Fed Funds Rate Cuts pricing shifts from 166 bps to 156 bps // Risk Sentiment Deteriorates // USD Asia Higher // Exited EURUSD //

"Success Comes down to rare moments of opportunity. Be open, alert, and ready to seize them"

Equity Markets took a beating last night and US yields rose. Market pared the bets on Fed Fund Cuts as the implied pricing for Fed Fund Rates shifted higher from lows of 166 bps to currently 155 bps. Despite the disruption in the Red Sea, crude continues to chop around. British Oil Giant Shell halted shipments via the Red Sea.

Christopher Waller in his speech titled “As good as it gets… But will it last” spoke about progress in inflation, improved supply demand in labor markets and tighter financial conditions and restrictive monetary policy. Towards the end of the comments, he said “This cycle, however, with economic activity and labor markets in good shape and inflation coming down gradually to 2 percent, I see no reason to move as quickly or cut as rapidly as in the past. The healthy state of the economy provides the flexibility to lower the (nominal) policy rate to keep the real policy rate at an appropriate level of tightness. But I will end by repeating that the timing and number of rate cuts will be driven by the incoming data.”.

His comments reinforced what markets participants had been wondering, too much too fast in terms of FFR pricing. Markets took his comments to pare the outsized bets on USTs. Far end of the UST curve underperformed.

Yields	High	Low	Close	DoD ▲
US 2Y	4.26	4.15	4.23	7.80
US10Y	4.08	3.95	4.06	12.10
US2s10s	-0.16	-0.20	-0.16	4.10
US30Y	4.32	4.20	4.30	11.80
JGB 10Y	0.61	0.57	0.59	1.20
DE10Y	2.25	2.17	2.25	9.60

The most crucial data print for the day will be the retail sales data out of the U.S with Retail Sales mom est to show a reading of 0.40% and Retail sales ex auto to show a reading of 0.20%.

AUD and JPY bore the brunt of the USD strength with both pairs falling over a percent.

Today morning, risk sentiment is off to a negative start as Asian equities and US equity futures are in the red. Domestic equities have opened with losses of over a percent and USD/Asia is sharply higher breaking the recent ranges. KRW (USDKRW at 1345) is in sight of the 2023 highs of 1364 and USDCNH after failing to break the recent consolidation support at 7.10 has broken above the 7.20 resistance. After the moves lower / attempt to break the support levels in Dec 2023, USD/Asia has broken higher quite ferociously.

USDINR also briefly dipped to lows of 82.77 ahead of the downside support at 82.75 and currently trades higher at 83.10 levels. 83.20 will be an important resistance on the day.

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