Making Sense

"If you can trust yourself when all men doubt you, B ut make allowance for their doubting too;    If you can wait and not be tired by waiting..... If you can fill the unforgiving minute,  With sixty seconds’ worth of distance run,    Yours is the Earth and everything that’s in it...." ~ Rudyard Kipling  Let's Quickly review the U.S Economic Data released over the week.  The GDPNow Model estimate for real GDP growth in Q2 was revised downwards to 3% after the release of the data this week. CBO estimates show that U.S Budget Deficit will be around $ 400 bn larger this year at $ 1.90 trn.  USTs consolidated last week's gains in a 9.50 bps range and US2s10s closed relatively unchanged for the week at - 48 bps and DXY continued to climb higher after taking support at the 103.00 level at the start of the month and S&P 500 made fresh highs at 5517. On the DXY, 106.25 is a crucial resistance zone for DXY bears and an important point of reversal. S...

 The RBI released the Minutes of Monetary Policy Committee Meeting held during 5 - 7 June 2024. The estimates of Growth and Inflation are stated below: Key Highlights: 1. Domestic growth is likely to maintain momentum into 2024-25 aided by expectations of a above normal SW Monsoon, Government's continued thrust on capex, projections of improved Global Trade, Healthier Corporate Balance Sheet etc. 2. Pace of last mile of disinflation has been grudgingly slow on intersecting food price shocks, impact of exceptionally hot summer months, rabi production shortfall, upward revision in milk prices. Normal monsoon would likely ease price pressures and also support growth.  3. On the most interesting debate around the Neutral Real Policy Rates (NIR),  Dr. Aashima Goyal mentions that NIR is around 1% for India and restated her stance  that inflation approaching the target suggests absence of over-heating.  She mentions since core inflation has moved steadfastly lower,...

HSBC Flash India PMI Report Output Growth : India's private sector output growth increased in June, recovering from a slowdown in May. Both manufacturing and services sectors saw quicker rates of expansion. HSBC Flash India Composite Output Index : The index rose from 60.5 in May to 60.9 in June, indicating a substantial and historically significant expansion. This is aligned with the average growth rate over the past 12 months. Manufacturing Sector : The Manufacturing PMI rose from 57.5 in May to 58.5 in June, driven by stronger new orders, output, employment, supplier delivery times, and stocks of purchases. All five sub-components of the index contributed to this improvement. New Orders and Exports : Total new orders rose sharply, surpassing May's growth. Export orders increased for the 22nd consecutive month, with June's growth being the second-fastest since September 2014, despite a slight deceleration compared to May. Employment : Employment saw a substantial increase...

"The Desire for more, the fear of missing out, the tendency to compare against others, the influence of the crowd and the dream of the sure thing - these factors are near universal. Thus they have a profound collective impact on most investors and markets. The result is mistakes and those mistakes are frequent, widespread and recurring." The FOMC Rate Decision was on expected lines but the surprising bit came out from the Summary of Economic Projections where 2024 FFR projections were revised higher to 5.10% from 4.60% and for 2025 , FFR was revised higher to 4.10% from 3.90% . The estimates of PCE were revised higher by 20 bps for 2024 and 10 bps for 2025.  At 5.10%, in light of the benign CPI Data and market pricing well in line with the Fed's revised guided path of 1 rate cut into 2024, 2024 FFR SEP was largely seen as an adjustment to the Fed's policy projection rather than new information which could be construed as hawkish .   15 of the 19 members were seen a...

"Success comes down to rare moments of opportunity. Be open, alert and ready to seize them." At the start of this week, I wrote in the Sunday's US Employment wrap that I'm now in mode READY to fade the richness in pricing in Fed Fund Futures and voila, CPI release was the trigger.  Yields on US2s dipped to 4.67%  (17.7 bp off highs) and US10s to 4.25% (17.60 bps off highs) and DXY fell from 105.30 levels to 104.25 levels on the CPI release. The U.S. CPI report was benign in much aspects,  coming in below consensus expectations and  printing a mom reading of 0.01% on the headline number.  Readings on Super Core Services at -0.07% mom were a reason for celebration while readings on the shelter component were a sore reminder of the stickiness of the numbers. Going into second half of the year, as adverse base effects kick in, inflation stickiness could add fuel to the "higher for longer" narrative.  Please look at the table below for a summary.  Post the ...

"To achieve superior investment results, your insight into value has to be superior. Thus you must learn things others don't, see things differently or do a better job of analyzing them - ideally, all three." Fed Fund Futures closed the week with 28 bps of Rate Cuts priced into for 2024. We had a slew of employment data which is summarized below. ADP numbers  showed private employers added 152,000 jobs, though job gains slowed due to a significant decline in manufacturing and weaker hiring in leisure and hospitality. Pay gains for job-changers decelerated, with yoy increases dropping for the second consecutive month to 7.8%. Meanwhile, pay growth for job-stayers remained steady at 5% for the third month. These trends suggest a cooling labor market, with particular weaknesses in specific sectors and a slowdown in wage increases for job-changers. Jobless Claims data For the w/e June 1, initial claims for unemployment rose to 229,000, up by 8,000 from the previous week's...

 India's manufacturing sector remained robust midway through the first fiscal quarter, despite a slight slowdown in growth momentum. The HSBC India Manufacturing PMI® declined from 58.8 in April to 57.5 in May, indicating a still substantial but slower improvement in the sector's health. This figure remains significantly higher than the long-run average, demonstrating the sector's continued resilience and expansion. The moderation in growth was partly due to reduced working hours caused by an intense heatwave, which affected production volumes. New orders also increased at a softer pace, but international sales experienced remarkable growth, rising at the fastest rate in over 13 years. Manufacturers remained highly optimistic about future business prospects, with confidence levels at their highest in nearly a decade. This optimism translated into one of the fastest rates of workforce expansion in the survey's history. However, the sector also faced stronger increases in...

Yields on 10JGBs continued the march higher towards 1.10% as Services Sector inflation came in higher than expectations. The next BoJ meeting is scheduled for 13 - 14 June. BoJ intervened to the tune of $ 62.20 bn over two days of intervention. JPY weakened past the 160 handle when BoJ first intervened and dropped to lows of 154.50.  We have the Bank of Canada and the ECB Monetary policy meeting where expectations are for 25 bps of rate cuts.   The implied Fed Fund Futures priced in 29 bps of rate cuts for 2024 from 32 bps last week. The Fed Fund Futures are pricing in first complete rate cut by the November policy.  The PCE release was on expected lines. Prices of Energy and Non Durable goods rose at an uncomfortable mom momentum while prices of durable goods showed mom contraction. The Services component of the PCE release showed mom price rise of 0.27% which was lower than the average 0.37% mom pace over the last 6 months.  The Market reaction to the PCE rele...

It will be an interesting start of the week for Indian Markets post the exit polls announcement. The Exit polls suggest a comfortable victory for the NDA. Even though the seat tally differs across various pollsters, there is consensus over an NDA victory with seats range seen between 342 to 385 on the lower end and 358 - 415 seats range on the upper end.  There will be considerable euphoria in the markets when we open on Monday alongside the tailwind from positive US markets after benign PCE Readings.  The buzz on social media if for Nifty to gap up towards the 23100 level. India VIX closed at 24.60 on Friday.  The low voter turnout had espoused uncertainty in the markets. The larger public mood has been for the NDA to win with domestic equity inflows during 2024 at over $ 7 bn per month in 2024. However, unlike earlier elections in 2014 and 2019 when we saw positive flows ahead of Elections, this time round FPIs have been net sellers CYTD to the tune of ~ $ 2.80 bn....