Daily Market Outlook, February 9, 2024

Munnelly’s Market Minute…“SPX Tips Over 5k”

Many Asian markets observe holidays today, with those open displaying mixed but relatively minor fluctuations. Anticipation surrounds potential further stimulus measures in China. A European Central Bank official remarked that this year could see interest rate cuts if no adverse events occur, yet cautioned that market expectations may be overstated. In contrast, Bank of England's Haskel, who recently voted for a rate increase, voiced a desire for more evidence regarding the reduction of inflation risks.

Looking ahead, the data docket is sparse, with no significant data releases in the UK. The release of December Italian industrial production this morning offers insight into next week's data for the entire Eurozone. Recent outputs from major economies within the region have been varied, with France witnessing a robust increase, while Germany experienced a notable decline, and Spain saw a more modest decrease. Despite significant pressure on the factory sector in the Eurozone, consensus expectations suggest a rebound in Italian output following a substantial fall in November.

Stateside, no notable new data releases are scheduled for today. However, the release of new seasonal adjustment factors for 2023 US CPI inflation is expected. Although typically not considered significant news by markets, Federal Reserve Chair Powell highlighted their importance last week, noting their impact on the inflation outlook. While the adjustment won't affect the overall inflation rate for the year, it could influence the inflation profile throughout the year, similar to the 2022 update, which showed less moderation in inflation than previously thought late in the year. Such an outcome for 2023 may reinforce Fed policymakers' caution regarding lowering US interest rates.

Overnight Newswire Updates of Note

ECB’s Kazaks Says Bets On Spring Rate Cuts Look Optimistic
BoE's Haskel Wants More Evidence That Inflation Risks Are Waning
Biden Calls Israel's Gaza Response 'Over The Top'
Biden Is Looking Beyond Tariffs To Keep Chinese ‘Smart Cars’ Out Of The
Putin Says Russia Has No Interest In Attacking Poland Or Latvia
BoJ’s Ueda: Chances Are High For Accommodative Conditions To Stay
IMF Urges BoJ To End Bond Yield Control, Huge Asset Buying
RBA Keeping Options Open Regarding Further Rate Increases, Bullock Says
Bitcoin Hovers Near One-Month High On ETF Inflows, Looming Halving
S&P 500 Reaches 5,000 To Mark Record For US Stocks
FAA Mandates Boeing 737 MAX Rudder Loose Bolt Inspections
Mercedes, Stellantis Battery Firm Nears EUR4.4 Bln Debt Deal
SoftBank Set For Biggest Two-Day Rally Since 2020 As Arm Surges

(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: 1.0850 (EU2.79b), 1.0900 (EU2.08b), 1.0700 (EU1.15b)
USD/JPY: 147.50 ($1.43b), 148.65 ($1.1b), 148.50 ($1.07b)
USD/CAD: 1.3350 ($1.38b), 1.3300 ($1.09b), 1.3400 ($765.7m)
USD/CNY: 7.2115 ($1.25b), 7.1500 ($1.14b), 7.0000 ($920m)
AUD/USD: 0.6500 (AUD689.5m), 0.6605 (AUD660.1m), 0.6510 (AUD570.7m)
GBP/USD: 1.2725 (GBP331.6m), 1.2560 (GBP329.8m)
USD/BRL: 4.7250 ($750m), 4.5750 ($750m)
FX options continue to experience low volatility, keeping implied volatility, inspiration, and trade volumes low. Traders are hoping for a spark in FX volatility from Tuesday's U.S. CPI data, but are struggling with the daily time decay costs of holding options that expire afterwards. Market focus remains on data and central bank meetings for clearer policy signals, while realised and implied volatility are expected to stay at two-year lows. Strong U.S. data may lead to market pricing adjustments to the Fed's rate cut predictions, potentially fueling USD recovery but not guaranteeing rapid acceleration or increased volatility. Those seeking limited USD gains may consider cheaper USD call options with reverse-knock-out triggers. The JPY was the only notable mover, falling after BoJ Dep Gov Uchida's comments, but lacking volatility and failing to generate renewed option interest.