Daily Market Outlook, Thursday, September 12

By Patrick Munnelly of Tickmill

Thursday, September 12, 2024 4:59 AM EDT

Munnelly’s Macro Minute…

"Inflation Data Leads To Market Whipsaw, ECB On Deck Next ”

On Wednesday, US stocks experienced a significant decline at the outset of the trading session; however, a vicious short squeeze led to a V-shaped recovery intraday. The Nasdaq drove the recovery, as all major US averages concluded the day in positive territory. The Nasdaq soared by 2.2% after falling by as much as 1.4% in early trading. The S&P 500 increased 1.1%, while the Dow rose by 0.3% after reaching its lowest intraday level in nearly a month.

Asian markets are primarily trading higher on Thursday, as traders respond to a critical US inflation report that revealed a higher than anticipated increase in core inflation. This report has heightened expectations for a quarter-point rate cut at next week's US Federal Reserve's monetary policy meeting. The Fed's likelihood of reducing interest rates by 50 basis points appeared to be diminished by the data; however, it is anticipated that the Fed will continue to reduce rates in the months ahead. Following the report, the FedWatch Tool from CME Group is forecasting an 83% likelihood of a quarter-point rate reduction and a mere 17% probability of a half-point rate cut. The post inflation report reaction caused the yen to decline from its highest level versus the dollar since December, and the Nikkei index in Japan ended a seven-day losing streak. TSM was among the top gainers, as a regional index of technology equities rose by over 3% following Nvidia Corp.'s 8.2% increase overnight.

The European Central Bank policy decision is the primary risk event of the day in the European session. A quarter-point reduction is already entirely anticipated; however, it is unclear whether the central bank will implement additional reductions in October and December. The market is currently pricing a move next month at approximately 40%, indicating that inflation-wary conservatives remain in the majority. The most probable outcome is that ECB President Christine Lagarde will adhere to the most recent narrative, which states that decisions are made on the basis of incoming data at each meeting, in her post-meeting briefing. In this context, it is probable that the movement of the US curve will continue to dominate cross-market spreads between euro area and US rate expectations.

Subsequently, the focus will return to the United States, where weekly unemployment claims and producer price data are scheduled. The Federal Reserve's singular emphasis on the labor market's health has resulted in an increased emphasis on jobless claims. A negative result, which surpasses the anticipated 230,000, could raise the possibility of a 50 basis point reduction. The PPI is anticipated to have increased by 0.1% last month, according to economists. Several components of the data will assist analysts in the refinement of inflation forecasts for the Personal Consumption Expenditures Price Index, the Federal Reserve's preferred inflation indicator.

Overnight Newswire Updates of Note

Trump Hints At Another Debate With Harris, Eyes NBC & FOX
ECB To Cut Rates As Growth Slows, Outlook Uncertain
Europe's Privacy Watchdog Probes Google’s AI Data Use
Surveyors Report Rise In UK House Prices For First Time In ~2 Years
US Bond Market’s Bet On A Half-point Rate Cut Is Over
Blackstone CFO Chae: US Inflation Is 'At Target'
RBNZ Seen Cutting Rates Further, Than Forecasts
Japan’s Aug Inflation Slows, Eases BoJ Pressure
Oil Tumbles Out Of Range As Recession Fears Grow
XAU Bulls Sidelined As Larger Fed Rate Cut Bets Fade
Putin Urges Russia To Consider Limiting Metal Exports

(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: 1.1000 (4.4BLN), 1.1025-30 (3.2BLN), 1.1035-40 (2BLN)
1.1045-55 (5.2BLN), 1.1100-10 (2.2BLN), 1.1175-80 (892M), 1.1200-10 (3.4BLN)
USD/CHF: 0.8455 (815M), 0.8595-0.8600 (865M)
GBP/USD: 1.2990-1.3000 (338M), 1.3050 (415M), 1.3140 (313M)
EUR/GBP: 0.8420 (250M), 0.8435-40 (472M), 0.8470 (622M)
AUD/USD: 0.6645-55 (900M), 0.6675 (1BLN), 0.6710-15 (1.7BLN)
0.6725 (455M), 0.6750 (1.2BLN)
EUR/AUD: 1.6560-75 (695M). NZD/USD: 0.6175 (267M)
USD/CAD: 1.3590 (1.4BLN). EUR/JPY: 156.75 (576M)
USD/JPY: 141.40 (1BLN), 142.00 (1.5BLN), 144.15 (500M)

CFTC Data As Of 6/9/24

Bitcoin net long position is 108 contracts
Swiss Franc posts net short position of -21,882 contracts
British Pound net long position is 108,078 contracts
Euro net long position is 100,018 contracts
Japanese Yen net long position is 41,116 contracts
Equity fund managers raise S&P 500 CME net long position by 1,368 contracts to 991,219
Equity fund speculators trim S&P 500 CME net short position by 85,360 contracts to 271,561
Speculators increase CBOT US 10-year Treasury futures net short position by 88,390 contracts to 1,002,827