Daily Market Outlook, April 5, 2024
Munnelly’s Macro Minute…
“Rate Narrative Muddied By Energy Price Elevation”
Most Asian stock markets are experiencing declines on Friday, in response to the drop in Wall Street's performance yesterday. This is due to renewed worries about the future of interest rates, as the possibility of a rate reduction in June remains unclear. The expectation of elevated energy prices leading to increased inflation may persuade the US Federal Reserve to refrain from reducing interest rates. The Japanese stock market is experiencing a sharp decline on Friday, erasing all the gains made in the previous session. This comes as a result of negative signals from Wall Street overnight. The Nikkei 225, a key benchmark, is dropping by 2.5 percent and is now below the 38.8K handle.
In the UK, all eyes are on the PMI construction report for March, providing valuable insights into a sector that is highly sensitive to changes in interest rates. The overall index for February was just below the expansion level of 50, at 49.7, its highest reading since August of last year. There were signs of stabilization in housing activity, which has historically been the weakest part of the construction sector. It will be interesting to see if this trend continues in response to indications of a recovering housing market.
Today's highly anticipated US labor market report is a crucial indicator of economic activity and inflationary pressures. The February update showed significant job gains, indicating continued strength in the labor market. However, the overall report was slightly weaker compared to January, with the unemployment rate reaching its highest level in almost two years and wage growth slowing down. Although there have been some reports of a slowdown in hiring and an increase in layoffs, these trends have not been reflected in the data yet. For example, unemployment claims remain close to their lowest levels in several years. For March, expect another strong increase in jobs, around 225,000, in line with the average growth rate over the past two years. Additionally, a slight decrease in the unemployment rate to 3.8% from 3.9% is anticipated, along with a small increase in monthly wage growth, although the annual growth rate may slow down. While the report may not rule out the possibility of an interest rate cut in the middle of the year, especially considering recent comments from Fed Chair Powell, it could increase uncertainty about the likelihood of multiple rate cuts this year.
Federal Reserve policymakers have been actively giving speeches throughout the week, with more scheduled for today. Of particular interest will be their initial reactions to today’s labor market data, especially regarding its potential impact on current guidance suggesting the likelihood of an interest rate change.
Overnight Newswire Updates of Note
• Fed's Barkin: A broad narrowing of inflation is needed for confidence to cut rates
• Fed's Kashkari warns of threat to 2024 rate cuts if inflation stalls
• Fed's Goolsbee highlights housing price pressures as biggest inflation risk
• Fed's Mester comfortable with slowing balance sheet run off soon
• Moderate slowdown in US job and wage growth expected in March
• NFIB reports US small businesses dialing back hiring plans again
• Foreign central banks increase US debt holdings by $4.658 billion to $3.345 trillion as of April 3 week
• Treasuries increase by $4.955 billion to $2.942 trillion, while agencies decrease by $445 million to $322.599 billion
• Hedge funds rally in Q1, driven by gains in equities
• Bank of Japan hints at near-term rate hike, pushing yields higher
• BOJ Gov Ueda hopes to reduce bond buying in the future
• Yellen says China cannot export its way to rapid growth due to its size
• Poll suggests Reserve Bank of New Zealand may cut rates in Q3 but could wait longer
• ECB continues to lay groundwork for June interest rate cut, as shown in March accounts
• Oil set for second weekly gain on geopolitical tension and supply concerns
(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: 1.0700-05 (1.54BLN), 1.0715-20 (529M), 1.0750 (265M)
1.0790-1.0800 (1.78BLN), 1.0805-10 (481M), 1.0820-30 (1.78BLN)
1.0850-60 (813M), 1.0870-80 (1BLN), 1.0900-20 (667M)
1.0965-70 (1BLN)
USD/JPY: 149.00 (896M), 150.00 (613M), 151.25 (235M)
152.00 (760M), 152.50 (767M)
USD/CHF: 0.8825 (500M), 0.8925 (500M), 0.9025 (484M)
EUR/CHF: 0.9670 (248M)
GBP/USD: 1.2450 (250M), 1.2580 (200M), 1.2700 (456M)
AUD/USD: 0.6575 (411M), 0.6600 (300M)
USD/CAD: 1.3500-10 (1.33BLN), 1.3600 (617M)
FX traders are bullish on the US dollar ahead of the Non-Farm Payrolls (NFP) report. They are hoping for a strong report to support the possibility of a US interest rate increase. However, there is a concern that a further increase in joblessness could pose a risk to their positions, as the unemployment rate hit a 2-year high in February at 3.9%. The NFPs for March are expected to be around 200k, compared to 275k in February. This week, traders have reduced their exposure to risk, leading to a decrease in the USD index. There is currently an expectation of less than three 25 basis points rate cuts before the end of 2024. Meanwhile, gold traders are focusing on taking profits ahead of the release of important US data.
CFTC Data As Of 29/03/24
Japanese Yen net short position is -129,106 contracts.
Euro net long position is 31,194 contracts.
British Pound net long position is 35,170 contracts.
Swiss Franc posts net short position of -21,968 contracts.
Bitcoin net short position is -1,075 contracts.
Technical & Trade Views
SP500 Bullish Above Bearish Below 5200
Daily VWAP bearish
Weekly VWAP bearish
Below 5140 opens 5100
Primary resistance 5210
Primary objective is 5100
EURUSD Bullish Above Bearish Below 1.0865
Daily VWAP bullish
Weekly VWAP bearish
Below 1.0690 opens 1.0630
Primary support 1.0690
Primary objective is 1.0685
GBPUSD Bullish Above Bearish Below 1.27
Daily VWAP bullish
Weekly VWAP bearish
Below 1.2570 opens 1.2510
Primary support is 1.2500
Primary objective 1.29
USDJPY Bullish Above Bearish Below 150.25
Daily VWAP bullish
Weekly VWAP bullish
Above 151 opens 152
Primary support 145.85
Primary objective is 153
AUDUSD Bullish Above Bearish Below .6570
Daily VWAP bullish
Weekly VWAP bullish
Below .6460 opens .6420
Primary support .6477
Primary objective is .6700
BTCUSD Bullish Above Bearish below 65000
Daily VWAP bearish
Weekly VWAP bullish
Below 64000 opens 59588
Primary support is 52800
Primary objective is 78000
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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!