Stock futures are flat as key March inflation report looms
Apr 10, 2024 12:00 AM UTC
4 derivatives
Stock futures hovered near the flatline Tuesday night as investors await key U.S. inflation data that will inform the Federal Reserve’s path on rate policy.
During Tuesday’s regular trading, investors appeared to be in a holding pattern ahead of the March consumer price index report. The 30-stock Dow slipped 0.02%, while the S&P 500 gained 0.1%. The Nasdaq Composite inched higher by 0.3%.
The CPI report, which is set to release on Wednesday at 8:30 a.m. ET, is estimated to have increased 0.3% in March on a month-over-month basis and 3.4% from 12 months earlier, according to economists surveyed by Dow Jones. Economists expect core CPI, which excludes volatile food and energy prices, to rise 0.3% and 3.7%, respectively.
Traders are looking to the CPI data for clues on how central bank policymakers may proceed on interest rates — and the outcome is sure to affect Wednesday’s market moves. Fed funds futures trading data suggests a 42% likelihood that the central bank will hold steady on rates in June, according to the CME FedWatch Tool.
A hotter-than-expected inflation reading could lead to a serious pullback after the market’s run-up this year, while a cooler print could lead Treasury yields to pull back and lift the equity market, according to Quincy Krosby, chief global strategist at LPL Financial.
“The market is increasingly concerned that inflation remains more stubborn, or perhaps even stalled in its downward trajectory,” Krosby said. “There’s a whiff of stagflation hovering over markets if the Fed goes ahead with initiating the easing cycle without inflation quickening its downward path.”
In addition to the big inflation report on Wednesday, investors are also looking forward to the meeting minutes from the Fed’s gathering last month. They will be hunting for clues on where policymakers stand on expected rate cuts this year.
Earnings season for the first quarter is also about to kick off. Delta Air Lines is slated to post results Wednesday before the bell.
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The overview USD/JPY sits in a narrow trading range, sandwiched by bullish fundamentals and threat of intervention from the Bank of Japan to support the yen. The latter has reduced the odds of near-term upside for USD/JPY despite the release of important inflation updates in the United States this week. Unless the Japanese government softens […]
USD/JPY continued to sideways range trade, with bullish fundamentals offset by the threat of BOJ intervention
US CPI and PPI reports, the ECB interest rate decision and geopolitics loom as the key drivers for USD/JPY this week
Near-term bias remains to sell rallies in USD/JPY rather than buying dips
The overview
USD/JPY sits in a narrow trading range, sandwiched by bullish fundamentals and threat of intervention from the Bank of Japan to support the yen. The latter has reduced the odds of near-term upside for USD/JPY despite the release of important inflation updates in the United States this week.
Unless the Japanese government softens its public stance towards weakness in the yen, the preference is to sell rallies rather than buy dips or breaks. Geopolitical tensions in the Middle East are another wildcard for traders to navigate.
Key events for USD/JPY
There’s no need to reinvent the wheel when it comes to the likely USD/JPY drivers this week with the US interest rate outlook and geopolitics the key areas to focus on. As the latter is impossible to predict, what we as traders can do is look at the events that are likely to have the largest impact, taking into consideration positioning and technical factors.
Over the week, three such events stand out: the US consumer price inflation report on Wednesday, the US Producer price inflation report on Thursday and the ECB interest rate decision, also on Thursday. While the Fed speaking calendar is extremely busy, they key point to remember is the tone will be heavily influenced by these events, along with last Friday’s blockbuster US non-farm payrolls report.
There’ll be plenty of headlines to navigate, including from the FOMC minutes on Wednesday, but the vast majority will be noise and not impact USD/JPY meaningfully.
US CPI preview
Having topped market expectations at the headline and underlying level in the first two months of the year, markets may receive greater clarity as to whether the inflation acceleration is the start of a new trend or simply a seasonal anomaly.
