Making Sense

As identified in the last blog post, USD Index made a low of 100.51 on Tuesday and retraced to close the week at 101.732 . I will be closely looking at how the price action evolves around the 102.50 levels to re-initiate shorts. In my post earlier, we identified the first braking zone to the downward momentum on USTs as the 3.64% - 3.81% zone where US2s found resistance. During the week,  Yields on US2s dipped to 3.848% before closing the week at 3.92% inside of the 3.90% - 4.10% range seen for better part of the month. The steepening trend persisted this week as the US2s10s closed the week at -0.014%. On US10s, yields moved higher to close the week at 3.907%.  I'm looking at 2 spots to re-initiate trades on US2s ~ 4.10% and 4.20% handle.  The break in US2s10s outside of the triangle targets 15.50 bps.  US economic data shows a softening trend but it does not outright suggests a sharp deceleration to warrant further pricing of rate cuts. The thought is predicated o...

I have two basic rules about winning in trading as well as in life:  1. If you don't bet, you can't win. 2. If you lose all your chips, you can't bet.   ~ Larry Hite Over the last 3 weeks, after the Aug 5 lows, yields on US2s have consolidated in the 3.90% - 4.10% price range and US10s have progressively made lower lows to close the week at 3.92% and 3.80% respectively. US2s10s bull steepened to close the week at -11.90 bps. USD index closed the week at 100.68, 5% off highs of 106.13 June highs and within close proximity to the established range of 100.50 - 106.50 since last year.  There is a 76% probability of a 25 bps rate cut in the Sep Policy. The market is broadly equally divided between a 25 bps and a 50 bps in the November Policy and holds a 87% probability of FFR in the 4.25% - 4.50% range by end of 2024. By next year September Policy, the market assigns a 90% probability of FFR at 3.25% - 3.50%, i.e. 200 bps of cuts in next 1 year.  The Atlanta Fed GDP Now ...

India's Trade deficit widened to $23.50 bn on a sequential 1.50% fall in Exports and a 7.50% rise in Imports. Electronic Goods exports surged by 37.31% to USD 2.81 billion.  Engineering Goods exports grew by 3.66% to USD 9.04 billion.  Drugs & Pharmaceuticals exports increased by 8.36% to USD 2.31 billion.  Meat, dairy & poultry products exports saw a significant rise of 56.18% to USD 0.46 billion.  RMG (Ready-Made Garments) of all Textiles exports increased by 11.84% to USD 1.28 billion. On a Yoy comparison, Merchandize Trade Deficit worsened to $ 85.50 bn from $ 75 bn in the corresponding period last year. The overall Trade Deficit is averaging $ 8bn per month as against $ 6.50 bn in the corresponding period last year.  USDINR Continues to bear the brunt of the rising deficit, Short CNHINR position washouts, persistent reserve accumulation. We broke above the wedge formation in play since 2022. Favor being flat at the current levels on USDINR and ...

 In this Second Part, we look at the economic data prints: A Benign CPI reading - mom inflation at 0.15% mom and Core print at 0.17% mom. Core goods disinflation continued with mom at -0.32% with 3m annualized rate at -1.93%. Core Services Inflation rose at 0.31% mom which is at pace higher than the average 0.18% mom in the prior 2 months. Super Core Services also rose at a mild 0.14% mom. The respite in Shelter inflation seen in June appears short lived with prices rising at 0.38% mom in July. There has also been a talk around re-acceleration in inflation as mild prints in the second half of 2023 weigh on the readings going forward. Fed members have also highlighted that the  Inflation progress last year benefited from supply-side improvements like eased supply chains, increased labor force participation, and lower energy prices.  However, these factors may not continue to reduce inflation, as supply chains have normalized, labor force participation has stabilized, and i...

Hi, Feels like a long hiatus since I wrote the last post. A family commitment followed by fever impeded my writing. Let me begin this post with a quote from Dreyfus and Kelly - "The task of a craftsman is not to generate meaning, but rather to cultivate in himself the skill of discerning the meanings that are already there". A trader like a craftsman, must develop the ability to acutely discern data, market narrative, the leanings and positioning all at once and constantly reassess developments in his mind. The better a trader can do this, the greater is the skill level. A lot has transpired in markets and the Economic data keeps the pendulum moving between soft landing and recessionary concerns. Let's look at the interest rate pricing and what are the points where I'm looking to fade the moves. This will be part 1 of blog post and in the second blog post we cover Economic  data prints in detail.  The Interest Rate Pricing by Sell Side Economists  is tabulated below -...

RBI's policy decision was largely on expected lines and couple of points that stood out to me from the policy document and the press conference are stated below: 1. Inflation is moderating but the pace of disinflation is uneven and slow and there is still a distance to cover to align headline inflation to target.  2. RBI is watchful of all incoming data from domestic as well as external  sources and ready to deal with all emerging situations. However, the Governor noted caution in reading too much from a single month's employment number since Atlanta Fed GDPNow data is still trending at 2.9% and US has demonstrated growth resilience.  3. On the LCR , the draft circular is still under consideration. According to research reports, estimates are that draft guidelines on LCR if implemented could absorb liquidity in the ball park 5 Lac crore range.  4. On the decision to exclude newly issued 14Y and 30Y  bonds from FAR securities, DG Patra explained in detail th...

As Howard Marks says The most important thing is "Awareness of the pendulum'. The mood swings of the market resemble the movement of a pendulum. Although the mid point of the arc best describes the location of the pendulum "on average", it actually spends very little of its time there. In fact, it is the movement towards an extreme itself that supplies the energy for the swing back.  Investment markets follow a pendulum like swing - b/w euphoria and depression, between celebrating positive developments and obsessing over negative ones and thus between over priced and underpriced.  While we may not know what the futures holds but me must have a fair sense of where we are headed. I hope this blog has helped you navigate the course of the markets by identifying these pendulum type swings and through the analysis, has helped you get a sense of how the data is evolving. The Economic calendar was heavy with Top Tier Data.  BoJ raised the overnight call rate by 15 bps to 2...