Daily Market Outlook, March 8, 2024

Munnelly’s Macro Minute…

“Dovish Take On Fed & ECB Supports Risk Sentiment ”

This morning, Asian equity markets are experiencing an increase after significant gains in US markets yesterday, driven by comments from US Federal Reserve Chair Powell during his testimony to Congress. Powell suggested that the Fed is still likely to cut US interest rates this year and that they are close to having enough confidence that inflation is returning to target levels to make a move. European Central Bank President Lagarde also indicated the likelihood of an ECB rate cut before its summer break, but mentioned that an April move may be premature.

The upcoming US labor market report is considered a crucial indicator of economic conditions. The last report for January showed stronger-than-expected growth in employment and wages, which contributed to more cautious expectations for Federal Reserve interest rate cuts for the year. Therefore, the February report is expected to attract even more attention than usual. Look for a February increase in payrolls of 210k. While this would be lower than the previous two months, it would still be consistent with the average gain over the past year, indicating continued strength in the US labor market. Despite reports of rising job layoffs, most indicators suggest that the market remains robust, supporting the forecast of another decent jobs gain. Additionally, there has been no significant increase in unemployment benefit claims so far. The strength of the labor market argues against the need for early interest rate cuts. However, Fed Chair Powell reiterated this week that while the Fed intends to move cautiously, it still intends to reduce rates if inflationary pressures continue to ease. Therefore, the most critical update today is the wage number. We anticipate a slowdown in monthly wage growth to 0.3% from 0.6%. Another positive surprise would lead to expectations on the timing of rate cuts being pushed out.

The rest of today’s data docket is relatively light. The Q4 Eurozone GDP release is not expected to be revised, but will provide more details on the drivers of growth. The February Canadian labor market report is also expected to show a modest uptick in the unemployment rate amid only a small rise in employment.

Overnight Newswire Updates of Note

  • Biden Attacks Trump On ‘Democracy And Freedom’ In Fiery SOTU Speech 

  • Powell Says The Fed Is ‘Not Far’ From The Point Of Cutting Interest Rates 

  • Fed’s Mester Sees Rate Cuts This Year If Inflation Keeps Cooling 

  • ECB’s Nagel Sees Rising Chance Of Rate Cut Before Summer Break

  • Japan Not Planning To Add Chip Export Control For Now, Minister Says 

  • Japan FinMin Suzuki: Too Early To Mention Additional Fiscal Targets 

  • Broadcom Expects AI Demand To Help Offset Weakness Elsewhere 

  • Costco Wholesale Misses Quarterly Revenue Estimates 

  • Huawei Chip Breakthrough Used Tech From Two US Gear Suppliers 

  • Boeing To Tie More Of Employees’ Pay To Safety 

  • NYCB Says It Lost 7% Of Deposits In Past Month, Slashes Dividend To $0.01

(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 (EU1.38b), 1.0700 (EU1.31b), 1.0770 (EU1.11b)

  • USD/JPY: 150.00 ($730m), 151.00 ($640m), 150.50 ($479.1m)

  • USD/CNY: 8.0000 ($961.8m), 6.9750 ($700m), 7.1000 ($650m)

  • AUD/USD: 0.6375 (AUD610m), 0.6400 (AUD443m), 0.6620 (AUD333.8m)

  • USD/CAD: 1.3600 ($913.4m), 1.3500 ($812.9m), 1.3570 ($322m)

  • USD/MXN: 17.20 ($819.8m), 16.90 ($310m)

  • GBP/USD: 1.2580 (GBP451m), 1.2550 (GBP400m), 1.3100 (GBP341.2m)

  • FX option prices have recently risen from their lowest levels in two years. FX option implied volatility is an indicator of realized volatility and expectations. It’s not surprising to see it reaching new 2-year lows, especially with the Chinese yuan hitting a 7-year low. However, the USD setback and upcoming event risk have finally caused a rebound. There are growing expectations of action from the Bank of Japan on March 19, leading to an increase in JPY volatility. The focus is now on the US NFP data, and only a very strong number would support the USD. The US CPI data is up next on Tuesday, before the Fed meeting on March 20, which is now within a 2-week expiry.

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 5038

  • Primary support 5050

  • Primary objective is 5180

EURUSD Bullish Above Bearish Below 1.09

  • Daily VWAP bullish

  • Weekly VWAP bullish

  • Above 1.0880 opens 1.0950

  • Primary resistance 1.0950

  • Primary objective is 1.0990

GBPUSD Bullish Above Bearish Below 1.2770

  • 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

  • Daily VWAP bearish

  • Weekly VWAP bearish

  • Below 147.50 opens 145.88

  • Primary support 145.85

  • Primary objective is 152

AUDUSD Bullish Above Bearish Below .6600

  • Daily VWAP bullish

  • Weekly VWAP bullish

  • Above .6640 opens .6700

  • Primary support .6477

  • Primary objective is .6700

BTCUSD Bullish Above Bearish below 63000

  • Daily VWAP bullish

  • Weekly VWAP bullish

  • Below 58000 opens 53000

  • Primary support  is 52800

  • Primary objective is 72000