Daily Market Outlook, July 31, 2024

Munnelly’s Macro Minute…

“BoJ Surprise Hike & Slowdown In Bond Purchases Sees Overnight Volatility Spike ”

Japanese stocks rebounded and the yen fluctuated as traders absorbed the BoJ's interest rate hike and slowdown in bond purchases. The BoJ raised interest rates to around 0.25% and announced a reduction in bond purchases to about ¥3 trillion ($19.6 billion) per month in Q1 2026. Japanese government bonds pared losses, with analysts having expected a more aggressive cut. The Nikkei 225 index advanced 0.2%, while the yen alternated between gains and losses.

Meanwhile, the Australian dollar sank and short-term bonds surged as core inflation unexpectedly declined in the fourth quarter, leading traders to increase bets on a Reserve Bank interest rate cut. Chinese markets rose on growing expectations that Beijing will boost support for its faltering economy. In the US, equities futures rose on speculation that Fed Chair Jerome Powell would hint at a probable rate cut in September..

Investors will now be waiting for the Federal Reserve's decision on interest rates, while the euro zone's inflation report will be the main economic focus. Quarterly results from major tech firms are highlighting a divide in the AI landscape, with AMD reporting strong earnings but Microsoft disappointing investors with slow cloud growth.

HSBC Holdings reported a slight decrease of 0.4% in first-half profit, but still exceeded analyst expectations. The company also announced the appointment of Jonathan Bingham as interim group chief financial officer, effective September 2. Meanwhile, Rio Tinto is considering a significant acquisition, but CEO Jakob Stausholm noted that it would need to offer exceptional value, which is challenging to find in the current hot copper market, as he discussed the company's first-half results.

Overnight Newswire Updates of Note

Australian Inflation Rises Amid Hopes Of RBA Rates Doves
US Carries Out Strike In Iraq Amid Middle East Tensions
BoJ Raises Interest Rate To 0.25% In Aggressive Move
Harris Wipes Out Trump’s Swing-State Lead Polls
US: Start Of New China Tariffs Will Be Delayed
US Carries Out Strike In Iraq, Regional Tensions
BoJ, Monthly JGB Buying Yield Curve Control
Oil Dips To Monthly Low Amid Shaky Demand
Tech Earnings; Nvidia, Meta CEOs Discuss AI

(Sourced from reliable financial news outlets)

FX Options Expiries For 10am New York Cut

(1BLN+ represent larger expiries, more magnetic when trading within daily ATR)

USD/JPY: 155.00 ($2.27b), 158.50 ($1.74b), 158.00 ($1.5b)
EUR/USD: 1.0800 (EU571.9m), 1.0700 (EU474.1m), 1.0920 (EU412.1m)
USD/CNY: 7.3000 ($745.9m), 7.3800 ($548m), 7.2789 ($499m)
AUD/USD: 0.6550 (AUD592.6m), 0.6650 (AUD559.3m), 0.6600 (AUD466m)
USD/BRL: 5.6000 ($1.39b), 5.6500 ($1.08b), 5.5000 ($838.2m)
USD/CAD: 1.3625 ($590.1m), 1.3750 ($324.8m)
GBP/USD: 1.4821 (GBP445.3m)
EUR/GBP: 0.8420 (EU549.2m)
Month-end FX flows are expected to be weak to neutral, according to various bank models. Barclays anticipates weak USD demand against major currencies, while Credit Agricole forecasts neutral USD but potential EUR buying from corporate flows.

CFTC Data As Of 23/7/24

Equity fund managers cut S&P 500 CME net long position by 2,812 contracts to 994,529
Equity fund speculators trim S&P 500 CME net short position by 89,786 contracts to 280,356
Japanese yen net short position is -107,108 contracts
Swiss franc posts net short position of -42,237 contracts
British pound net long position is 142,183 contracts
Euro net long position is 35,906 contracts
Bitcoin net short position is -661 contracts