BoJ introduces flexibility in the conduct of the YCC pushing yields higher and the wrap from Oct 31

"The first principle is that you must not fool yourself — and you are the easiest person to fool.” - Richard Feyman

US equities closed in the green with S&P closing 0.65% higher, having risen 2.30% off Oct 27 lows. The U.S. Treasury quarterly refunding statement announced earlier plans to borrow $776 billion in Q4, $76 billion lower than July estimates assuming an end of Dec cash balance of $ 750 bn. During Jan - Mar 24 Treasury expects to borrow $ 816 bn assuming an end of Dec cash balance of $ 750 bn. The news was in line with expectations. Today, Treasury will announce the borrowing calendar.

Asian equities are off to a better start. Expect range bound moves ahead of the FOMC Rate Decision.

Sell of in 10Y JGBs persisted after yesterday's monetary policy decision with yields at 0.976% at the time of writing. BoJ increased the flexibility in the conduct of YCC while retaining the target of 10Y JGBs at 0.00% with upper bound at 1% as reference which implies that 1% is no more the line in the sand. USDJPY overnight touched highs of 151.71. There is speculation that BoJ will announce an end to negative rate policy around turn of year.

The US Q3 Employment Cost Index rose 1.10% (previous 1.00%) and the S&P/Case Shiller Home price index rose 2.2% yoy following an upward revision of the previous month figure to 0.20%. Chicago PMI came in softer than expected at 44.

US2s met with resistance at the 5% level and closed the session near the lows of the day at 5.09%. US10s similarly met resistance at the 4.80% and closed the session near days low of 4.93%. The US2s10s spread widened to as much as -23 bps before closing the session at -16 bps. The implied Fed Fund Pricing moved higher with peak terminal rate priced at 5.433% and Dec 2024 priced at 4.66%. Today, we will have the FOMC Rate Decision with expectations for no change in policy rate, US JOLTS Job Openings and ADP figures.

On the domestic front, RBI Governor stated that Q2 GDP will likely surprise on the upside when released in November

China's October Caxin Mfg PMI released today shows activity contracting with the index at 49.5 below prior reading of 50.60 and consensus est of 50.80. This follows poor reading on the NBS Manufacturing PMI to 49.5 from 50.2 and Non-Manufacturing PMI to 50.6 from 51.7.

EURUSD found resistance ahead of the last week's high of 1.0695 to trade 1.0675. The gains post the German GDP were unwound on poor economic data (see below) and the pair traded a low of 1.0557 . 10Y German - US spread continued to widen and trades at -210 bps.

Support 1.0450 / 1.0500 / 1.0525

Resistance 1.0600 / 1.0700

France GDP QoQ Q3 A0.1% E0.10% P0.6%
France CPI A4.5% E4.6% P5.7%
German Retail Sales mom A -0.8% E0.5%P-1.2%
Italy GDP A0.00% E0.10% P0.4%
EZ CPI yoy E3.40% P 4.30%
EZ GDP qoq q3 A-0.1% E0% P0.10%
*A = Actual; P = Previous; E = Estimates

Maintain a preference to trade around the established range ahead of the policy decision.

Comments

The Moment of Reckoning is here !! 25 or 50 Bps and the SEP || Benign PCE Expectations || USDJPY 145.75 or 137.50 ??

“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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"I fear not the man that has practiced 10,000 Kicks once, but I fear the man that has practiced one kick 10,000 times." ~ Bruce Lee Morning Everyone , This Week gave us a sense of how the prices or inflation has evolved and we had benign readings across CPI and PPI and the updated PCE estimates are now for a reading of 0.01% mom on the headline PCE and -0.01% on Core PCE Prices which translates to an annual reading of 2.4% yoy and 2.4% on Core PCE Prices. The Implied pricing off Fed Fund Futures is now pricing in o ne full 25 bps of rate cut into the September Policy and 61 bps of cumulative rate cuts for 2024. If you go further out the curve, 100 bps is priced in until March 2025 and 138 odd bps until June 2025. In the 23rd June Wrap, I had written On the DXY, 106.25 is a crucial resistance zone for DXY bears and an important point of reversal. So keep a watch on the levels with SL above 106.75. DXY declined over the last 2 weeks fro...

The Pendulum Swings Again - From Soft Landing to Fears of a Recession | Employment | US2s and US10s Technical Levels | Macro Musings

As Howard Marks says The most important thing is "Awareness of the pendulum'. The mood swings of the market resemble the movement of a pendulum. Although the mid point of the arc best describes the location of the pendulum "on average", it actually spends very little of its time there. In fact, it is the movement towards an extreme itself that supplies the energy for the swing back. Investment markets follow a pendulum like swing - b/w euphoria and depression, between celebrating positive developments and obsessing over negative ones and thus between over priced and underpriced. While we may not know what the futures holds but me must have a fair sense of where we are headed. I hope this blog has helped you navigate the course of the markets by identifying these pendulum type swings and through the analysis, has helped you get a sense of how the data is evolving. The Economic calendar was heavy with Top Tier Data. BoJ raised the overnight call rate by 15 bps to 2...

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One of my favorite poem is by Kahlil Gibran and thought I'd share a couple of lines with you all... Do not live half a life and do not die a half death If you accept, then express it bluntly, Do not mask it If you refuse then be clear about it for an ambiguous refusal is but a weak acceptance Do not accept half a solution, Do not believe half truths, Do not dream half a dream, Do not fantasize about half hopes To reach and not arrive, Work and not work The half is a mere moment of inability, but you are able for you are not half a being You are a whole that exists to live a life not half a life” On that note, quick weekly roundup for the US markets below: The Fed Fund Futures are pricing in 88% probability of a rate cut by September Policy. The Atlanta FED GDPNow Estimates for Q3 growth readings are running at 2.8%. The Cleveland Fed estimates for Core CPI and Core PCE are running at 0.27% and 0.22% respectively mom. In the last blog piece...

Shroedinger's Cat ~ Preparation is the Key to play markets || US Politics || Macro Musings

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