Both headline and core CPI are forecast to lift 0.3%, down a tenth from February. While a deceleration, both would be incompatible with inflation returning to the Fed’s 2% inflation mandate in a timely manner.
The core services ex-housing figure, known simply as “supercore” inflation, will be influential given the Fed has nominated it as something it’s watching. It decelerated noticeably in February, minimising the damage to the dovish rates case despite the heat in other readings.
Potential USD/JPY market reactions
If that happens and we see no upside surprise in the core or headline inflation rates, it’s likely US front-end bond yields will decline, dragging back-end rates lower with it. That should narrow the yield differential between the US and Japan and weigh on USD/JPY. However, if we see another upside surprise, especially at the core level, USD/JPY and yields would likely lift, reflecting the diminishing case for Fed rate cuts in 2024.
Source: Refinitiv
US PPI, ECB rates decision in focus
The same approach applies for Thursday’s producer price inflation report with a hotter reading likely to lift USD/JPY, and vice versus if cold. A 0.3% gain is expected.
The ECB monetary policy meeting is the other key event simply because the euro is the largest weight in the US dollar index, making its fluctuations influential on other G10 FX names, including the yen. While no change in policy rates is expected, there is a growing risk it may signal the likely timing of its first rate cut will be brought forward from June. If that eventuates, EUR would likely weaken against the USD, dragging JPY along with it.
As for geopolitics, the rule of thumb is that if the tensions in the Middle East are subsiding, it should boost USD/JPY. If they escalate significantly, the likely repatriation of capital to Japan would weigh heavily on USD/JPY.
USD/JPY technical setup
With markets continued to pare rate cut expectations from the Fed, widening interest rate differentials with Japan, fundamentals suggest the bias for USD/JPY should be higher heading into the US inflation reports this week. However, with the threat of intervention from the BOJ elevated, rallies continue to suffocate on pushes towards resistance at 152, creating what I’ve described previously as a stalemate scenario.
With USD/JPY sandwiched by the intervention threat and bullish fundamentals, I’ll direct you to recent trade ideas that remain valid and have already worked since written. They can be accessed here and here.
The one overriding message is that while the technical picture looks bullish for USD/JPY, with a break of 152 pointing to the potential for substantial gains, the threat of BOJ intervention has greatly reduced the odds we’ll see significant upside should a topside break occur.
That suggests there’s limited reward and ample risk of going long on pushes toward 152. If the BOJ were to intervene, or even just signal such a move was imminent, USD/JPY could fall hundreds of pips in the space of seconds. As such, unless the Japanese government’s stance towards the weaker yen shifts substantially, selling rallies, rather than buying dips or breaks, remains the preferred strategy.
Resistance is located just below 152 with support located at 151.50, 151.20, 150.80 and 150.27. A more pronounced support zone is located between 149.58 and 149.00. Good luck!
Investing.com– Oil prices moved little in Asian trade on Wednesday, as signs of a potential build in U.S. inventories and anticipation of key inflation data kept traders from making any large bets. Markets were also watching for any progress in ceasefire talks between Israel and Hamas, although the latest round of negotiations appeared to be […]
Investing.com-- Oil prices moved little in Asian trade on Wednesday, as signs of a potential build in U.S. inventories and anticipation of key inflation data kept traders from making any large bets.
Markets were also watching for any progress in ceasefire talks between Israel and Hamas, although the latest round of negotiations appeared to be making little headway.
Chatter over a potential ceasefire in the Middle East had pulled oil prices off five-month highs earlier this week. But losses in crude were also limited by little progress in the ceasefire talks, while Iran threatened military action against Israel.
US inventories see bigger-than-expected build- API
Data from the American Petroleum Institute showed late-Tuesday that U.S. crude inventories grew a bigger-than-expected 3 million barrels in the week to April 5.
The reading suggested that supplies in the world’s largest fuel consumer were possibly not as tight as markets were hoping for, especially amid record-high production.
But a sustained draw in gasoline inventories showed fuel demand remained robust.
