"Failure of Imagination" is the inability to understand in advance the full range of outcomes.
Overnight, USD index weakened and USTs were unchanged. The implied Fed Fund pricing shows 20 bps of Fed Fund Rate cut priced into the March Policy and a cumulative 143 bps of Rate cuts priced until the Dec 2024 policy. Post the FOMC Rate decision, Markets had priced in 23 bps of rate cuts by March Policy and 148 bps of rate cuts by Dec Policy. We had comments from 2 Fed Speakers both of whom are FOMC Voters into 2024. Raphael Bostic reiterated his view of 2 rate cuts into 2024 starting sometime in Q3 and stated that there is no urgency to back away from restrictive policy stance. Thomas Barkin stated that inflation continues to move in the right direction and if inflation trajectory evolves on expected lines, the Fed would act appropriately. U.S released housing data where Housing Starts rose 14.80% mom while Building permits at 1.46 mn were below consensus of 1.465 mn.
On the domestic side of things, the LAF uptake was 182K crore as against 202k crore on the prior day. WACR was recorded at 6.78%. Liquidity is expected to be tight on GST tax payments before easing at the end of the month on Government expenditure. Front end of the OIS curve (1m - 12m ) was flat to 2 bps higher on a closing basis while 2 - 5Y of the OIS curve was 3 - 4 bps higher with 4Y OIS curve flat. Volumes in MIFOR were lower than average volumes recorded in the previous week at INR 1200 crs. The curve traded flattish. USDINR traded a range of 83.09 - 83.2225. NIFTY continues to hold on to recent gains with FPI flows seen MTD seen at $ 7.20 bn.
Other Global, the big mover overnight was the USDJPY. The day's range was a massive 271 bps / 1.90% in USDJPY (144.954 / 142.245) and 10Y JGBs moved 9 bps from 0.687% highs to 0.598% before closing the day at 0.613%. The BoJ policy suggested no hints of revision to the BoJ policy as BoJ stated that it will continue to maintain the stability of financing, mainly of firms, and financial markets, and will not hesitate to take additional easing measures if necessary. Going ahead, Ueda's speech on Dec 25 and Summary of Opinions on Dec 27 will be key events to watch out for.
EZ Core HICP at -0.50% mom and HICP at -0.60% saw Rates market pricing in 153 bps of rate cuts into 2024 with 35 bps of rate cuts priced for the April Policy. The DE-US 10Y spread widened to -1.91%. The market is pricing in 153 bps of rate cuts into 2024 to 2.37%.
Canadian CPI surprised on the upside with headline CPI seen at 3.10% (est 2.90%).
AUSD continued to be the clear winner as RBA minutes showed Members considered whether to raise rates or keep them on hold. The members decided to keep the rates unchanged while waiting for more data and assessing the balance of risks to judge the path of monetary policy. RBA's Cash Target Rate is 4.35% and market sees no further rate hikes into 2024. The market is pricing 50 bps of rate cuts into 2024.
Meanwhile, crude prices continued to rally. Four of the world’s five largest container-shipping firms have suspended voyages through it; BP has paused oil shipments (Economist).
For the day ahead,
Asian Equities are trading in the green with the exception of Chinese Equities which are nursing losses.
For the day ahead, the levels I'm watching:
On EURUSD (1.0955), 1.1017 Swing Highs on the top side, if cleared , open the room for more gains. Downside, support comes in 1.0890 / 1.0830 / 1.0785. I am a buyer on dips towards 1.0830 levels to trade the positive EUR seasonality but not too convinced to chase the gains above 1.1017.
On AUDUSD (0.6765), the recent strong run up in AUDUSD finds strong technical resistance at 0.6900 where I would like to sell AUDUSD with stops at 0.6960 for a move towards 0.6750.
On USDCAD (1.3350), CAD gained on recent rise in crude oil prices alongside a surprise on the inflation side. Canada overnight rate is 5% and the market is pricing in 113 bps of rate cuts into 2024 to 3.87%. The most important downside support comes in 1.3110 which are the swing lows in 2023 and I would like to dip my hands on longs only towards a dip to those levels. I'd be a better seller on uptick towards 1.3405 levels.
Comments
Post a Comment