Daily Market Outlook, February 15, 2024

Munnelly’s Market Minute…

“UK In Technical Recession, BoE Governor Optimistic”

Asian equities, particularly chip stocks, drove the rise in Asian markets on Thursday. The Nikkei reached a new 34-year peak, while the dollar paused near a three-month high as investors evaluate the potential timing of the Federal Reserve's easing cycle. The MSCI's broadest index of Asia-Pacific shares outside Japan increased by 0.7%, with the IT index surging by almost 3%. Taiwan stocks also surged to a record high, led by an almost 8% increase in chipmaker TSMC's stock. Japan's Nikkei closed 1.2% higher, reaching as high as 38,188.74 during the session, its highest level since January 1990 and approaching its record high last seen in December 1989.

The recently released UK GDP data revealed a smaller-than-anticipated decline of 0.1% in December. However, this still resulted in a contraction of 0.3% for the entire Q4. With a 0.1% decrease in Q3, today's figures meet the informal definition of a recession, which entails at least two consecutive quarters of negative growth. Nonetheless, the decline in Q4 appears to be influenced by one-off factors. Earlier this week, Bank of England Governor Bailey suggested that there was a possibility the economy entered a mild recession by the end of 2023, but he also acknowledged signs of a recovery in activity. Consequently, today's data may not significantly alter the BoE's policy outlook. Nevertheless, it presents challenging headlines ahead of today's two Parliamentary by-elections, which serve as a further gauge of the government's popularity.

Today's economic calendar in the US is notably busy, featuring several reports on economic activity in January and February. Following the US economy's robust performance at the end of 2023, these reports will offer insights into the state of activity at the beginning of 2024. We anticipate that most of these reports will surpass expectations. Given Tuesday's unexpected uptick in inflation, additional positive surprises may cast doubt on the possibility of imminent interest rate cuts. While December retail sales indicate a successful holiday season for US retailers, January's reports suggest disappointing car sales. Nevertheless, indications point to steady high street and online sales, prompting expectations of another increase overall. Moreover, survey data suggesting stabilized orders leads us to forecast an uptick in January industrial production. Although the New York and Philadelphia Fed business surveys fell short in January, the likelihood of a rebound in February remains, considering that other surveys, notably the ISMs indices, surpassed expectations.

BoE policymaker Greene, who transitioned from advocating for a rate hike to supporting unchanged interest rates at the last policy meeting, is scheduled to speak today. Additionally, the BoE's Mann, who maintained her vote for a rate hike despite subsequently expressing uncertainty, is also set to speak. Friday will witness the release of January UK retail sales data, with expectations of a partial rebound from December's 3.2% decline.

Overnight Newswire Updates of Note

Japan Loses Its Spot As Third Largest Economy As It Slips Into Recession
Australia’s Unemployment Rate Accelerated In January
RBA’s Bullock: In Good Position To Get Infl. Down In Reasonable Time
Trump Eyes NATO Makeover, Hurried Peace In Ukraine If Elected
ECB’s Nagel: German Economy May Have Shrunk In First Quarter
UK’s Hunt Explores Fresh Squeeze On Public Spending To Fund Tax Cuts
UK GDP Expected To Post Second Quarterly Contraction
Intervention Chatter Charges Yen Bets To Near-Records
Japan’s Nikkei Index Is Within A Whisker Of Its 1989 Peak
Cisco To Cut Thousands Of Workers After Sales Growth Stalls
Nvidia Overtakes Alphabet, One Day After Eclipsing Amazon
Berkshire Reduced Its Positions In Apple, HP And Paramount Global

(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 (EU473m), 1.0680 (EU320.2m)
USD/JPY: 149.10 ($1b), 146.75 ($455.2m), 148.00 ($450.3m)
USD/CAD: 1.3550 ($875.2m), 1.3345 ($396m), 1.3500 ($301.9m)
AUD/USD: 0.5995 (AUD386m)
USD/CNY: 7.1000 ($500m), 6.5200 ($300m)
GBP/USD: 1.2565 (GBP557.1m)
USD/MXN: 17.40 ($1.46b), 17.08 ($671m), 17.00 ($581.2m)
USD/BRL: 4.8000 ($800m), 4.5500 ($500m), 4.9000 ($400.2m)
On Friday, February 16, there are significant FX option strike expiries. Here are the key levels:
EUR/USD: 1.0615 (1.6 billion), 1.0670-75 (2 billion), 1.0700 (1.8 billion), 1.0750-55 (1.4 billion), 1.0800 (3.1 billion), 1.0820 (1 billion)
GBP/USD: 1.2650-60 (1.7 billion), 1.2720 (500 million)
USD/CHF: 0.8780 (800 million)
AUD/USD: 0.6400 (500 million), 0.6535 (700 million)
USD/JPY: 149.00 (1.1 billion), 150.00 (1.1 billion), 152.00 (800 million)
USD/CAD: 1.3500-05 (1.8 billion)

CFTC Data As Of 8/02/24

The British Pound had a net long position of 34,475 contracts.
The Euro had a net long position of 62,153 contracts.
The Japanese Yen had a net short position of -84,230 contracts.
Bitcoin had a net short position of -1,523 contracts.
The Swiss Franc had a net short position of -5,567 contracts.
Equity fund managers reduced their net long position in S&P 500 CME by 53,941 contracts to 912,862.
Equity fund speculators decreased their net short position in S&P 500 CME by 8,669 contracts to 423,955.