Daily Market Outlook, January 16, 2025 

Munnelly’s Macro Minute...

"Softer US Inflation Data & Bank Earnings Spur A Surge In Risk Sentiment”

Asian markets tracked Wall Street's gains, driven by a dip in US core inflation that kept hopes of a Federal Reserve rate cut this year alive. Positive sentiment was also fuelled by robust earnings from U.S. banks such as Goldman Sachs, JPMorgan Chase, Wells Fargo, and Citigroup. Wall Street executives expressed confidence that the new U.S. administration would be favourable for business and beneficial for banks. Bank of America and Morgan Stanley are set to announce their results on Thursday.The yen strengthened amid expectations of a potential Bank of Japan (BoJ) rate hike. Markets in Australia, Hong Kong, and South Korea advanced, pushing the Asian stocks index higher for a third consecutive day. The S&P 500 climbed 1.8% on Wednesday, its best performance since the November election, rebounding from its earlier 2025 decline. The yen surged following reports suggesting that BoJ officials are leaning toward raising interest rates next week, assuming no major disruptions from Trump's policies. Treasury yields stayed steady, while the Dollar index ended its two-day losing streak. In commodities, oil prices rose sharply as continued declines in US crude inventories, the longest since 2021, fuelled concerns over global supply shortages. The South Korean won weakened after central bank Governor Chang-Yong revealed that all six board members were open to considering a rate cut within the next three months. Investors are closely watching developments in the Middle East as Israel intensified its attacks on Gaza shortly after a ceasefire and hostage release agreement was reached, aiming to end the conflict that began 15 months ago.

The December US CPI report was somewhat encouraging, with headline year-over-year inflation rising by 0.4% month-over-month to 2.9% from 2.7%, largely due to energy base effects. However, there was a slight improvement in core CPI, which fell to 3.2% from 3.3% after a 0.2% month-over-month increase (median expected was 0.3%). This was supported by a further slowdown in shelter costs, with the year-over-year rate decreasing to 4.6% from 4.7%. This has been the primary factor contributing to the relatively high CPI compared to PCE, indicating that this improvement may not necessarily lead to a lower PCE figure. It is noteworthy that the upward trend in goods prices, driven by strong demand. This should be reflected in Thursday's retail sales report. Additionally, a rise in December auto sales, but even excluding that effect, underlying sales are expected to remain solid, with growth in the Control Group anticipated to be 0.4% month-over-month, translating to a year-over-year growth rate of 3.7%. This pace aligns with the ongoing strength in the services sector. In conclusion, the dovish interpretation of CPI may be short-lived, with focus more on demand-side indicators. This is crucial for the Fed considering the growth conditions and perceived inflation risks, including the effects of tariffs.

UK growth for November was reported at +0.1% m/m by the ONS, but it was close to zero as the index level remained unchanged from October. December growth needs to be around 0.25% m/m for Q4 GDP to be flat, aligning with the MPC's downwardly revised expectations. The November figure was 0.1ppts below market consensus, largely due to a 0.4% m/m contraction in industrial production, while the services sector grew by 0.1% m/m. Over three months, the services sector showed 0.0% growth, with health being the best-performing sub-sector due to the absence of doctors' strikes. Overall, GDP is slightly lower than in March, and recent employment indicators do not suggest improvement, likely leading MPC member Taylor to maintain a dovish stance on the rate outlook. Key events on today’s calendar include: BoE credit conditions, US retail sales, the Philly Fed report, initial jobless claims (IJC), NAHB housing market index, industrial production, housing starts, German CPI, euro area trade data, and the release of ECB minutes.

Overnight Newswire Updates of Note

  • BoE Warns Of Need For Multiple Rate Cuts To Support Economy

  • Germany’s Scholz Under Political Pressure Over €3B Ukraine Aid Package

  • Fed’s Beige Book Points To Slight To Moderate Growth At Year-End

  • Canada Readies Tariffs On $105B Of US Products, If Trump Hits

  • Chinese Citizens’ Doubts Grow Over Official Growth Claims

  • BoJ Sees Good Chance Of Jan Hike Barring Trump Surprises

  • Japan's Producer Prices Rise By 3.8% In December

  • Aussie Unemployment Rate Rises To 4.0% In December

  • New Zealand Food Prices Increase 1.5% Annually

  • NATO Announces Mission To Protect Undersea Cables In Baltic Sea

  • UK PM Starmer To Sign Symbolic 100Y Deal With Volodymyr Zelenskyy

  • Pension Funds Dabble In Crypto After Massive Bitcoin Rally

  • TSMC's Q4 Profit Rises 57% To A Record, In Line With Forecast

          (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: 1.0200-05 (1.1BLN), 1.0225 (662M), 1.0250-60 (1.23BLN)

  • 1.0265-70 (950M), 1.0295-00 (1.15BLN), 1.0310 (254M)

  • 1.0325-35 (1.72BLN), 1.0350 (1.43BLN, 1.0380 (219M)

  • 1.0400-05 (1.06BLN

  • USD/JPY: 153.00 (380M), 156.00 (625M), 157.00 (1.04BLN)

  • 157.50-60 (339M), 158.50 (270M)

  • USD/CHF: 0.9050 (225M)

  • GBP/USD: 1.1900 (461M), 1.2100 (784M), 1.2290-00 (536M)

  • 1.2390 (200M), 1.2450 (509M)

  • AUD/USD: 0.6365 (204M). NZD/USD: 0.5555 (316M)

  • USD/CAD: 1.4200 (300M), 1.4300 (761M), 1.4325 (200M)

  • 1.4385-90 (481M), 1.4410 (350M), 1.4500 (1.2BLN)

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