Daily Market Outlook - Wednesday, March 19

By Patrick Munnelly of Tickmill

Wednesday, March 19, 2025 7:45 AM EDT

Cutout paper illustration representing scheme and Stocks inscription

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Asian stocks advanced for a fourth straight session, diverging from the ongoing selloff in U.S. markets, while gold surged to a record high. Japanese and South Korean equities posted gains, though Chinese markets delivered mixed results. Meanwhile, Bank of America Corp.'s latest survey revealed that investors have slashed their U.S. equity exposure to record lows, while cash reserves have risen sharply. Fears of a potential recession have been stoked by concerns over President Donald Trump’s economic policies, particularly regarding trade and tariffs. Market participants are now anxiously awaiting the Federal Reserve’s policy announcement later on Wednesday for clearer guidance. In the meantime, investors continue to explore alternative opportunities, with Chinese and Japanese benchmarks recently enjoying notable rallies. The yen weakened against the dollar after earlier volatility, as the Bank of Japan maintained its policy stance. The central bank observed that a positive cycle of wages and prices is strengthening, while remaining vigilant about global trade dynamics. The Governor of the BOJ highlighted that multiple factors influence the central bank's policy interest rate, extending beyond simply subtracting inflation from current policy or market rates. Among these factors, financial market conditions play a significant role. Recent studies by economists and investment banks have explored the potential effects of terminal rates set at 1.5% or 2%. Findings largely suggest that Japanese interest rates and the yen could rise substantially. Following the anticipated 25 basis point hike in May, June, or July, Yen watchers project the USD/JPY exchange rate could climb to 146.

The Federal Reserve's upcoming March meeting is unlikely to bring any changes to monetary policy, with interest rates expected to remain steady at 4.25%-4.50%. In his recent remarks before the blackout period, Chair Jerome Powell stated, "We do not need to rush, and we are in a good position to await more clarity." Since then, economic developments have been minimal: a slightly weaker jobs report and a moderation in January's robust CPI data have not significantly altered the broader picture. The labour market remains stable, and disinflation is proceeding at a gradual pace. Against this backdrop, the Fed continues to navigate a complex and evolving policy landscape but appears confident in its ability to manage the challenges. However, the FOMC is unlikely to offer definitive guidance, with the principle that "policy is not on a preset course" expected to remain central. The updated Summary of Economic Projections may shed light on how uncertainties are shaping the Fed's outlook. While median forecasts are unlikely to change substantially, the range of projections could broaden, reflecting the difficulties in adapting traditional models to current dynamics. One area where policy adjustments might emerge is the Fed's quantitative tightening (QT) programme. Recent minutes highlighted the "potential for significant swings in reserves in the coming months" due to the looming debt ceiling issue. This could prompt the committee to "consider pausing or slowing balance sheet reduction." Although the Treasury General Account has seen further declines since then, overall liquidity conditions have remained relatively stable. Any adjustment to QT would likely be viewed as a cautious and dovish signal from the Fed. Goldman Sachs noted that the SPX straddle for the FOMC went out at approximately +/-1.1% price movement for the session.

Overnight Newswire Updates of Note

UK Chancellor To Squeeze Public Spending Further In Spring Statement
Bundesbank Enlists AI To Prove ECB’s Dovish Bias
Trump Admin Weighs Giving Up NATO Command In Cost-Cutting Move
Fed Expected To Hold Rates, Focus On Growth Risks, Policy Signals
Investors Pump $22B Short-Term US Debt To Ride Out Market ‘Storm’
Nvidia Bets On High Demand For More New AI Chip Computing Power
Morgan Stanley To Lay Off About 2,000 Employees To Trim Costs
SpaceX Capsule Off Florida Returns NASA Astronauts Home
China Banks Cut Consumer Loan Rates To Record Low To Spur Demand
BoJ Keeps Rates Steady; Tariffs Cast Shadow Over Economic Outlook
Japan's Exports Expand In February On Stockpiling Amid Tariff Fears
Samsung CEO: Company Will Pursue Deals As It Struggles For Growth
Alimentation Couche-Tard Posts Higher Profit, Revenue

(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: 1.0800 (2BLN), 1.0850 (1.2BLN), 1.0890-95 (562M), 1.0900 (1.8BLN)
1.0905-10 (597M), 1.0950 (2.1BLN), 1.1000 (513M)
USD/CHF: 0.8700 (355M), 0.8910 (450M), 0.8925 (298M)
EUR/CHF: 0.9550 (293M)
EUR/GBP: 0.8375 (425M), 0.8465 (301M)
GBP/USD: 1.2920 (409M), 1.2945 (223M), 1.3025 (641M)
AUD/USD: 0.6300 (481M), 0.6340 (1.4BLN), 0.6350 (666M), 0.6400 (590M)
0.6420-25 (432M)
USD/CAD: 1.4295 (634M), 1.4315-25 (1.4BLN)
USD/JPY: 147.50 (451M), 148.25-30 (487M), 150.00 (220M)

CFTC Data As Of 14/3/25

Speculators have significantly adjusted their positions across various financial instruments. In CBOT US Treasury Bonds futures, net short positions rose by 16,407 contracts to a total of 34,204. Similarly, CBOT US Ultrabond Treasury futures saw an increase of 19,490 contracts in net short positions, reaching 251,394. The net short position for CBOT US 2-year Treasury futures surged by 50,916 contracts to 1,222,215, while CBOT US 5-year Treasury futures experienced a significant rise of 75,006 contracts, bringing the total to 1,873,367. For CBOT US 10-year Treasury futures, the net short position increased by 25,035 contracts, now standing at 737,075.
On the equity side, speculators reduced their S&P 500 CME net short position by 87,266 contracts, bringing it down to 204,619. Concurrently, equity fund managers trimmed their S&P 500 CME net long position by 59,714 contracts, lowering the total to 841,841.
In the currency markets, the Japanese yen holds a net long position of 133,902 contracts, while the euro has a net long position of 13,090 contracts. The British pound reflects a net long position of 29,193 contracts, whereas the Swiss franc shows a net short position of -36,957. Meanwhile, Bitcoin maintains a net long position of 1,529 contracts.