Daily Market Outlook, March 12, 2024

Munnelly’s Macro Minute…

“Markets Firmly On US Inflation Watch”

This morning, most Asian equity markets are on the rise, although Japan and one key index in China are experiencing declines. Bank of Japan Governor Ueda, testifying to parliament, refrained from indicating whether the BoJ will raise interest rates next week, stating that "more data will come this week." Meanwhile, the New York Federal Reserve's gauge of consumer inflation expectations saw a slight uptick in median and longer-term measures.

In the UK, recently released labor market data showed a modest slowdown in annual pay growth for the three months to January. Overall pay growth eased to 5.6% annually from 5.8%, while regular pay growth slipped to 6.1% from 6.2%. Unexpectedly, employment declined while the unemployment rate edged up to 3.9% from 3.8%. These figures, slightly weaker than forecast, support the message from yesterday’s unofficial KPMG/REC survey indicating that the labor market is loosening. While these outcomes may fuel hopes for a UK interest rate cut, most Bank of England policymakers are likely to proceed cautiously.

Today's primary focus will be on the February US Consumer Price Index (CPI) data, which may indicate a slowdown in the downward trajectory of inflation. Markets anticipate both headline and 'core' inflation to have increased by 0.321-4% month-on-month. Factors such as higher gasoline prices may influence the headline rate, while persistent issues with seasonal adjustment and relatively stable services inflation are expected. The annual headline inflation rate is forecasted to remain unchanged from January at 3.1%, with some upside risks, while the core inflation rate is predicted to have slightly eased to 3.8% from 3.9%. US Federal Reserve Chair Powell suggested the likelihood of a US interest rate cut by mid-year unless the inflation outlook deteriorates, and today’s data will likely not disrupt that plan. However, they may reinforce caution among Fed policymakers regarding further rate cuts.

Overnight Newswire Updates of Note

Doves Hope Slowing US Inflation Will Convince Fed To Cut Sooner
Biden's $7.3Tln Budget Is Campaign Pitch For Spending, Tax Goals
Dimon Says Economy Booming, But Recession ‘Not Off The Table’
President Biden May Condition Aid For Israel After Rafah Invasion
BoJ’s Ueda Reiterates Economy Recovering Gradually Before Meet
Japan FinMin Suzuki: Still Haven’t Completely Overcome Deflation
RBA’s Hunter Says Households Are ‘Clearly Struggling’ At Moment
ECB Officials Are Leaning Toward Keeping Minimum Reserve At 1%
BoE's Mann: Long Way For Inflation To Be Consistent With Target
Oracle Jumps After Posting Strong Sales, Cloud Growth Stabilises
FAA Audit Of Boeing 737 Max Production Found Dozens Of Issues

(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)

USD/JPY: 151.50 ($2.16b), 148.25 ($1.86b), 149.00 ($630.3m)
EUR/USD: 1.1030 (EU605.6m), 1.1010 (EU503.2m), 1.0785 (EU426m)
USD/CAD: 1.3705 ($671.3m), 1.3475 ($486.2m)
AUD/USD: 0.6530 (AUD805.3m)
USD/CNY: 7.4500 ($401.4m), 7.5000 ($385.9m), 7.2100 ($366.2m)
GBP/USD: 1.2850 (GBP418.7m), 1.2535 (GBP316m)
NZD/USD: 0.6145 (NZD465.5m), 0.6175 (NZD351.2m)
USD/BRL: 5.0100 ($349.3m)
EUR/GBP: 0.8580 (EU681.8m)
Monday’s FX trading was calm ahead of the U.S. CPI release, with the dollar slightly supported by position squaring. The upcoming CPI release could significantly impact the Federal Reserve rate outlook, potentially leading to a market reaction similar to last month. Risks are balanced, with the potential for an equal move in either direction. A higher-than-expected CPI could result in EUR/USD and NZD/USD moving lower, while a lower-than-expected CPI would weaken the dollar across the board.

CFTC Data As Of 8/03/24

Bitcoin net short position is -1,352 contracts
Euro net long position is 66,311 contracts
Japanese Yen net short position is -118,843 contracts
Swiss Franc posts net short position of -17,551 contracts
British Pound net long position is 58,385 contracts
Equity fund managers cut S&P 500 CME net long position by 24,150 contracts to 917,973
Equity fund speculators trim S&P 500 CME net short position by 31,617 contracts to 402,895