Making Sense

Fed Fund Futures implied interest rate pricing closed the week at 32 bps of rate cuts priced into from 43 bps cuts seen at the start of the week. Also making the headline was Goldman Sachs changing it's Fed cut call to September. The street is now divided for the first rate cut between September and December policy meetings. I still think there is more legroom before we start thinking if the FFR pricing is rich . The Us2s10s Curve bear flattened 7.40 bps.  Governor Waller's speech "Some Thoughts on r*" is an interesting one and a recommend reading as he looks at factors affecting  r* from the lens of supply and demand and contributing factors that led to the decline of r*. He then goes on to delve into factors that could have reversed to explain if r* has moved higher in the current environment.  S&P Flash PMIs showed US Global Composite PMI at a 25 month high and Services PMI at 12 month high while the Mfg PMI showed an overall improvement in business conditions....

Liquidity conditions were very market supportive over the last week as equities rallied, Roaring Kitting was back, USD index and bonds yields declined over the week. Gold prices touched fresh all time highs, Bitcoin surged and Copper went parabolic touching all time highs. US2s10s bull flattened. Over the last week, we did not get the much hoped for USD bounce and it was a one way USD decline through the week holding the 105.75 resistance. Any retracement into the 104.80 - 105.00 levels now offers resistance.  Markets continue to price in 43 bps of rate hikes into 2024 and 65 bps of rate hikes through to March 2025.  Markets are pricing in 28 bps of rate cuts by the November policy with 19 bps of rate cuts priced into by the Sep policy. Largely, what this means is markets are pricing the chance of first rate cuts between the Sep - Nov Policy and and another 15 bps of rate cuts into the year end.  Chair Powell's leaned dovish in his comments "We did not expect this to be a...

After the data in the prior week which included the FOMC Rate Decision (Chair Powell said  there’s a high bar right now for the Fed to cut rates and an even higher bar for the Fed to resume rate hikes and announced slow down in BS run off) , soft employment and PMI data numbers, this week was relatively muted in terms of fresh data releases. We had an inside day candle on the US2s and the DXY.  The Jobless claims numbers increased over the prior week but the outright levels only suggest labor market coming into better balance.  The University of Michigan Consumer sentiment, however was quite concerning with consumer sentiment retreating about 13% mom with consumers perceiving negative developments over inflation, employment and interest rates. Year ahead inflation expectations rose over 30 bps to 3.50% and long run inflation expectations rose 10 bps to 3.10%relative to the 2.20-2.60% range in the 2 years pre pandemic.  According to latest estimate released...

  NIFTY - On Friday, we had an outside day candle and a weekly one-day reversal candle which suggests shifting trends but does not suggest an immediate sharp move in the opposite direction of the trend. However, it sets us up on alert to look for signs of reversal in the ensuing weeks that follow. Sellers have stepped in ahead of 22800 level and we observe negative divergence of RSI. Levels on Nifty: Closing Level as on 05 May 2024 - 22423 Index S3 S2 S1 R1 R2 R3 R4 NIFTY 21860 22000 22337 22620 22800 22900 23038   India VIX has risen steadily in the last 8 session from 9.95 to this week’s high of 16.96 as Lok Sabha Elections are underway. Low voter turnout in phase 1 and phase 2, generally considered negative for the incumbent, could possibly translate into a lower margin of victory and that has spurred buying in vols...

The Fed Fund Pricing for cumulative rate cuts into 2024 shifted from last week's high of -34 bps to -46 bps and US2s10s bull steepened 2.50 bps over the week. US10Y yields were down 18 bps over the week with 10Y inflation indexed bonds driving gains of 12 bps and the 10Y break even inflation rate driving gains of 6 bps over the week. DXY found resistance at the 106.50 levels and came tumbling down to end the week at 105.08. JPY rallied on BoJ intervention while crude oil prices declined sharply to a 7 week low on an unexpected rise in U.S Crude Inventories. ___________________________________________________________ This week saw significant gyrations in risk assets. The post looks at data in 2 bits - Employment Data and the PMI Data. The data began the week with the Employment Cost Index rising 1.2% QoQ followed by the ADP Employment Change which showed private payrolls increase by 192K and 3m average at 192K. The Jobless claims data had no surprises with claims at very low lev...

We had yields on US2s close above the recent consolidation range while the US10s did not make fresh lows but tracked losses. Yields on US10s treasury inflation protected securities closed sharply higher at 2.28% compared to 2.20% levels on Monday as the Employment cost Index rose 1.20% qoq following a 0.93% rise in the previous quarter. ECI rose 4.20% yoy. S&P CoreLogic Case-Shiller 20-City Composite Home Price Index for Feb showed prices rose 7.31% yoy. While the consumer confidence plummeted, market had eyes focused on the ECI, as the strength in the ECI followed the sticky prices of the services component of PCE, supporting the higher for longer Fed Fund Rate narrative.  Risk assets took a beating as US Equities closed sharply lower, Bond Yields sharply higher, Brent / Gold / Bitcoin all lower. Today morning risk sentiment in continuation with the US market mood looks fragile.