above Bearish Below 5110
Daily VWAP bearish
Weekly VWAP bullish
Below 5050 opens 5025
Primary support 5050
Primary objective is 5165
EURUSD Bullish Above Bearish Below 1.0875
Daily VWAP bullish
Weekly VWAP bullish
Above 1.0880 opens 1.0950
Primary resistance 1.0950
Primary objective is 1.0950
GBPUSD Bullish Above Bearish Below 1.2683
Daily VWAP bullish
Weekly VWAP bullish
Below 1.26 opens 1.2550
Primary resistance is 1.2785
Primary objective 1.2830
USDJPY Bullish Above Bearish Below 149.50
Daily VWAP bearish
Weekly VWAP bullish
Below 149.50 opens 148.70
Primary support 145.85
Primary objective is 152
AUDUSD Bullish Above Bearish Below .6535
Daily VWAP bearish
Weekly VWAP bearish
Below .6400 opens .6260
Primary support .6400
Primary objective is .6700
BTCUSD Bullish Above Bearish below 60000
Daily VWAP bullish
Weekly VWAP bullish
Below 58000 opens 53000
Primary support is 52800
Primary objective is 72000
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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!