Daily Market Outlook, February 5, 2024
Munnelly’s Market Minute…“Powell Hitting Pause On Rate Cut Expectations”
Asian stocks were mostly subdued due to the red-hot jobs report and Fed Chair Powell's comments indicating a likely delay in a March rate cut. In a pre-recorded TV interview aired last night, US Fed Chair Powell reiterated that more progress on inflation’s final descent was needed before the central bank would cut rates, aligning with comments made at last week’s policy meeting press conference. Powell also indicated that the scale of cuts priced in by financial markets seemed excessive relative to the Fed’s own expectations, while suggesting that the first cut would not occur until the middle of the year. The Nikkei 225 was supported by recent currency weakness, with earnings influencing the biggest movers. Hang Seng and Shanghai Comp initially faced pressure from a continuation of the equity rout, but Chinese markets later recovered from their lows.
In the UK the Office for National Statistics (ONS) published revised UK labor market data, adjusted for new population estimates. Notably, the latest read on the UK unemployment rate, covering the three months to November, was reported to be 3.9% compared with a previous estimate of 4.2%, indicating that the labor market was tighter than previously assumed.
Looking ahead, there was minimal chance that the US and UK central banks would change interest rates at their policy updates last week. Both the Federal Reserve and the Bank of England maintained interest rates at the 5.25-5.50% range and 5.25%, respectively. Financial markets, however, focused on signals about the timing and extent of potential interest rate reductions this year.
This week, the UK and US inflation prints for January are due. Meanwhile, key survey data this week will provide insight into evolving price pressures and wider economic trends. In particular, today’s US ISM services survey is expected to rise to 52.5 from 50.5, indicating positive growth in service sector activity. In Europe, the final estimates of the UK and Eurozone services PMI for January are expected to be unrevised. Questions remain about the PMI survey's accuracy in predicting actual GDP growth. However, the UK services survey has signaled growth for a third consecutive month, while the Eurozone picture still reflects contraction, albeit with increasing optimism for future prospects.
Stateside focus will be on speeches by Fed officials Raphael Bostic, Loretta Mester, and Thomas Barkin for clues on the timing of rate cuts after last week's policy meeting and Friday's strong U.S. employment numbers, which may impact the central bank's confidence in inflation.
Overnight, the Reserve Bank of Australia is expected to leave interest rates unchanged at 4.35%. Markets will observe if it adjusts its hawkish bias following recent softer data. In the UK, the British Retail Consortium (BRC) releases its January update of retail sales.
Overnight Newswire Updates of Note
Jay Powell Says Fed Expects To Make Three Rate Cuts This Year
US Yields Jump As Powell And Payrolls Drive Selling
China Securities Regulator Vows To Prevent The Risk From Pledged Stocks
Australia Goods Trade Surplus Narrows To AUD10.9 Bln In Dec
ECB’s Vujcic Says Patience Needed Before Starting Rate Cuts
German Top Ministers Weigh Corporate Tax Reform
US Says Strikes Against Iran-Backed Militias Are ‘Beginning, Not The End’
Hamas Denies Rejection Of Hostage, Ceasefire Deal, To Deliver Answer Soon
Oil Edges Higher As US Attacks On Houthis Ratchet Up Tensions
China Stocks Languish Despite Renewed Vow To Stabilize Markets
Foxconn Sees 'Slightly Better' 2024, Warns On AI Chip Shortage
Boeing Finds New Problem With 737 MAX Fuselages
(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: 1.0780 (230M), 1.0800 (314M), 1.0870 (554M)
GBP/USD: 1.2600 (260M), 1.2645-50 (935M)
NZD/USD: 0.6060 (610M), 0.6100 (450M)
USD/JPY: 148.00 (1.1BLN)
CFTC Data As Of 2/02/24
USD bearish neutral -5,618
CAD neutral neutral -178
EUR bullish neutral 12,034
GBP bullish neutral 2,711 218
AUD bearish increasing -3,849
NZD neutral neutral -64
MXN bullish neutral 2,343
CHF bearish neutral -566
JPY bearish increasing -6,813
Technical & Trade Views
SP500 Bullish Above Bearish Below 4940
Daily VWAP bullish
Weekly VWAP bullish
Below 4900 opens 4800
Primary support 4800
Primary objective is 4981
EURUSD Bullish Above Bearish Below 1.0875
Daily VWAP bearish
Weekly VWAP bearish
Above 1.10950 opens 1.10
Primary resistance 1.10
Primary objective is 1.0730
GBPUSD Bullish Above Bearish Below 1.2750
Daily VWAP bearish
Weekly VWAP bearish
Above 1.28 opens 1.2870
Primary resistance is 1.2785
Primary objective 1.2570
USDJPY Bullish Above Bearish Below 147.50
Daily VWAP bullish
Weekly VWAP bullish
Below 146 opens 145.50
Primary support 143.50
Primary objective is 149.13
AUDUSD Bullish Above Bearish Below .6650
Daily VWAP bearish
Weekly VWAP bearish
Below .6500 opens .6420
Primary support .6525
Primary objective is .6260
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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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!