Daily Market Outlook - Thursday, Jan. 30

By Patrick Munnelly of Tickmill

Thursday, January 30, 2025 6:30 AM EST

Businessman, Internet, Continents

Image Source: Pixabay

Futures for European and US markets rose, paralleling gains in Asian shares as traders looked forward to the ECB's interest rate announcement. Euro Stoxx 50 contracts saw a 0.2% increase, while S&P 500 contracts climbed by 0.4%. These movements reflected a slight uptick in Asian stock markets, which pushed a regional index up by approximately 0.1%. However, trading activity was subdued in the region due to several major stock exchanges being closed for the Lunar New Year holiday. FX dealers in Asia noted that the Yen appreciated by as much against the Dollar as speculative traders placed bets on the currency as Japanese shares also experienced gains. Nonetheless, initial comments from Himino seemed to convey a cautious outlook, with the central banker indicating that the BOJ would consider raising rates "if the outlook is realised."

Monetary policy has once again stolen the spotlight with no change in Fed Funds rates as FOMC unanimously maintains the target range of 4.25%-4.50%. The outcome was anticipated, with the market pricing in a 25bps cut by June. However, the statement pushed DXY/2YR yield higher and SPX down, removing references to ‘Inflation Making Progress Toward Goal’ and describing the labour market as “solid.” Chair Powell downplayed the labour market's role in inflation and stated the Committee is not on a preset course. In the Q&A, he avoided comments on Trump’s remarks about needing lower rates. Powell indicated policy is well-positioned for dual goals and noted progress towards a “meaningfully less restrictive” stance. He clarified that the change in statement language was not a signal, leading to a retracement in 2YR yields while equities remained unchanged. Overall, the hawkish read on inflation was walked back in the press conference. President Donald Trump's policies continue to pose a risk to the Fed's policy perspective, and new tariffs are expected to be imposed on Canada, Mexico, and potentially China on Saturday.

Today, European traders are unlikely to receive clear trading signals from Asia, as many markets in the region are closed for the lunar New Year. However, Tokyo managed to recover from initial losses to trade positively, Sydney's stock market reached a record high, and U.S. stock futures are rising after Wall Street's weak performance overnight. The earnings season for the major "Mag 7" companies began on Wednesday with mixed results: Microsoft exceeded quarterly revenue expectations, while Tesla's profit margin for the fourth quarter fell short of forecasts. Meta has projected first-quarter revenue to be below market expectations. Apple is set to report its earnings after the market closes today.

The European Central Bank (ECB) is poised to implement a 25 basis points cut, indicating a potential continuation of easing measures. Despite recent improvements in Eurozone Purchasing Managers' Indexes (PMIs), the ECB remains focused on the persisting economic challenges. Growth stagnation and Germany's structural issues, compounded by political uncertainties with upcoming elections, underscore the complexities facing the region. Although inflation has seen a modest increase, driven by base effects and elevated service costs limiting core inflation growth, the overall economic sentiment remains positive. Monetary easing efforts have been slow to materialise, influenced by subdued confidence impacting credit availability while households prioritise savings, evident in mounting deposits. Anticipated progress in the near future is expected, notwithstanding lingering uncertainties such as tariff threats. The likelihood of a 25 basis points cut on Thursday remains high, with prevailing communication signalling a dovish stance emphasising the need for a more balanced approach. With references to a "neutral" stance at around 2.0%, hints suggest room for adjustments. Market sentiments lean conservatively, signalling a potential overvaluation of the Euro (EUR). A dovish posture from the ECB is seen as a catalyst for corrective actions in both market expectations and currency valuations, promising recalibrations in response to evolving economic conditions.

Overnight Newswire Updates of Note

Chinese Managers To Cut QDII Fund Fees For Domestic Investors
BoJ To Slice Almost $500B Off Balance Sheet With QT Move
Japan Sees Debt-service Costs Jumping 25% By 2028 As BoJ Hikes
ECB Set To Cut As Fears Of Weak Growth, US Tariffs Mount
EU Debates Return To Russian Gas As Part Of Ukraine Deal
EZ Q4 GDP To Show Slight Gain As Growth Concerns Remain
US GDP Data To Offer First Economic Insight Post-FOMC
Powell Says US Fed In No Hurry To Cut Rates After Pause
Trump: Fed Failed To Beat Inflation, Vows ‘I Will Do It.’
BoC Can Ease Tariff Pain But Can’t Fix Damage, Macklem Says
Meta Posts Robust Fourth-quarter Earnings Amid DeepSeek Mania
Tesla Shares Rally On Pledge To Return To Growth In 2025
Microsoft’s Cloud Computing Business Hits A Speed Bump
IBM Stock Rises On Earnings Beat CEO Says AI Is Helping

