Recapping the last week's price action,
Risk sentiment deteriorated in the immediate aftermath of the Israel-Hamas Conflict at the start of the week but improved on Fed Speak. Higher UST yields and as a consequence tighter financial conditions were seen by Fed Members as having done the job for Federal Reserve and the suggestion that the narrative should shift from how high to how long supported the risk sentiment before the strong US CPI data and resumption in crude oil price rally dented the sentiment again. The extremely fluid geo-political situation and how the war escalates and embroils other nations will continue to weigh on the market sentiment.
The week ahead is light on data. India only releases the WPI data today while US releases Retail Sales / Industrial production / Building Permits / Jobless Claims / Home Sales data coupled with Fed Speak. Keep a close watch on the Fed Chair Jerome Powell's Speech on Thursday before the start of the blackout period ahead of the Nov 1 meeting.
The Dec 18, 2024 Fed Fund Futures are priced at 95.29 thus implying a FFR at 4.71%. Last week, Dec Futures implied 4.55% on Oct 9 and the pricing has shifted upwards since. I had been stressing the growing divergence between the FFR and Fed's guided path and how risk reward favored a turn in pricing, which played out timely. US2s10s flattened over the course of the week touching a low -48.
USDINR opened well within the 83.15 - 83.30 range at 83.25 levels. Yield on In10s is flat at 7.327% after dipping as low as 7.292% during the past week and appears well anchored ahead of the 7.37% swing highs. 1Y forwards have come off from resistance seen at 1.85% to trade at 1.72% and 5Y OIS is trading flat at 6.65%.
That's the wrap for today. Happy Trading
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