Daily Market Outlook - Thursday, March 21

Time, Time Management, Stopwatch, Industry, Economy

Image Source: Pixabay
 

In response to the US Fed's decision to maintain interest rates and reaffirm expectations for three quarter point interest rate cuts later this year, Asian stock markets are mostly trading higher on Thursday. The latest projections indicate that Fed officials anticipate a decrease in rates to a range of 4.50 to 4.75 percent by the end of 2024. The Fed acknowledged that inflation has decreased over the past year but stated the need for "greater confidence" in inflation moving sustainably towards 2 percent before implementing rate cuts. Continuing its upward momentum from the last two trading days, the Japanese market is significantly up on Thursday, taking cues from the positive performance of Wall Street the previous day. The Nikkei 225 has surpassed the 40,500 mark to reach new record highs, with most sectors experiencing gains driven by major index components and financial stocks. This surge comes as traders respond to the US Federal Reserve's confirmation of expectations for three interest rate reductions this year.

The Bank of England is set to announce its decision on interest rates today at 12:00 GMT, with no immediate changes expected. Therefore, the focus will be on the bank's guidance regarding future policy moves. Unlike previous announcements where the Bank issues a Monetary Policy Report and holds a press conference, today's update will only include a statement and accompanying minutes, providing new insights into policy intentions. Recent economic data since the last policy update in early February have shown inflation surprisingly modestly on the downside, along with signs indicating that the late-2023 recession was short-lived and activity is picking up again. During the MPC's last policy meeting, there was a three-way split on interest rate intentions, with six members voting for no change, one advocating for an immediate cut, and two (down from three previously) favoring another hike. The only expected change this time is that one or possibly both of the hawks may move into the unchanged camp. Additionally, it seems unlikely that the policy guidance will change at this juncture. In the previous meeting, the MPC removed its previous upside bias for interest rates and hinted at the possibility of a cut moving closer.

Ahead of the Bank of England policy announcement, this morning's UK March flash PMI data is anticipated to show a modest increase in manufacturing but a second successive decline in the services index. This would mark the first decrease in the composite PMI since September, although it would still indicate a growth pickup for this year. Early Friday, February retail sales are expected to show a second consecutive monthly increase despite adverse weather conditions, while consumer confidence is forecasted to rise in March, buoyed by speculation about tax cuts.

The Eurozone March flash PMI report, including figures for Germany and France, will be released today. Unlike the UK, the Eurozone survey has continued to indicate contraction in activity, albeit with signs suggesting a moderation in the pace of decline and a potential return to modest expansion soon.

Stateside, the equivalent US Markit PMI will be released, although this survey typically garners less attention compared to the alternative ISM survey, which is not due until early April.
 

Overnight Newswire Updates of Note

  • BoJ's Next Rate Hike In Spotlight As Investors Eye July Or October
  • Most Japan Firms See BoJ Rasing Rates Towards 0.25% This Year
  • Japan's Exports Grew For Third Straight Month In February
  • Australia Jobs Surge In February And Unemployment Shrinks
  • New Zealand’s Recession Extends Despite Population Surge
  • PBoC Deputy Governor Says Theres Still Room For Cutting RRR
  • Chinese Policymakers In Wait-And-See Mode On Easing, Report Says
  • China On Track To Be Ready For Taiwan Invasion By 2027, US Says
  • Fed Pencils In Three Rate Cuts in 2024, Shallower Path Ahead
  • Bank Of Canada Expects Rate Cut Conditions To Emerge This Year
  • Bank Of England Expected To Keep Rate Cut Talk On Ice For Now
  • Japan’s Nikkei Hits Record High; Near 41,000 In Aftermath Of BoJ
  • Micron’s Stock Higher As Company Delivers Big Earnings Beat
  • Brazil Central Bank Cuts Interest Rate By A Further Half-Point

(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: EUR amounts 1.0900 2.7b 1.0990 1.9b
  • USD/JPY: USD amounts 150.00 573m
  • AUD/USD: AUD amounts 0.6500 1b
  • After the Federal Reserve's decision, the drop in options for the EUR/USD has resulted in the currency pair being confined to a familiar trading range. The implied volatility for EUR/USD has decreased to its lowest levels in recent times and over the past two years following the Fed's announcement. This low implied volatility aligns with the currency pair's historically low actual volatility and its tendency to trade within well-known ranges. Prior to the Fed's decision, options were anticipating higher volatility and potential strengthening of the USD. However, the Fed's cautious stance has led to EUR/USD being stuck in its existing state. The implied volatility for options expiring in one month now stands at 4.95, down from 5.5 before the Fed's decision. This level of 4.95 is the lowest since late 2021, with 4.5 being the previous low from March 2020. The actual volatility over the past month and a potential fair value measure currently sit at just 4.1. Additionally, there are concerns raised by the SNB regarding CHF options showing resilience despite the drop following the Fed's decision.
     

CFTC Data As Of 15/03/24

  • Bitcoin net short position is -994 contracts
  • Euro net long position is 74,407 contracts
  • Japanese Yen net short position is -102,322 contracts
  • Swiss Franc posts net short position of -17,870
  • British Pound net long position is 70,451 contracts
  • Equity fund managers cut S&P 500 CME net long position by 3.983 contracts to 913,990
  • Equity fund speculators increase S&P 500 CME net short position by 71,149 contracts to 474,044
     

Technical & Trade Views

SP500 Bullish Above Bearish Below 5200

  • Daily VWAP bullish
  • Weekly VWAP bullish
  • Below 5190 opens 5160
  • Primary support 5160
  • Primary objective is 5220 Target Hit New Pattern emerging

(Click on image to enlarge)

EURUSD Bullish Above Bearish Below 1.09

  • Daily VWAP bullish
  • Weekly VWAP bullish
  • Below 1.0840 opens 1.0795
  • Primary support 1.08
  • Primary objective is 1.10

(Click on image to enlarge)

GBPUSD Bullish Above Bearish Below 1.2740

  • Daily VWAP bullish
  • Weekly VWAP bullish
  • Below 1.2670 opens 1.2630
  • Primary support  is 1.2660
  • Primary objective 1.29

(Click on image to enlarge)

USDJPY Bullish Above Bearish Below 150.25

  • Daily VWAP bullish
  • Weekly VWAP bullish
  • Above 151 opens 152
  • Primary support 145.85
  • Primary objective is 153

(Click on image to enlarge)

AUDUSD Bullish Above Bearish Below .6600

  • Daily VWAP bullish
  • Weekly VWAP bearish
  • Below .6550 opens .6520/00
  • Primary support .6477
  • Primary objective is .6700

(Click on image to enlarge)

BTCUSD Bullish Above Bearish below 68900

  • Daily VWAP bearish
  • Weekly VWAP bullish
  • Below 64000 opens 59588
  • Primary support  is 52800
  • Primary objective is 78000

(Click on image to enlarge)


More By This Author:

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