Daily Market Outlook, September 4, 2024

Munnelly’s Macro Minute…

"September Starts With A Seasonal Slump In Sentiment, Stocks Sink”

US equities fell sharply Tuesday, replicating the sell-off seen at the beginning of August, marking the beginning of one of the seasonally worst months in markets. The S&P 500 sank more than 2%, the tech-heavy NASDAQ fell 3.25%, and the Dow slid 1.5%. Investors' enthusiasm for AI continues to wane; NVIDIA's stock fell by 9.5%, marking the largest one-day market capital decline in history. Bloomberg News revealed that NVIDIA has been served with a subpoena by the US Department of Justice, which is looking for proof that the AI heavyweight broke antitrust laws.

Following the overnight sell-off on Wall Street, most Asian stock markets saw significant losses on Wednesday. These markets included those in Australia, Japan, South Korea, Hong Kong, Singapore, and Taiwan. The markets were also affected by weakening commodity prices, worries about the expansion of the world economy, and uncertainties on the rate of U.S. interest rate path.

September has a strong seasonal tendency for market volatility, as the US came back online yesterday after the Labor Day holiday; data indicating a persistent fall in U.S. industrial activity in August caused traders to react negatively, paring risk exposure, with the data raising further fears about the state of the economy. Although there is some dispute on the pace of rate decreases, the US Fed is likely to drop rates at its next meeting later this month. The FedWatch Tool from CME Group indicates that there is a 37.0% possibility of a half-point rate decrease and a 63.0% chance of a quarter-point rate cut on September 18th.

Stateside, later in the day, the Fed's Beige Book survey results, trade, employment openings, and factory orders data from the are expected to be released. Job openings,the rate at which people leave their jobs—is one of the details to pay attention to, as a decline in the number of persons taking up new positions could indicate further cooling of the labor market and an increase in unemployment. The timing of the noteworthy price action (10-year UST yield down 10bps to 3.82%) in relation to yesterday's data suggests that the driving force was less about the problems facing the US manufacturing sector and more about evaluating the possibility of a 50bp rate cut from the Fed in September as opposed to just a 25bp move. Squeezing rate doves and US currency bears could be the result of Friday's recovery from last month's weather-related decline in employment growth. The release of the August jobs report on Friday is the most eagerly awaited event of the week. After adding 114,000 jobs in July, economists now project a gain in employment of 165,000 jobs in August. After increasing to 4.% in July—its highest level since October 2021—the unemployment rate is predicted to marginally decline to 4.2%

Locally, later in the session, the final composite Purchasing Managers' survey data from the U.K. and the euro area are expected, capping a busy day for the European economic news.

Overnight Newswire Updates of Note

Australia’s Economy Sluggish As Consumer Spending Slows
China’s Caixin PMI Services Growth Slows In August
Japan's PMI Service Activity Extends Gains In August
Yoshimasa Hayashi Enters Japan LDP Leadership Race
UK Chancellor Reeves: Will Raise Taxes At The Budget
Aussie Trims Losses To Retake 0.6700 After Australian GDP
Yen Holds The Rebound Near 145.50 Despite Risk-off Flows
Bitcoin Dives Under $56K As Asian Equities See Red
Ukraine Undertakes Biggest Government ‘Reboot’ Of War
Israeli Hostage Deaths Alter Ceasefire Talks

(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: 1.1000 (657M), 1.1020 (877M), 1.1050 (751M), 1.1100 (831M),
1.1125-35 (1.1BLN)
USD/CHF: 0.8400 (290M), 0.8425 (325M). EUR/CHF: 0.9395 (377M)
GBP/USD: 1.3075 (380M), 1.3110 (200M)
AUD/USD: 0.6665 (250M), 0.6740-45 (921M), 0.6775 (383M)
USD/CAD:1.3515 (2BLN)
USD/JPY: 145.00 (1BLN) , 145.75-80 (372M), 146.25-35 (1.7BLN)
AUD/JPY: 97.55 (209M), 98.10-20 (335M)

CFTC Data As Of 4/9/24

Swiss Franc posts net short position of -24,612 contracts
British Pound net long position is 89,931 contracts
Euro net long position is 92,838 contracts
Japanese Yen net long position is 25,868 contracts
Bitcoin net short position is -166 contracts
Equity Fund Managers raise S&P 500 CME net long position by 15,425 contracts to 989,851