Daily Market Outlook, January 15, 2025

Munnelly’s Macro Minute...

"UK Inflation Data Adds Further Pressure To BoE Rate Cut Calls, US CPI Eyed”

In Asia, stocks had a mixed performance. The MSCI index tracking Asia-Pacific shares outside Japan dipped by 0.1%, while Japan's Nikkei fluctuated between positive and negative territory, ultimately ending unchanged. Iron ore futures continued to rise on Wednesday, supported by China's stronger-than-anticipated credit data, although concerns over increasing trade tensions as U.S. President-elect Donald Trump prepares to take office next week limited the gains. Trump has promised to implement a 60% tariff on products from China. At first glance, China’s December credit data appeared strong, exceeding Bloomberg survey expectations, with year-to-date Total Social Financing reaching RMB 32.226 trillion compared to the median forecast of RMB 31.560 trillion. However, a closer look highlights important nuances. On a monthly basis, credit flow stood at RMB2.585 trillion, up from RMB1.932 trillion during the same period in 2023. This increase was largely driven by a surge in local government bond issuance, which accounted for two-thirds of the monthly total. The rise was motivated by efforts to meet year-end growth targets, bolstered by refinancing measures for local government financing vehicles (LGFVs). Meanwhile, demand from the private sector remains weak despite lower interest rates and attempts to expand credit access. Additionally, households and corporations are increasing their savings, further reflecting a cautious economic environment. Greater fiscal measures are necessary to restore confidence, though other risks persist, particularly the potential for rising tariffs. With exports playing a crucial role in China’s growth and overinvestment in capacity continuing, a weaker exchange rate may ultimately be required to sustain competitiveness.

UK CPI inflation ended 2024 at 2.5% year-on-year, slightly below market expectations and in line with the Bank of England’s November forecast. However, services inflation—a key focus for policymakers—surprised to the downside at 4.4% year-on-year in December, significantly below both BoE and market expectations. The decline was partly due to weak airfares, attributed to seasonal timing quirks, and a notable drag from restaurant and hotel prices, which is more structural and unexpected, given anticipated cost pressures from looming employer NIC increases in April. While some of the weakness is likely noise, the broader downside surprise in services inflation strengthens the case for a February rate cut by the BoE.

More than just a CPI beat is needed to revive dovish rate cut expectations. Stateside persistent inflation in the latter half of 2024 had led to a more cautious outlook in the Fed’s price risk assessments. This has been communicated through guidance suggesting two additional cuts in 2025, but the threshold for such cuts appears to be higher, especially as concerns about the labor market have diminished and growth remains above the Fed’s projected trend. In fact, one could argue that the reduction in guidance from four cuts to two was made to avoid damaging credibility by suggesting a complete halt. In this context, the upcoming December CPI report may not hold much significance. At the very least, the Fed will require substantial progress on disinflation before taking further action. Without that, demand remains too strong to justify any additional easing, compounded by uncertainties in trade policy. The headline CPI is expected to rise to 2.9% year-over-year from 2.7% (0.4% month-over-month), while core inflation is anticipated to remain at 3.3% year-over-year (0.3% month-over-month) according to the survey. The positive surprise in Tuesday’s PPI does not significantly alter the situation; producer price pressures have increased recently and are now at the upper limit of what would be acceptable for consumer inflation to stabilize. Market expectations for Fed cuts (28 basis points this year) seem reasonable given the current uncertainties.

Overnight Newswire Updates of Note

BoJ’s Ueda: Will Raise Rates If Economy, Prices Continue To Improve
Japan Likely To Miss Primary Budget Surplus Target For FY2025
US Inflation Expected To Rise In December
Bond Traders Wager Slump Set To Ease With Key CPI Data Ahead
Gilt Investors Warn Chance Reeves, She May Need To Raise Taxes
UK Property Insurance Payouts Hit Highest Level Since 2007
VW Braces For Another Tricky Year With No New EVs
Investors Pour Billions Into S&P Equal Weight Fund As Tech Fears Rise
Goldman Sachs Is About To Report Fourth-Quarter Earnings
World Readies For Trump Tariffs Even Before His White House Return
Trump Risks Spooking Greenland’s Investors, Mining Minister Warns