The API data usually heralds a similar reading from official inventory data, which is due later on Wednesday.
The U.S. Energy Information Administration hiked its outlook for U.S. oil production this year- a trend that could potentially herald less tight supplies.
But the EIA also said it expects Brent to average $88.55 a barrel in 2024, up from a prior forecast of $87 a barrel.
CPI data looms, rate outlook uncertain
A key point of focus for crude markets was U.S. consumer price index inflation data, due later in the day. The reading is widely expected to factor into the outlook for U.S. interest rates, and is also expected to offer markets with more cues for their next leg of movement.
Wednesday’s CPI report is expected to show inflation picked up slightly in March- a trend that bodes poorly for crude markets, given that it gives the Federal Reserve more impetus to keep rates higher for longer.
The CPI report comes after a blowout nonfarm payrolls print last week. Several Fed officials also warned in recent sessions that sticky inflation will deter the central bank from cutting interest rates early.
High rates and inflation are expected to weigh on economic activity and also chip away at oil demand.
Bitcoin was falling Thursday and other cryptocurrencies were mixed, with momentum still lacking following a surge in prices earlier this year. Bitcoin has fallen 0.7% over the last 24 hours to $62,106. The largest cryptocurrency, Bitcoin hit a record high near $74,000 in mid-March amid a surge of interest from new spot Bitcoin exchange-traded funds, […]
Bitcoin was falling Thursday and other cryptocurrencies were mixed, with momentum still lacking following a surge in prices earlier this year.
Bitcoin has fallen 0.7% over the last 24 hours to $62,106. The largest cryptocurrency, Bitcoin hit a record high near $74,000 in mid-March amid a surge of interest from new spot Bitcoin exchange-traded funds, or ETFs, but its price has since dropped.
On the face of it, the drop is puzzling, considering that the price should have been supported by the April 19 halving, when Bitcoin’s programmatic monetary policy changed—and the issuance of new tokens in half was cut in half, restricting supply.
One possible reason, according to J.P. Morgan strategist Nikolaos Panigirtzoglou, is that the halving was already priced in. J.P. Morgan analysts already saw Bitcoin as well above their volatility-adjusted comparison to gold, which would imply prices a $45,000 price.
A more bullish explanation could be that previous Bitcoin halvings have led to a more delayed cycle of price rises.
”The recent halving event has led to short-term downward price movements, a pattern observed in previous occurrences. Following this, there is typically a 9–12-month period of upward momentum, leading to the peak of the market cycle,” wrote Matteo Greco, research analyst at Fineqia International, in a recent research note.
Beyond Bitcoin, Ether—the second-largest crypto—was off 0.1% to $3,008.75. The Securities and Exchange Commission is expected to make a final decision on Ether spot ETFs this month. Optimism, however, has been muted for a quick follow-up to the approval of Bitcoin ETFs which sent Bitcoin to all-time highs.
“Market participants anticipate that the SEC will likely withhold approval for these products, despite approving BTC ETFs in January. Concerns over the liquidity of ETH’s spot and futures markets, along with its past classification as a security by the SEC, contribute to the skepticism surrounding swift approval,” wrote Fineqia’s Greco.
Smaller cryptos or altcoins were mixed Thursday, with Cardano down 0.8% and Polygon off 0.5%%, while Dogecoin had dipped 0.1%.
Trading often tempts us to follow the herd – buying when everyone else is buying, and selling in a frenzy of fear. But savvy traders understand the potential hidden in contrarian strategies. Indicators like IG client sentiment offer a unique window into the market’s collective mood, revealing instances where overwhelming optimism or pessimism can signal […]
Trading often tempts us to follow the herd – buying when everyone else is buying, and selling in a frenzy of fear. But savvy traders understand the potential hidden in contrarian strategies. Indicators like IG client sentiment offer a unique window into the market's collective mood, revealing instances where overwhelming optimism or pessimism can signal a potential reversal.
