Daily Market Outlook - Wednesday, July 3

By Patrick Munnelly of Tickmill

Wednesday, July 3, 2024 6:30 AM EDT

shallow focus photograph of black and gray compass

Image Source: Unsplash

Asian equities surged following Federal Reserve Chair Jerome Powell’s statement on declining inflation, mirroring the record finish for the S&P 500. The MSCI AC Asia Pacific Index was on track for its longest winning run since May, with Japanese stocks increasing and nearing their all-time highs. SoftBank shares reached their highest closing level in three years, driven by global investments in chips and artificial intelligence. Japanese government bond (JGB) yields were uncertain on Wednesday as investors assessed the possibility of the Bank of Japan (BOJ) raising interest rates at its upcoming meeting to announce its bond purchase tapering plan. The yen's weakness against the dollar since December 1986 has divided market players on whether the central bank will hike rates in July to curb the currency's decline, potentially marking its second hike this year. Despite it not being their primary expectation, the likelihood of the BOJ raising rates this month has increased due to the yen's ongoing struggles.

The fallout of the French election continues as opponents of France's National Rally try to block the far-right party from power in the upcoming run-off election. The euro remains steady after RN did not secure an outright majority. The US dollar is on the defensive after Powell's comments about the US being on a "disinflationary path", with traders looking to upcoming inflation readings for clues on future rate cuts. The Fed remains data-dependent, with traders anticipating as many as two rate cuts this year. Minutes from the Fed's June meeting are expected to provide insight into US rate policy. The ECB is not rushing to further lower borrowing costs after last month's rate cut, with key officials due to speak in Portugal. Tesla reported a smaller-than-expected 5% drop in vehicle deliveries in the second quarter, but the road ahead for EV makers, including Tesla, remains challenging.

Overnight Newswire Updates of Note

Australian Retail Sales Jump In May, Fanning RBA Hike Expectations
China Services Sector Gauge Shows Slowdown In Activity Growth
Japan's Service Activity Slips For First Time In 2 Years, PMI Shows
Australian Services PMI Ticks Higher To 51.2 Versus Previous 51.0
Biden Blames Jet Lag For Poor Debate As He Looks To Calm Revolt
AUD/USD Stays Directed Toward 0.6700 After Strong Aussie Data
10-Yr Trsy Yield Falls As Powell Says US Getting Back On ‘Disinflationary Path’
Oil Trades Near Two-Month High On Signs Of US Inventory Drawdown
Asian Stocks Advance As S&P 500 Closes Above 5,500

(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: 1.0675 (1.6BLN), 1.0685-90 (1.7BLN), 1.0695-00 (2.1BLN)
1.0715 (583M), 1.0740-45 (644M), , 1.0750-60 (2.1BLN), 1.0775 (668M)
1.0800 (1.4BLN)...
USD/CHF: 0.9000-15 (1.1BLN), 0.9050 (1.2BLN), 0.9150 (790M)
EUR/CHF: 0.9650 (269M), 0.9760 (433M). EUR/GBP: 0.8535 (236M)
GBP/USD: 1.2600 (240M), 1.2650-60 (380M), 1.2710 (230M)
AUD/USD: 0.6645-55 (825M), 0.6670-75 (355M), 0.6715 (250M)
USD/CAD: 1.3500 (1.8BLN), 1.3660 (879M), 1.3725 (406M), 1.3800 (405M)
USD/JPY: 160.85 (521M), 161.30-40 (801M), 162.00 (659M), 162.80 (300M)
FX option implied volatility reflects realised FX volatility risk for premiums, which is currently decreasing as markets adjust their positions ahead of the U.S. July 4th holidays. FX volatility tends to be lower during holidays. Improved risk appetite is also contributing to the reduction in option premiums. The market's concerns about the euro have lessened after the first round of the French election. Similarly, JPY volatility gains have slowed down as the JPY lacks volatility amid its recent decline. The risk of the UK election to GBP is considered low, but there will still be some premium for NFP Friday.

CFTC Data As Of 25/06/24

Euro net short position is -8,431 contracts
Japanese Yen net short position is -173,900 contracts
Swiss Franc posts net short position of -35,057 contracts
British Pound net long position is 44,048 contracts
Bitcoin net short position is -624 contracts
Equity fund managers raise S&P 500 CME net long position by 17,079 contracts to 977,134
Equity fund managers raise S&P 500 CME net long position by 17,079 contracts to 977,134