Making Sense

 AUDUSD Technicals Flag formation, momentum indicators are turning lower, commodity prices are lower on slowdown concerns and it has one of the lowest interest rates in G7 at 3.60%. Take your pick !!

"Don't ask too many WHYs??? Believe that somethings will behave true to its form" A Spate of U.S data released yesterday pointed to continued resilience of the U.S Economy.  The advance estimates of GDP grew 1.10% much below consensus of 2.00% but the market took comfort in the growth in the Personal Consumption Expenditure numbers. PCE component of the GDP rose 3.70% which was driven by a 6.50% growth in expenditure on goods and 2.3% growth in expenditure of services. The growth in PCE was offset by decline in private domestic residential and non residential investments.   The Q1 PCE prices rose 4.2% yoy and core PCE prices rose 4.90% yoy.  The Initial Jobless claims came in a 230K (prev 244.3K)for the w/e 22 April 23 and the continuing claims for the w/e 15 Apr 23 came in at 1.858M (prev 1.8679). The key takeaway from the report is that jobless claims data has not seen a sharp deterioration despite the fears of credit tightening post the banking crisis.  Marke...

 Hi, Just been very caught up with some personal work and hence not had a chance to write. Today's day is lined up with a host of data releases. India - March CPI Inflation consensus estimates call for a reading of 5.80% following previous 6.44%. My own estimates call for a reading of 5.65%. The disinflation is lead by fall in prices of edible oils, cereals and vegetable prices. Core inflation has been sticky and will be keenly watched for direction of monetary policy. The market is currently pricing in 6.50% - 6.75% policy rate through this year followed by 2 rate cuts in 2024. Unless the data materially surprises on the upside, reckon the reaction to be muted as the evolving inflation trajectory is projected to be lower. RBI projects FY 23 - 24 inflation at 5.20%. Based on the inflation projections, real Rates are in positive territory.   March Industrial Output is estimated to grow 5.10% yoy  US - YoY US CPI Inflation (NSA) and YoY Core CPI (NSA) is expected ...

“…inexhaustible perseverance and patience… knows no defeat.”  RBI announced the MPC decision today. Key Highlights: Repo Rate stands unchanged at 6.50% (unanimous decision) SDF Rate 6.25% and MSF at 6.75% Stance continues to be "withdrawal of accommodation" (Vote 5 to 1) Inflation projected moved 10 bps lower for full FY 24 to 5.2% from 5.30% on crude oil price assumption of $ 85 per barrel ( last policy $ 95) and a normal monsoon.  Inflation Outlook - The risk to inflation trajectory are evenly balanced with upside risk emanating from adverse climatic conditions, higher and likely to stay elevated milk prices into the summer, rising uncertainty in Intl Financial markets and imported cost pressures GDP is projected to grow marginally higher at 6.50% with 10 bps upward revision in both Q3 and Q4 FY 24.  GDP Outlook - The risks to domestic growth are evenly balanced. High Rabi production, steady growth in services sector, GoI's focus on capital expenditure, higher capacity ...

  India's manufacturing sector posted a remarkable performance at the end of the final fiscal quarter, as growth of factory orders and production quickened to the strongest in three months. With pressure on supply chains subsiding and raw material availability improving, input cost inflation retreated to its second-lowest mark in two-and-a-half years . Subsequently, goods producers concentrated on rebuilding their stocks. Robust increases in buying levels in recent months supported a near-record accumulation of input inventories in March. The seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index rose from 55.3 in February to 56.4 in March , signalling the strongest improvement in operating conditions in 2023 so far. That said, the PMI average for the final fiscal quarter (55.7) came in below that recorded in the prior period (56.3 in Q3). March GST collections rose 13% yoy to INR 160,000 crs, second highest since July 2017. The Services PMI will be rele...

  "Volatility is a double-edged sword. It can cut you both ways." OPEC+ announced Production cuts of 1.15 mbpd on Sunday thus pushing crude oil prices higher in the Asian session. WTI prices touched a high of USD 86.44 per barrel. The sharp cuts in production follow the previously announced production cuts in Oct 2022 of 2 mbpd and Russia’s 0.50 mbpd voluntary reduction announced in February. The cuts announced will take effect from May and stay until Dec 2023. These actions are in sharp contrast to Global Oil Demand projections of a rise of over 2 mbpd by both the IEA and OPEC. Do the actions by the OPEC+ suggest a worsening oil demand outlook in the second of the year? Or is it just an acknowledge of OPEC+ running behind production quotas and adjusting global demand mildly. The sharp productions cuts only make the inflation fight worse. The Fed Fund Futures markets pushed out rate cuts with July pricing in 4.88% from previous 4.80%. The US yields also moved higher i...

Oil prices climb as OPEC+ members led by Saudi Arabia announced today a series of “voluntary” oil production cuts. Brent crude prices are up 1.60% at 79.73 and USDINR is expected to gap up at open closer to 82.32 levels. The Canadian dollar, beneficiary of higher oil prices gapped down at open at 1.3489 but has since found buyers in the Asian session to trade at 1.3507. The cuts will go into effect in May and remain in place until the end of 2023.   The following output cuts have been announced: 1.       Saudi Arabia 500,000 bpd 2.       The UAE 144,000 bpd 3.       Iraq 211,000 bpd 4.       Kuwait 128,000 bpd 5.       Algeria 48,000 bpd 6.       Oman 40,000 bpd 7.       Kazakhstan 78,000 bpd 8.       Gabon 8,000 bpd 9.       Moscow will extend its previo...

For the week until 29 Mar 2023, liquidity improved from an injection of INR 46K Crore through the LAF window to an absorption of INR 38K Crore as Government month end spending kicked in. Outstanding operations of INR 95K matured this week. RBI had announced a 56K crore fine tuning operation which matured on 28 Mar 2023. Market was expecting an announcement of another fine tuning operation to smoothen the year end volatility but none came. The weighted average call rate (WACR) came in at 7.11%. RBI Governor, Mr. Das, had earlier suggested in the Dec policy that market participants must wean themselves away from the overhang of liquidity surpluses. I think RBI is trying to manage the WACR within the upper bound of the policy corridor (6.75%) and thereby suppling just about enough liquidity to manage the friction.  The durable liquidity surplus which stood at 101,000 Crore as on 10th March 2023 will move either flat or negative in Q1 FY2024. This is driven by an estimated 4% rise in C...

For the week ended 29 March 2023, Federal Reserve released the report on Factors affecting reserve balances. This report has gained particular significance post the collapse of SVB Bank. The report offers insights into the extent of liquidity stress in the system by providing data on facility usage by depository institutions. There is USD 11 bn reduction reduction in loan facility driven by a fall of USD 22 bn through the primary credit discount window and USD 11 bn rise from the Bank Term Funding program, a facility announced in the aftermath of banking crisis to allow institutions to borrow upto a period of 1 year on collateral which will be valued at par.  To just give a sense, on the rates for the facility usage ( as on 31 Mar 2023) Primary Credit 5% Secondary Credit 5.50% Seasonal Credit 4.80%  Bank Term Funding program 4.85% While the borrowing from the discount window / BTFP and other credit extensions is elevated, it has shown signs of stabilization as has other a...