Daily Market Outlook, February 1, 2024


Contents

Daily Market Outlook, February 1, 2024

Munnelly’s Market Minute…“Focus Shifts To BoE After Post FOMC Selloff”

Asian markets showed a mixed performance following losses on Wall Street due to concerns in the banking sector and Federal Reserve Chair Powell's resistance to a rate cut in March. However, Chinese Caixin Manufacturing PMI data exceeded expectations. The Nikkei 225 also declined due to recent currency strength and the influence of various earnings reports on price movements. The Hang Seng and Shanghai Composite indices had mixed results, initially benefiting from stronger-than-expected Caixin PMI data and additional support measures, but gains were limited after a significant liquidity drain by the People's Bank of China, causing the mainland index to gradually reverse course.

Today's attention shifts to the Bank of England's policy decision. Similar to the recent actions of the Fed and the ECB, the BoE is unlikely to adjust interest rates and will maintain them at 5.25%. The BoE has been more cautious than its counterparts in signaling a shift in interest rate policy. Consequently, markets are not fully pricing in the first UK rate cut until June, with only four rate cuts expected in total for 2024. Markets anticipate the BoE to largely reiterate its previous stance, deeming it premature to signal lower interest rates. However, there might be a change in the MPC vote split this time. In December, three out of nine members voted for another rate hike. This time, it's likely that at least one, possibly two, of them will align with the majority and vote for no change. Additionally, there's a chance that one member might vote for a rate cut. Nonetheless, markets don't anticipate a modification to the forward guidance on policy, which is expected to indicate that rates will need to remain restrictive for an extended period.This meeting also involves the BoE updating its forecasts. Near-term inflation projections are likely to be revised downward, whereas longer-term inflation forecasts might see a modest upward revision but are expected to remain close to target, supporting expectations of impending interest rate cuts.

Outside the UK, Eurostat will release its preliminary flash estimate of Eurozone CPI inflation for January. Consensus suggests Eurozone headline CPI to decrease to 2.7% from December's 2.9%.

Stateside, focus will be on the ISM manufacturing survey and monthly construction spending figures. While construction spending is predicted to rise, the ISM survey is expected to remain in contraction territory. The unexpected sharp rise in the separate S&P Global manufacturing PMI report might pose an upside risk to the ISM.

Overnight Newswire Updates of Note

  • Fed Keeps Rates Steady While Powell Says March Cut Unlikely

  • Goldman Sachs Now Forecast First Fed Rate Cut In May, From March Prior

  • South Korea’s Exports Get Off To Strong Start In 2024

  • Modest Deterioration In Japanese Manufacturing Conditions In January

  • ECB’s Lane: ECB Needs More Confidence Inflation Is Headed To 2%

  • US House Passes $78 Bln Tax Bill In Rare Bipartisan Vote

  • US House To Vote On Overturning Biden’s Natural Gas-Export Freeze

  • US Officials See ‘Progress' In Israel-Hamas Cease-Fire Negotiations

  • 10-Year Treasury Yield Falls Below 4% As Traders Evaluate Fed Decision

  • Oil Nudges Higher On Fed Rate Cut Expectations

  • Qualcomm Earnings Beat As Smartphone Chip Sales Suggest Recovery

  • MetLife Net Income Plunges Despite Revenue Surge

  • Tesla To Open New US Battery Plant With Equipment From CATL

  • FAA Says Boeing 737 Audit Will Review Spirit Fuselage Production

  • Disney’s India Unit Takes Valuation Hit In Planned Sale

(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: 1.0790-1.0800 (1BLN), 1.0850-55 (579M), 1.0900 (1.1BLN)

  • USD/CHF: 0.8600 (578M), 0.8625 (555M), 0.8650 (409M)

  • EUR/CHF: 0.9350 (395M), 0.9375 (220M)

  • GBP/USD: 1.2630 (306M), 1.2760 (413M), 1.2800-15 (485M)

  • AUD/USD: 0.6465 (490M), 0.6590 (660M), 0.6640-50 (1.2BLN)

  • USD/JPY: 146.50 (258M), 148.00 (260M)

  • EUR/JPY: 158.70 (674M), 159.30 (435M), 160.20 (308M)

  • AUD/JPY: 97.50 (721M), 98.50 (611M)

  • The GBP/USD is declining ahead of the BoE meeting due to reduced expectations of a March rate cut by the Fed. At 08:35, the Cable is approaching 1.2641 as the USD gains strength. On Tuesday, it reached a two-week low at 1.2641, while it peaked at 1.2750 before the Fed meeting on Wednesday. If the GBP/USD continues to drop, support may be seen around 1.2600, with the 2024 low at 1.2597. The BoE Monetary Policy Announcement is scheduled for 1200 GMT, including the rate votes of four ‘external' MPC members.

CFTC Data As Of 12/01/24

  • USD bearish increasing -9,298 

  • CAD bearish increasing -992 

  • EUR bullish decreasing 14,150 

  • GBP bullish increasing 2,443 

  • AUD bearish increasing -3,151 

  • NZD neutral neutral -177 

  • MXN bullish neutral 2,370 

  • CHF bearish neutral -542 

  • JPY bearish neutral -4,803 

Technical & Trade Views

SP500 Bullish Above Bearish Below 4900

EURUSD Bullish Above Bearish Below 1.0875

GBPUSD Bullish Above Bearish Below 1.2750

USDJPY Bullish Above Bearish Below 146 

  • Daily VWAP bearish

  • Weekly VWAP bullish

  • Below 146 opens 145.50

  • Primary support 143.50

  • Primary objective is 149

AUDUSD Bullish Above Bearish Below .6650

BTCUSD Bullish Above Bearish below 43850

  • Daily VWAP bullish

  • Weekly VWAP bullish

  • Above  43600 opens 44700

  • Primary resistance  is 44700

  • Primary objective is 44700



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