Of course, contrarian signals aren't a crystal ball. They shine brightest when used to enrich an already robust trading strategy. By combining contrarian insights with careful technical and fundamental analysis, traders gain a richer understanding of the forces driving the market – forces that the crowd might easily overlook. Let's explore this concept by examining IG client sentiment and its potential impact on the euro across four key FX pairs: EUR/USD, EUR/CHF, EUR/GBP, and EUR/JPY.
IG data reveals a slight but fading bullish bias towards the EUR/USD among retail traders. Currently, 53.15% of clients hold net-long positions, resulting in a long-to-short ratio of 1.13 to 1. This positive tilt has weakened significantly, with net-long positions down a substantial 10.90% compared to yesterday, despite a tiny 0.05% increase over the week. Mirroring this, net-short positions surged by 31.26% since yesterday and are up 11.10% over the week.
Typically, a net-long stance hints at potential declines from a contrarian perspective. But, the recent shift in sentiment complicates the outlook. While a slight majority still favors the upside, the growing number of traders leaning bearish could signal an impending bullish burst for EUR/USD.
All in all, EUR/USD presents a mixed picture. It's essential for traders to proceed with caution and not rely solely on sentiment. These insights should be combined with thorough technical and fundamental analysis for a well-informed trading strategy.
EUR/CHF FORECAST – MARKET SENTIMENT
Data from IG reveals clients are bullish on EUR/CHF, with 53.08% of traders currently holding net-long positions. This results in a long-to-short ratio of 1.13 to 1. However, sentiment appears to be weakening, with net-long positions down 3.10% since yesterday, even while they've increased by 8.70% compared to last week. Mirroring this, net-short positions are up 12.18% from yesterday but down 6.75% compared to last week.
Our typical contrarian approach suggests EUR/CHR could be in for a pullback. However, the recent weakening of buying positions on the pair and the mixed timeframe comparisons create a less confident outlook.
Overall, the EUR/CHF presents a complex picture based on current sentiment. While there may be some downward pressure, the lack of a strong contrarian signal warrants caution. As always, traders should consider these clues within a broader technical and fundamental analysis framework before making any trading decisions.
EUR/GBP FORECAST – MARKET SENTIMENT
Based on IG data, the sentiment surrounding EUR/GBP within the retail crowd appears optimistic, with 61.22% of traders maintaining net-long positions. This equates to a long-to-short ratio of 1.58 to 1. Nevertheless, this bullish stance is beginning to wane, as net-longs have declined by 1.80% since yesterday, despite a 4.95% jump over the past week. In contrast, net-shorts experienced a large 9.01% surge from yesterday but demonstrate a more consistent decrease of 12.00% versus last week’s levels.
Traditionally, substantial net-long positioning might indicate potential losses for the underlying asset from a contrarian standpoint. However, recent shifts in market positioning have clouded the clarity of this signal. Presently, EUR/GBP appears to be caught amidst conflicting forces. While contrarian indicators still suggest some downward pressure is probable, the absence of a robust, enduring trend renders it a less assured prediction.
EUR/JPY FORECAST – MARKET SENTIMENT
IG data reveals a strong bearish bias towards the EUR/JPY, with 73.47% of traders currently holding net-short positions. This translates to a significant 2.77 to 1 short-to-long ratio. Notably, the number of net-short positions has climbed by 7.11% since yesterday and 1.73% compared to last week. However, net-long positions have also surged, up 25.13% from yesterday and a notable 18.78% from last week.
Our contrarian approach suggests this heavy net-short positioning could be a positive sign for the EUR/JPY. Yet, the recent weakening of the bearish bias introduces a degree of uncertainty. While the contrarian perspective still points to potential gains for the pair, the increasing number of long positions over key timeframes warns that a trend shift may be imminent.
As always, traders should carefully integrate sentiment signals with a well-rounded strategy that includes thorough technical and fundamental analysis.