(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: 1.0350-55 (3.7BLN), 1.0365-75 (1.8BLN), 1.0390 (504M)
1.0400-05 (2.4BLN), 1.0415 (450M), 1.0425-30 (1.1BLN), 1.0435-40 (1BLN)
1.0450-60 (1.8BLN)
GBP/USD: 1.2350 (307M), 1.2535-40 (365M)
AUD/USD: 0.6225 (200M), 0.6300 (766M)
AUD/NZD: 1.1070-75 (486M)
USD/CAD: 1.4400 (321M), 1.4475 (437M), 1.4490-1.4500 (2.6BLN)
USD/JPY: 154.00 (630M), 154.50 (290M), 155.00 (591M)
155.40-45 (770M), 156.00 (380M)
EUR/JPY: 159.90 (282M). AUD/JPY: 96.80 (400M)

IB FX Month-End Rebalancing Models

Credit Agricole FX month-end rebalancing model suggests selling the USD against a basket of currencies. The model indicates that there will be mild USD selling across the board, with the strongest sell signal against the JPY.
According to our corporate flow model, there is an indication of EUR selling at the end of the month. Thus, in our combined strategy, we will be utilizing the signals from the standalone month-end rebalancing model.
Based on Deutsche Bank's model, rebalancing flows driven by relative equity performance indicate slight USD purchasing against the euro and Scandinavian currencies. However, seasonal trends suggest overall USD selling, particularly at the end of the month and on the first trading day of February.

CFTC Data As Of 24/1/25

This summary provides an overview of the trading positions held by equity fund managers and speculators in various futures markets as of the reporting period ending January 21:

1. Currencies (Net Short Positions):**

- **Euro**: **-62,486** contracts (significant bearish sentiment).

- **Japanese Yen**: **-14,673** contracts (moderate bearish stance).

- **Swiss Franc**: **-41,837** contracts (notable bearish sentiment).

- **British Pound**: **-8,257** contracts (marginal bearish positioning).

2. Bitcoin (Net Long Position):**

- **BTC**: **+739** contracts (mild bullish positioning in the futures market, reflecting growing optimism).

3. Equities (S&P 500 CME Futures):**

- **Equity Fund Managers (Long)**: Increased net long position by **+7,931 contracts** to a total of **+931,930 contracts**, signaling continued optimism.

- **Equity Fund Speculators (Short)**: Expanded net short position by **+88,671 contracts** to a total of **-399,756 contracts**, highlighting growing speculative bearish bets.

4. Treasuries (CBOT Futures):**

**Long Positions:**

- **US Treasury Bonds (30-year)**: Net long position grew by **+24,404 contracts** to **+24,456**, reflecting a more bullish outlook on long-term bonds.

**Short Positions:**

- **US Ultrabond (long-term Treasuries)**: Net short position decreased (trimmed) by **-12,434 contracts** to **-229,988**, indicating less bearish sentiment.

- **2-Year Treasury Futures**: Net short position trimmed by **-82,829 contracts** to **-1,174,377**, showing a reduction in bearish sentiment on short-dated bonds.

- **5-Year Treasury Futures**: Net short position increased by **+18,570 contracts** to **-1,796,191**, reflecting stronger bearish sentiment for mid-duration bonds.

- **10-Year Treasury Futures**: Net short position increased by **+12,310 contracts** to **-580,245**, indicating growing bearish sentiment for this maturity segment.

**Key Takeaways:**

1. **Currencies**: Persistent bearish sentiment dominates, particularly for the **euro** and **Swiss franc**, with speculative shorts significantly outweighing longs.

2. **Bitcoin**: A small but positive net long position reflects a bullish tilt.

3. **Equities**:

- Fund managers are steadfastly **bullish** on the S&P 500, while speculators maintain a growing **bearish stance**, signaling a potential divergence of sentiment.

4. **Treasuries**:

- **Long-duration bonds** (30-year) saw increased long positions, indicating optimism in long-term fixed income.

- **Shorter and mid-duration bonds** (e.g., 5-year, 2-year) retain heavy net short positions, reflecting expectations of rising interest rates or bearish bond sentiment.

Overall, bullish interest in long bonds and equity fund managers’ sustained optimism, while speculative shorts dominate in currencies and some Treasury maturities.