Making Sense

 I have been mentioning in my earlier posts on the Inverted H&S pattern on the US2Y and US10Y Treasury yields.  I like to say to myself  "Don't ask too many WHYs??? Believe that somethings will behave true to its form" because sometimes it is difficult to paint an accurate picture on fundamentals alone and your bias comes into play.  Over the course of last week, Fed commentary has been pretty hawkish. For that matter, yesterday's speech by Governor Waller makes it clear that he will be data dependant in determining whether the Fed should hike or pause in the June policy and he does not support stopping rate hikes unless he has evidence that inflation is moving towards the 2% goal.  Key takeaways from The FOMC minutes released earlier: Core PCE price inflation estimates for FY 23 were revised higher to 3.80% and a mild recession to start later this year. The committee judged the economic activity to have expanded at a moderate pace while employment was resil...

AUDUSD has been consolidating in a wide range of 0.6625 - 0.6800. Break below 0.6625 on 26 April to lows of 0.6574 saw strong buying interest come in. Full time 27100 jobs lost;U/R 3.70%,part time jobs added 22800, estimates were for a net addition of 25000; wage price index rose 0.80% qoq (Previous 0.90%qoq);  3.7% Est 3.6% Prior 3.40%. Markets are pricing in peak terminal rate of 4.10%, 25 bps hike from current level of 3.85%. AUDUSD faces crosswinds from CNH depreciation while sharp up move in Copper prices, Iron ore and natural gas prices make the outlook a bit cloudy. I would prefer to stay away from the pair till either a more conclusive technical picture present itself or there is a fundamental catalyst.  Important Resistance - 0.6708 / 0.6748 / 0.6793 Important Support - 0.6625 / 0.6575 / 0.6525

In yesterday's trade, headline US retail sales grew 0.40% mom following a downwardly revised -0.70% mom for the month of March. The number was below market consensus for a 0.80% mom increase. Retail sales number after contracting in the month of Feb and Mar 23 turned positive in April. The core retails number or the control group numbers which show non discretionary spending rose 0.70% mom following a downwardly revised March figure of -0.40%. This number was sharply higher than consensus estimates of 0.30% increase. Despite the headline surprising to the downside, resilience of the core retail sales saw US treasury yields move higher as despite the negative shock and tightening credit conditions, consumer spending strength held. 2Y US Treasuries moved higher a full 16 bps to 4.12% before closing the session at 4.09% and 10Y US Treasuries moved 12 bps higher to 3.57% before closing the session at 3.54%. Remember, we are watching the formation of a H&S pattern on US Treasury yie...

 You can find the link to the previous numbers here  Trade deficit for the month of April 2023 came in at $ 15.24 bn  much lower at than consensus expectations of $ 19.50 bn. Services sector performance continues to be robust with services surplus at $ 13.38 bn.  April Merchandise exports $ 34.66 bn ( -10% mom) & Services Exports $ 30.36 bn ( +9% mom) Exports were driven by sharp rise in oil meals , electronic goods and rice while gems and jewellery, jute, textiles etc showed sharp contraction.  April Merchandise Imports $ 49.99 bn (-14% mom) & Services Imports $ 16.50 bn ( +17% mom) Import contraction was driven by sharp fall in fertilisers, gold and vegetable oil while pulses, machinery, electrical goods rose. Overall Trade deficit came in sharply lower at $ 1.38 bn. If the services sector continues to show robust performance like has been the trend over the last year with per month trade deficit averaging $ 2 bn and Income plus transfers averagin...

As I have been writing in the past few posts, the trajectory of inflation is lower.  If you think about it, Inflation is nothing but percentage change in prices paid over the prior period. With the disruption caused in prices of energy and other commodities post Russia - Ukraine War and subsequent sharp declines, the base effect helps bring the headline print lower. For the month of April, the headline CPI rose 4.76% yoy while the core CPI which had been sticky around the 6% declined to 5.20% yoy. Both the numbers bring much needed comfort to the RBI. Sequentially, fuel and lighting declined mom while all other categories showed mom increases. With the April month's release, CPI inflation is projected to come in at 3.93% for March 2024 and remain closer to the 4% level for FY 25. My own estimates are lower than RBI projections of 5.20% by Q4 FY 24. My estimates call for a average inflation reading of 4.42% for FY 24.  If RBI inflation numbers evolve as per guidance, then ...

 The FOMC increased the Fed funds rate by 25 bps to 5.00 - 5.25%. The March FOMC statement  had mentioned: "The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time." The May FOMC statement has been revised to say "In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time"..... Which essentially points to a "pause". The Fed fund pricing is pretty much stable with Dec 13, 2023 FFR being priced at 4.39%. USD index is a tad bit lower and 2Y USTs are trading at 3.92% and 10Y at 3.40%. The meltdown in commodities continues. Brent crude prices down further 3.65% to 72.55 USD per barrel. The sharp drop in crude oil prices is a big tailwind for INR. 81.60 continues to be a very important level for the pair. Let's watch tomorrow's opening. Looks lik...

 The AUDUSD Trade got stopped out as RBA (Reserve Bank of Australia) hiked the policy rate by 25 bps against market consensus of no hike. The target rate now stands at 3.85%. AUDUSD spiked up sharply after the hike to touch a high of 0.6717. The AUDUSD exchange rate has come off since on broad USD strength and lower commodity prices to 0.6655.  Today's policy rate decision by the Federal Reserve will be crucial in giving USD direction. The market is currently pricing in a 25 bps rate hike in today's policy and a pivot in the second half of the year with 65 bps of rate cuts priced in by Dec 2023. At this point, I would like to highlight the Fed guidance per the last policy Meeting as on 22 March 2023.  Projections for Fed Fund Rate: 2023     5.10% ;  2024    4.30% ; 2025     3.10% ; Long-term 2.50% In the previous policy, Fed had highlighted that tighter credit conditions as a consequence of the collapse of the SVB and Signature Bank...