Daily Market Outlook, August 16, 2024

Munnelly’s Macro Minute…

“UK consumers gradually return to the high street in July”

Asian stock markets are trading mostly higher on Friday, buoyed by the positive sentiment from Wall Street's overnight performance. Stronger-than-expected US retail sales and weekly jobless claims data have helped alleviate concerns about a recession in the world's largest economy. However, this positive data is likely to prompt the US Federal Reserve to implement a smaller interest rate cut in September. The Japanese stock market is trading significantly higher on Friday, building on the gains from the previous four sessions. The benchmark Nikkei 225 is soaring, rising above the 38K handle, with gains seen across all sectors, led by index heavyweights and financial and technology stocks.

The UK consumer returned to the high street in July thanks to a brief break from what felt like constant rain; sales increased by +0.5% m/m (median +0.6%) from an upwardly revised -0.8% m/m in June (from -1.2%). Eliminating fuel causes the statistics to increase to +0.7% m/m from the previous revision of -1.3% (up from -1.5%). Sales excluding gasoline are therefore +1.4% year over year. Sales at department stores had the biggest increase, rising by +4.0% m/m, while sales at other non-food stores increased by 2.5% m/m. Sales of food remained unchanged, but those of apparel and home items were down by -0.6% month over month, and sales of gasoline for automobiles decreased by 1.9% as compared to June. As a result, there are still areas of weakness, and it will be some time before we can talk about consumer strength. In fact, overall sales volumes remain lower than they were at the beginning of 2019 (-0.8%), and the fall appears even more pronounced (-4.3%) when looking at sales volumes per capita. Retailers appear to anticipate these conditions to persist, based on survey data. The main reason for the BoE's ongoing inflation issue is that consumer preferences, services activity, and confidence have all increased. In actuality, that comes first when it comes to retail sales numbers (barring obvious weakness).

Stateside the key data release for the day will be University of Michigan U.S. consumer sentiment preliminary reading (August) - 55.1. Rounding out the week out will be Fed's Goolsbee who speaks later

Overnight Newswire Updates of Note

RBNZ Rate-Cut Path Could Change On Price, Wage Setting
RBA’s Michele Bullock: Premature’ To Think About Rate Cuts
Fed Chair Powell To Headline Next Week's Jackson Hole Meet
UK Government Woos Revolut For Potential IPO
Donald Trump’s Economic Plans Would Hurt US Business
Walz And Vance Agree To October US VP Debate
Carry Trade That Blew Up Markets Attracts Hedge Funds Again
Aussie Holds Higher Ground Above 0.6600, Hawkish RBA
Kiwi Trades With Mild Losses On Dovish RBNZ
Loonie Gives Back Some Recent Gains After Weak CAD Data
Gold ETF Inflows Reach 2-Year High, Possible US Rate Cut
Oil Rises 2% On Upbeat US Data, Geopolitical Tension
US EIA: China's Diesel Demand Fell In June
Asian Stocks Rally As Fears Of US Recession Recede
Google’s Antitrust Defeat Could Shape AI Markets
Nvidia Vs Startups: AI Chip Challengers Chase Efficiency
Citadel, DE Shaw Slashed Nvidia Holdings Ahead Of MKT Rout
Softbank, SK, LG, And Hanwha To Join Asia-focused AI Fund
Stellantis Shareholders Sue Automaker Over Misinformation
Fmr Israeli-US Ambassador Questions Hamas Deal Readiness
Ukraine’s Incursion Disrupts Putin’s War Conquest

(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: 1.0900-10 (1.5BLN), 1.0950-60 (2.5BLN), 1.1000 (2.7BLN)
1.1025 (1.1BLN), 1.1040-50 (788M)
USD/CHF: 0.8700 (758M), 0.8720 (677M)
EUR/GBP: 0.8600 (590M)
GBP/USD: 1.2785 (414M), 1.2820-25 (311M), 1.2880 (562M)
AUD/USD: 0.6520 (919M), 0.6550-60 (1BLN), 0.6600 (921M)
USD/CAD: 1.3670-75 (1BLN), 1.3700 (1BLN), 1.3790-95 (944M)
USDJPY: 148.00 (658M), 150.00 (454M)
Early in August, carry trades were unwound due to risk aversion brought on by fears of a U.S. recession. As a result, the implied volatility of FX options increased significantly. The revelation of robust retail sales and in-line CPI statistics for the United States, however, allayed these anxieties and revived anticipation of a soft U.S. landing, allowing risk assets to recover. Since then, the implied volatility of FX options has dropped back to previous lows. Prior to the September nonfarm payrolls and Fed meeting, there will not be much noteworthy U.S. data, so this should control FX volatility, support risk assets, and maintain pressure on option premiums.

CFTC Data As Of 09/8/24

Equity fund speculators trim S&P 500 CME net short position by 25,312 contracts to 222,856
Equity fund managers cut S&P 500 CME net long position by 57,309 contracts to 881,533
Swiss franc posts net short position of -22,073 contracts
British pound net long position is 74,399 contracts
Euro net long position is 33,580 contracts
Japanese yen net short position is -11,354 contracts
Bitcoin net long position is 538 contracts