Daily Market Outlook - Tuesday, Feb. 13

By Patrick Munnelly of Tickmill

Tuesday, February 13, 2024 6:30 AM EST

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Equities in the Asia-Pacific region saw a notable uptick, particularly in Japan's Nikkei 225, which surged nearly 3% fueled by gains in the tech sector. However, European and US equity futures display a more mixed sentiment ahead of the crucial US inflation data release later today. The Bank of England Governor hinted at the possibility of a technical recession in the latter part of last year, though he emphasized that any recession would likely be shallow, underscoring the importance of positive forward-looking indicators.

Turning to today's highlights, the UK labor market report unveiled a continued moderation in nominal wage growth. Headline pay growth decelerated to 5.8% in the three months to December, down from an upwardly revised 6.7%, while regular pay growth (excluding bonuses) dipped to 6.2% from 6.7%. Although the unemployment rate fell to 3.8% from 3.9%, data quality concerns remain unresolved, according to the ONS. While nominal wage growth is showing positive movement from a monetary policy perspective, further progress is deemed necessary.

In the Eurozone, indications of weaker economic growth signal the potential for the European Central Bank to initiate policy easing earlier than counterparts in the UK and the US. The German ZEW survey's expectations index is anticipated to improve to 21.0 from 15.2, outperforming the current situation index, reflecting optimism about the German economic outlook despite ongoing weak activity levels.

The spotlight shifts to US CPI inflation later today. Projections indicate a 0.3% month-on-month increase in both headline and core CPI for January, translating to lower annual rates of 3.0% and 3.8%, respectively, down from 3.4% and 3.9%. Despite the Fed's primary focus on inflation, robust early-year economic data have diminished the likelihood of immediate rate cuts starting in March.

Overnight Newswire Updates of Note

Fed Officials Eye ‘Broadening’ Disinflation As New Rate-Cut Test
US Budget Gap Widens 16% In First Four Months Of Fiscal Year
BoE’s Bailey Sees Signs Of ‘Somewhat Stronger’ UK Growth
Australia’s Services Inflation To Cool Only Gradually, RBA Says
Australia Business Conditions Ease As Households See Improvement
Traders See New Zealand Policy Error Risk In Rate-Hike Bet
Tesla Raises The Price Of Their Model Y Vehicles In Germany
SoftBank Shares Hit Most Overbought Level Since 2003 On Arm Jump
Fitch Places Diamondback Energy On Rating Watch Positive
Michelin Posts Record FY Profit After Price Mix Effect, Cautious For 2024
Biden: US Will Do "Everything Possible" To Get New Gaza Hostage Deal

(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: 1.0700 (EU1.49b), 1.0830 (EU1.05b), 1.0800 (EU1.02b)
USD/JPY: 150.00 ($1.41b) 148.90 ($617.2m), 149.90 ($450.1m)
AUD/USD: 0.6600 (AUD717.2m), 0.6400 (AUD470.3m), 0.6425 (AUD450m)
USD/CAD: 1.3500 ($734.1m), 1.3380 ($550m), 1.3780 ($334.1m)
GBP/USD: 1.2500 (GBP495.6m), 1.2880 (GBP389m), 1.5350 (GBP325.7m)
USD/MXN: 17.05 ($373.9m)
NZD/USD: 0.6020 (NZD375m)
Overnight FX option expiries, which were initially influenced by Tuesday's U.S. CPI, indicated a lack of volatility FX risk with small initial gains. However, the risk is now higher. Traders waited closer to the event to avoid wasting premium amid static FX. The following are the prices for overnight implied volatility and its premium/break-even for straddle:
AUD/USD: 11 to 14.5 initially, break-even at 39 v 30 USD pips in any direction
GBP/USD: 9.5 initially, now 12.5 - 50 to 66 USD pips in either direction
USD/JPY: 9.5 to 11.5 or 58 to 72 JPY pips in either direction
EUR/USD: 8.25 to 9.75 initially, now 44 vs 38 USD pips in either direction

CFTC Data As Of 8/02/24

The British Pound had a net long position of 34,475 contracts.
The Euro had a net long position of 62,153 contracts.
The Japanese Yen had a net short position of -84,230 contracts.
Bitcoin had a net short position of -1,523 contracts.
The Swiss Franc had a net short position of -5,567 contracts.
Equity fund managers reduced their net long position in S&P 500 CME by 53,941 contracts to 912,862.
Equity fund speculators decreased their net short position in S&P 500 CME by 8,669 contracts to 423,955.