Daily Market Outlook, February 22, 2024

Munnelly’s Market Minute…

“Nvidia & The AI Tipping Point Sees Risk Sentiment Soar”

Most markets in the Asian region saw gains, driven by the positive performance of US tech futures following NVIDIA's blowout earnings referencing a tipping point in the global AI boom. The Nikkei 225 performed well, reaching new intraday record highs above 39,000, supported by strength in the tech sector. The KOSPI edged higher after the Bank of Korea decided to keep rates unchanged and suggested that a rate cut was unlikely in the near future. Both the Hang Seng and Shanghai Composite also saw gains, although there was choppy trading in Hong Kong due to US-China chip-related tensions, while mainland China remained stable following efforts to maintain stability.

Sensational headlines proclaiming a 'recession' filled the UK media last week following the Office for National Statistics' disclosure of a second consecutive quarter of negative growth in Q4. Nonetheless, Bank of England policymakers dismissed this particular recession label as 'unhelpful,' citing the enduring strength of the labor market. Governor Bailey remarked that the economy might have already emerged from the mild recession.

The anticipated UK flash PMIs for February are poised to indicate expansion (above a 50 reading) for a fourth consecutive month, with the composite index gaining momentum since late 2023, mainly driven by a surge in the services index. Markets expect this trend to persist in February, projecting a further increase in the services measure to 55.5 from 54.3, marking its highest level since last April. Conversely, the manufacturing index remains below 50, signaling contracting activity. It is expected this trend will continue in February, signs of stabilization in the sector may emerge, with the headline measure forecasted to rise to its highest level since last April. The PMI data will also be scrutinized for indications of supply chain strain due to ongoing issues in the Red Sea. Recent signals suggest that after an initial lengthening in delivery times and a consequent rise in shipping costs, the situation has stabilized; it will be intriguing to observe if the data confirm this. Additionally, the latest GfK consumer confidence report is scheduled for release early Friday. Look for a fourth consecutive increase to -18, its highest since the end of 2021, reflecting households' growing confidence in both their personal situations and the overall economy.

Eurozone and US flash PMIs are also set for release today. PMI data in the Eurozone have been less optimistic than in the UK, with the composite index remaining below 50 for the eighth consecutive month in January. While both the manufacturing and services indices are also below 50, they have been inching upwards, look for a similar trend in February, suggesting tentative signs of economic improvement. The US PMI may garner more attention than usual given the relatively quiet data week. January readings indicated continued economic growth primarily fueled by services, and it looks like a similar scenario in February is likely. The Federal Reserve's Vice Chair Jefferson, along with Governors Bowman and Cook, who are all voters, are scheduled to give speeches, as well as the 2026 voters Harker and Kashkari.

Overnight Newswire Updates of Note

Fed Minutes Show Unease Over Premature Interest Rate Cuts
Nvidia Revenue Reach New Heights, Forecasts Bigger AI Boom
Fed’s Bowman Says That Time For Rate Cut Certainly Not Now
House GOP Hardliners Ask Johnson To Abandon Spending Talks
Poll: BoJ To Scrap Negative Interest Rates In April, Say Over 80%
Japanese Manufacturing PMI Falls To Lowest Since August 2020
Bond Traders Prepare For Another US Selloff, Unwind Bullish Bets
Oil Holds Gain As Signs Of Tight Market Offsets Demand Concerns
Japanese Stock Market Passes Record Closing Level After 34 Years

(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: 1.0770 (EU731.6m), 1.0425 (EU654m), 1.0905 (EU652.9m)
USD/JPY: 145.00 ($648m), 138.00 ($440m), 149.00 ($434.7m)
AUD/USD: 0.6350 (AUD585.5m)
USD/CNY: 7.4000 ($1.15b)f 7.2250 ($839.9m), 7.1870 ($825.7m)
USD/CAD: 1.3500 ($930m), 1.3470 ($538.6m)
GBP/USD: 1.2803 (GBP703m), 1.1958 (GBP500m), 1.3550 (GBP376.4m)
NZD/USD: 0.6030 (NZD750m), 0.6150 (NZD549.2m), 0.5974 (NZD353.2m)
USD/BRL: 4.9500 ($956.6m)
EUR/GBP: 0.8450 (EU400m)

CFTC Data As Of 13/02/24

British Pound net long position is 50,472 contracts.
Japanese Yen net short position is -111,536 contracts.
Bitcoin net short position is -1,921 contracts.
Swiss Franc posts net short position of -6,014 contracts.
Japanese Yen net short position is -111,536 contracts.
Equity Fund managers raise S&P 500 CME net long position by 17.391 contracts to 930,253.
Equity fund speculators trim S&P 500 CME net short position by 39.481 contracts to 384.474.