Daily Market Outlook, January 9, 2025 

Patrick Munnelly, Partner: Market Strategy, Tickmill Group

Munnelly’s Macro Minute...

"UK Government Once Again Facing Pressure From Markets As Yields Spike”

U.S. Treasury bonds gained, ending a four-day losing streak caused by concerns about persistent inflation, which could be worsened by President-elect Trump's proposed fiscal stimulus plans. Japanese government bonds also saw an increase in value following a 30-year auction that garnered its highest demand since 2020. Asian markets declined for a second consecutive day, with an emerging market equities index nearing a correction as Trump's threats of more trade tariffs alarmed investors. Japanese and Australian stocks led the Asian session regional decline, while U.S. futures also dropped. Chinese stocks in both the mainland and Hong Kong fell in response to data showing intensified deflationary pressures in the world's second-largest economy. China's consumer inflation decelerated in December, resulting in modest annual price increases for 2024, while factory-gate deflation persisted for the second consecutive year amid weak economic demand. Factors such as job insecurity, an ongoing housing slump, high debt levels, and tariff threats from the incoming U.S. administration under President-elect Donald Trump have dampened demand, even as Beijing increases stimulus efforts to rejuvenate its consumer sector.

The Yen appreciated to 158 per Dollar. Japanese workers experienced their largest base wage increase in 32 years, which might encourage the central bank to raise interest rates this month. Additionally, the 30-year government bond auction in Japan on Thursday attracted strong demand due to rising rates. The December FOMC meeting minutes reaffirmed the meeting's hawkish stance without significantly altering market views. Powell's message about potentially slowing policy easing was reiterated, and the decision to cut rates was described as 'finely balanced' among participants, with some dissenting. The Committee plans a 'careful approach' moving forward, and some members used 'placeholder assumptions' regarding Trump policies for their economic projections. Additional information on the new government's policies will be necessary to advance the policy discussion. The market anticipates a 25bp cut by mid-year.

The UK government is facing fiscal challenges again, with rising gilt yields and a poor exchange rate. The Treasury emphasised that meeting fiscal rules is essential and dismissed alternative fiscal projections as speculation. Market participants are concerned about heavy gilt supply and the potential need for the government to re-establish fiscal headroom by either increasing taxes or cutting spending. Both options carry political risks and could exacerbate fears of an economic slowdown. Recent surveys indicate a decline in employment, with the REC/KPMG permanent placements index dropping into contraction territory. 

Today's calendar will see the release of the Bank of England's Decision Maker Panel, which is a survey that gathers insights from businesses regarding their expectations for the economy. This panel provides valuable information on business sentiment and can influence monetary policy decisions. Additionally, comments from the Bank of England's Breeden are expected. These remarks could shed light on the central bank's current stance on interest rates and economic conditions, which are crucial for investors and policymakers alike. The ECB Bulletin will also be released today. This publication offers insights into the European Central Bank's monetary policy decisions and economic analysis, which are vital for understanding the eurozone's economic landscape. In terms of economic data, euro area retail sales figures will be announced. Stateside, US initial jobless claims data will be released, providing insights into the labour market's health ahead of Friday's pivotal Non Farm Paytolls data. There will also be comments from various Federal Reserve speakers. Lastly, it is a day of remembrance as the funeral of President Carter takes place, and as such, US stock markets will be closed today.

Overnight Newswire Updates of Note

  • UK-listed Water Utilities Pay £3.6B Dividends Over 5 Years

  • European Firms Say China’s Pressure To Go Local Is Raising Costs

  • China’s Inflation Weakens Near Zero Even After Stimulus Efforts

  • Former BoJ Member Sees Chance Of March Rate Hike

  • Japan Nov Real Wages Drop 4th Month Amid Inflation

  • Australia’s Retail Sales Miss Boosts Case For RBA Rate Cut

  • Bond Market ‘Police’ Are Back As Investors Patrol Spending Plans

  • Fed Officials Flag Inflation Risks From Trump Policies

  • Trump Has Limited Powers To Fight An Economic Cold War

  • Canada Energy Minister Warns Trump Against An Oil Trade War

  • Nuclear Energy Groups Race To Develop ‘Microreactors’

  • US President Biden To Further Curb Nvidia, AMD AI Chip Exports

  • LG Energy Posts Unexpected Loss as EV Demand Slows; Shares Drop

          (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 (EU2.97b), 1.0300 (EU2.43b), 1.0260 (EU1.9b)

  • USD/JPY: 151.50 ($835.6m), 148.75 ($600m), 159.25 ($574.6m)

  • USD/CNY: 7.2600 ($751.8m), 7.3700 ($610.6m), 7.3500 ($462.9m)

  • USD/CAD: 1.3100 ($440m), 1.4650 ($401.9m), 1.4150 ($347.9m)

  • AUD/USD: 0.6250 (AUD399.2m), 0.6520 (AUD398.8m), 0.6650 (AUD346.9m)

  • GBP/USD: 1.2390 (GBP565m), 1.2300 (GBP350m), 1.2435 (GBP321.8m)

  • USD/MXN: 18.96 ($475m), 28.00 ($400m), 20.65 ($315.4m)

  • NZD/USD: 0.5875 (NZD767.7m), 0.5555 (NZD430.7m), 0.5650 (NZD374m)

  • EUR/GBP: 0.8335 (EU387.5m)

TO REVIEW THE LATEST INSIGHTS FROM FX OPTIONS ACTIVITY CLICK HERE

CFTC Data As Of 3/1/25

  • Swiss franc has a net short position of -28,382 contracts.

  • The British pound shows a net long position of 19,323 contracts.

  • The euro has a net short position of -68,507 contracts.

  • The Japanese yen reflects a net long position of 2,311 contracts.

  • Bitcoin is in a net short position of -129 contracts.

  • Speculators have reduced the net short position in CBOT US Treasury bonds futures by 19,961 contracts, bringing it to 26,342.

  • The net short position in CBOT US ultrabond Treasury futures has been trimmed by 15,012 contracts to 204,292.

  • The net short position in CBOT US 2-year Treasury futures has decreased by 6,298 contracts to 1,252,975.

  • The net short position in CBOT US 10-year Treasury futures has been cut by 141,543 contracts to 591,374.

  • The net short position in CBOT US 5-year Treasury futures has been reduced by 1,895 contracts to 1,760,422.

  • Equity fund managers have increased the S&P 500 CME net long position by 2,531 contracts to 1,042,431.

  • Meanwhile, equity fund speculators have raised the S&P 500 CME net short position by 78,396 contracts to 347,102.

Technical & Trade Views

SP500 Short Against 6045

  • Daily VWAP bearish

  • 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 bearish

  • 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 bullish

  • 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 bearish

  • Weekly VWAP bearish

  • Seasonality suggests bearishness into Jan 15th

  • Above 104,020 target 110,000

  • Below 101,942 target 86,266