(Sourced from reliable financial news outlets)

FX Options Expiries For 10am New York Cut

(1BLN+ represents larger expiries, more magnetic when trading within daily ATR)

EUR/USD: 1.0195-00 (3.0BLN), 1.0250 (2.2BLN), 1.0295-00 (3.1BLN)
1.0330 (835M), 1.0340-50 (1.31BLN), 1.0355 (213M)
1.0375 (214M), 1.0390-00 (1.5BLN)
USD/JPY: 155.00 (628M), 155.50 (394M), 156.25 (638M), 157.00 (5156M)
157.15 (250M), 158.50 (261M), 159.00 (321M)
EUR/JPY: 157.25 (352M), 166.25 (430M)
GBP/USD: 1.2200 (300M), 1.2275 (703M). EUR/GBP: 0.8365-70 (1.1BLN)
AUD/USD: 0.6175-80 (524M), 0.6200 (308M), 0.6255 (252M), 0.6300 (260M)
NZD/USD: 0.5400 (230M), 0.8475 (200M), 0.5875 (606M)
USD/ZAR: 18.5500 (, 19.1890 (237M)

CFTC Data As Of 10/1/25

Currency Futures Positions
Swiss Franc: Net short of -28,382 contracts.
British Pound: Net long of 19,323 contracts.
Euro: Net short of -68,507 contracts.
Japanese Yen: Net long of 2,311 contracts.
Cryptocurrency Futures
Bitcoin: Net short of -129 contracts.
US Treasury Futures
CBOT US Treasury Bonds: Reduced by 19,961 contracts to 26,342 net short.
CBOT US Ultrabond Treasuries: Reduced by 15,012 contracts to 204,292 net short.
CBOT US 2-Year Treasuries: Reduced by 6,298 contracts to 1,252,975 net short.
CBOT US 10-Year Treasuries: Reduced by 141,543 contracts to 591,374 net short.
CBOT US 5-Year Treasuries: Reduced by 1,895 contracts to 1,760,422 net short.
Equity Futures Positions
S&P 500 CME (Fund Managers): Net long position increased by 2,531 contracts to 1,042,431.
S&P 500 CME (Speculators): Net short position increased by 78,396 contracts to 347,102.
Key Highlights
Currency Futures: There is a continued bearish outlook (net short positions) on the Euro and Swiss Franc, but slight bullish sentiment for the British Pound and Japanese Yen.
Cryptocurrency: Bitcoin futures show a minimal speculative net short position.
US Treasury Futures: Overall, speculators are reducing net short exposure across all categories of Treasury bonds, showing less bearish sentiment on US debt.
Equity Futures: Diverging views between equity fund managers (more bullish on S&P 500 futures) and equity speculators (increasing bearish bets).

Technical & Trade Views

SP500 Short Against 6040

Daily VWAP bullish
Weekly VWAP bearish
Seasonality suggests bearishness Into Jan 20th
Long above 6075 target 6165
Short Below 6045 target 5743

EURUSD Short Against 1.0435

Daily VWAP bullish
Weekly VWAP bearish
Seasonality suggests bearishness into March 30th
Above 1.0505 target 1.0634
Below 1.0435 target 0.9758

GBPUSD Short Against 1.2614

Daily VWAP bearish
Weekly VWAP bearish
Seasonality suggests bearishness into March 10th
Above 1.2685 target 1.2812
Below 1.2615 target 1.1878

USDJPY Long Against 153.77

Daily VWAP bearish
Weekly VWAP bullish
Seasonality suggests bearishness into jan 23rd
Above 1.5377 target 165.50
Below 152.41 target 150

XAUUSD Short Against 2692

Daily VWAP bullish
Weekly VWAP bullish
Seasonality suggests bearishness into Jan 15th
Above 2725 target 2762
Below 2692 target 2475

BTCUSD Short Against 101,960

Daily VWAP bullish
Weekly VWAP bearish
Seasonality suggests bearishness into Jan 15th
Above 104,020 target 110,000
Below 101,942 target 86,266