Market Wrap 19 Oct 2023 // Risk continues to suffer

US Yields moved higher overnight and equities plummeted over a full percentage point.

US2s high yield of 5.24%
US10s high yield of 4.93%
US2s10s bear steepened -30.5 bps

Fed Fund Futures
Jan 31, 2024 5.46% (peak terminal rates)
Jun 12, 2024 5.25% (1 cut by mid next year)
Dec 18, 2024 4.82% ( 64 bps of cut from peak terminal rates)

Fed Fund Futures pricing implied a Fed Fund Rates as low as 3.97% on 08th August 2023 following the last hike of 25 bps on July 26 (Fed Fund rate 5.25% to 5.50%). News of downgrade of small and mid sized banks by Moody's and the Fed speak advocating patience saw significant cuts priced in 2024.

USD index moved higher yesterday after the small reversal seen the day before which was confusing. The Geo - political backdrop also continues to be fluid with the odds of escalation having risen. Fed's Waller said that he expects one more rate hike will be needed while New York Fed President Williams said that he is not yet ready to declare victory over inflation. Both the Fed Speakers are FOMC voters.

Today, we have Jerome Powell speak at the Economic Club. Risk continues to trade negative with Asian equities trading lower and USD/Asia higher.

In China, though the data surprised to the upside yesterday, concerns around the property sector continue. Developer Country Garden appears to have missed its $15 mln coupon payment, which would trigger an offshore default.

Q3 GDP +1.3% qoq; + 4.9% yoy

Industrial Production +4.5% yoy

Retail Sales +5.5% yoy

In Europe,

CPI +0.3% mom, + 4.3% yoy

Core CPI +0.2% mom, + 4.5% yoy

In UK,

CPI +0.5% mom, +6.7% yoy

Core CPI +0.5% mom, 6.1% yoy

In India, liquidity deficit continued to improve with LAF injection seen at 3K crore. The WACR for the overnight segment was 6.73%. GST payments of approx 150K crore will likely push the system back into deficit. Markets are still awaiting if the $ 5 bn swap maturing on Oct 23 is rolled over. If the swap is rolled over, part of the deficit will be offset by the swap maturity. Yield on IN10s rose in line with the global sell off in bonds trading at 7.38%. Domestic equities continue the sell off from yesterday.

That's the wrap for today.

Comments

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“Every once in a while, an up-or-down-leg goes on for a long time and/or to a great extreme and people start to say "this time it's different." They cite the changes in geopolitics, institutions, technology or behaviour that have rendered the "old rules" obsolete. They make investment decisions that extrapolate the recent trend. And then it turns out that the old rules still apply and the cycle resumes. In the end, trees don't grow to the sky, and few things go to zero.” ~ Howard Marks Bonds continued to rally this week with yields on US2s printing a high and low range of 3.71% - 3.55% to close the week at 3.584% and US10s printing a high and low range of 3.76% - 3.6050% to close the week at 3.655%. I highlighted in my blogpost on Aug 31, the triangle breakout target at 15.50 bps on US2s10s. We dipped to -0.004% on the CPI release and closed the week at 0.0710%. On Crude Oil prices we dipped to lows of $ 68.71 but closed the week higher at $ 72.09. ECB annou...

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