Daily Market Outlook, January 19, 2024

Munnelly’s Market Minute…“China Short Sales Ban Adds To Regional Concerns”

Asian stocks mainly gained momentum from the tech-driven advances on Wall Street, where sentiment was boosted by the lowest initial jobless claims since September 2022. Tech stocks were also lifted by TSMC's earnings, which drove the company's shares up by over 6% and supported other chipmakers like Samsung Electronics. The Nikkei 225 was supported and briefly surpassed 36K handle after Japanese CPI data continued to soften, and a source report indicated no pressure for the BoJ to rush towards the exit. On the other hand, the Hang Seng and Shanghai Comp were subdued due to concerns about the uneven recovery in the Chinese economy, and a restriction on short sales by China's largest brokerage failed to stimulate a recovery.

Earlier today, the UK's Office for National Statistics released data indicating a significant 3.2% month-on-month decline in retail sales volume for December. This marks the largest drop since January 2021 during the pandemic, following a 1.4% increase in November. The result fell below the consensus forecast of a 0.5% decrease. Both food and non-food store sales experienced declines of 3.1% and 3.9%, respectively, while non-store (primarily online) sales fell by 2.1%. The ONS attributed part of this weak performance to consumers advancing purchases to take advantage of November's Black Friday sales, with post-Christmas sales being subdued. For Q4 overall, retail sales fell by a less severe 0.9% quarter-on-quarter. Other major releases are absent in the UK for today, with market attention turning to next week's data, including flash PMI and GfK consumer confidence.

In the Eurozone, the spotlight is shifting to the ECB policy update scheduled for next Thursday, accompanied by Eurozone flash PMI and German IFO business surveys. Expectations lean toward no change in Eurozone interest rates for a third consecutive policy meeting. However, President Lagarde's comments on the interest rate outlook will be closely scrutinized, and recent remarks from her and Chief Economist Lane suggest the ECB might delay rate cuts until the summer. Lagarde is participating in a discussion on the global economic outlook today at the World Economic Forum in Davos, which appears to be the last ECB appearance before next week's policy update.

Sateside, key releases include the University of Michigan's consumer sentiment survey and existing home sales. Despite a robust improvement last month attributed to a better inflation outlook, headline consumer sentiment remains historically weak. The survey's inflation expectations metrics will be closely monitored alongside the headline index, with expectations of a partial correction to consumer sentiment this month.

Overnight Newswire Updates of Note

US Prepares Rule Forcing Banks To Tap Fed Discount Window
Congress Agrees Funding To Avert US Government Shutdown
US Press Ahead With Least Bad Option In Confronting Houthis
Houthis Fire Missiles At Another US-Owned Vessel In Red Sea
China’s Biggest Brokerage Limits Short Sales After Stock Rout
Japan’s Inflation Cools For Second Month Ahead Of BoJ Meet
Chancellor Hunt Gives Strongest Hint Will Cut Taxes In Budget
German Budget Officials Approve New Borrowing Of EUR39Bln
Bitcoin Retreats To One-Month Low, ETF-Led Enthusiasm Fades
EU Commission Set To Block Amazon iRobot $1.7Bln Acquisition

(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: 1.0800 (2.5BLN), 1.0850 (1.1BLN), 1.0880-90 (700M)
1.0920 (408M), 1.0950 (452M)
USD/CHF: 0.8700 (346M)45 (306M)
GBP/USD: 1.2600 (226M), 1.2650 (1.4BLN). EUR/GBP: 0.8575-85 (350M)
AUD/USD: 0.6600 (834M), 0.6650 (585M). AUD/NZD: 1.0850 (701M)
USD/CAD: 1.3335 (1.9BLN), 1.3430-40 (639M), 1.3470 (294M)
USD/JPY: 147.00 (605M), 147.45 (563M), 147.90-148.00 (1.5BLN), 149.00 (390M)
EUR/NOK: 11.40 (329M), 11.5700 (871M)
The potential for BOJ FX intervention has significantly increased. The trade-weighted yen reached a historic low at the end of December, and there has been a substantial decline in its value in January. USD/JPY has surged by over 800 points, approaching the high of 2023 by less than 400 points. The yen has experienced a sharp drop against GBP, EUR, and AUD. It has also weakened against the historically weak TRY and the very weak INR. The depreciation of the yen effectively acts as a form of monetary policy easing, which supports inflation. Selling JPY is seen as the most effective way to finance carry trades.