Making Sense

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...

"You don't have to be great to get started, but you have to get started to be great" -  Les Brown The Employment data and the soft ISM print lead to strong bond buying interest with yields on US2s down 14.80 bps and on US10s down 11.80 bps bps over the week. US2s10s steepened 3 bps to close the week at -32.60 bps from -35.60 bps at end of last week. The Atlanta FED GDPNow estimates were revised lower to 1.50%.  We  did not get any post news drift after the initial  sell off in bonds post the Presidential debate barring a move on Monday to 4.795% which was largely faded. Yields on US2s held the 4.76% resistance through the week before dropping sharply. The next support comes in at 4.50% - break below which opens the room for a move likely towards 3.50%. The markets are now pricing in 51 bps of rate cuts into 2024 with 72% probability of the first 25bps rate cut by September 2024.  Fed Chair Powell in his speech mentioned that Inflation is now showing signs of re...

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...

USDJPY / EURUSD / AUDUSD broadly performed in line with expectations as highlighted in the view earlier  with strong gains in JPY and w e hit our  SL on the GBPUSD  trade.  USDINR is seeing a rounded top technical formation and we may be breaking out lower. Today's close will be important and then the next immediate support is seen as 82.66.  Fed Chair Powell's testimony offered nothing new - Fed believes that they are peak of the tightening cycle.  T he statement reflected a cautious approach to monetary policy, with a recognition of the uncertainty surrounding the economic outlook and a focus on achieving the central bank's inflation target while supporting economic growth and employment and the delicate balance that policymakers must strike. The statement acknowledged that if the economy continues to develop as expected, there may be a need to start easing the current policy stance at some point during the year. The Central Bank would follow a data driv...

"The correctness of a decision cannot be judged from the outcome. Nevertheless, that's how people assess it. A good decision is one that's optimal at the time it's made, when the future is by definition unknown. Thus, correct decisions are often unsuccessful and vice versa" On Friday, U.S. PCE numbers came in line with consensus expectations rising 2.60% yoy and the Core PCE rose 2.93% yoy. The 3m and the 6m annualized rate is now below 2%.  Snapshot ▲ YoY ▲ MoM ▲ 3M Change ▲ 6m Change Headline PCE 2.60% 0.16% 0.51% 2.00% Core PCE 2.93% 0.17% 1.51% 1.85% Headline CPI 3.30% 0.30% 1.78% 3.30% Core CPI 3.90% 0.31% 3.29% 3.18% Pending Home Sales rose 8.30% mom from prior -0.30% and 1.30% yoy from prior -5.20%. The market impli...

Data today out of U.S showed Labor Productivity* rose for Q3 beating consensus estimates by 30 bps and increasing sharply from Q2 reading of 4.7%. Q3 Unit Labor costs were down 1.20%, beating consensus estimates of -0.90% and prior month reading of -0.80%. The ADP employment numbers showed private payrolls added 103,000 jobs in November, -27K from consensus est and below prior reading of 113K. Acc to the press release, the post pandemic boost that saw strong job creation in Restaurants and Hotels, is behind us and the return to trend in Leisure and Hospitality suggests the economy as a whole will see more moderate hiring and wage growth in 2024. Today's data comes after the surprisingly lower JOLTS data yesterday and elevated continuing claims data. The data shows better demand and supply balance occurring in the labor market coupled with labor productivity gains bodes well for a soft landing narrative. US2s are trading at 4.585% from session highs of 4.6250% and US10s keep pushing...

 The Jan ADP report released yesterday showed solid Job gains and elevated wage growth.Private sector employment increased by 242,000 jobs in February and annual pay was up 7.2% yoy. Job losses were seen in the Construction sector (-16K) and professional / business services (-36K) while solid gains were seen in leisure (+83K) / hospitality followed by financial services (+62K) and manufacturing (+43K). The Jan trade deficit widened to $68.3 billion as imports increased $9.6 billion over December imports and exports increased $8.5 billion over the prior month. The data shows expansion of global trade activity. The Job Openings and Labor Turnover Summary (JOLTS) showed a decrease in job openings to 10.8 million following a revised 11.234 million in December. The number shows employers are still struggling to fill vacancies. USD index continued to hold onto gains. The yield on the 2Y UST increased to a high of 5.085% while the 10Y touched a high of 3.995%. Markets continued to push th...

"Discipline is choosing between what you want now and what you want most" - Abraham Lincoln Data releases: Strong US ADP employment numbers and the low level of initial jobless claims boosted the usd index overnight.  According to the Dec ADP employment report, private-sector employment rose 235,000 well above expectations of 150,000. Annual pay for “job-stayers” rose 7.3%. US New jobless claims came in below estimates at 204k (exp. 225k). Meanwhile US Continued Jobless Claims came in at 1.694M (exp. 1.708M). November trade deficit narrowed to $61.5 billion, lowest since September 2020 on a decline in both exports and imports as global demand weakened.  A strong ADP employment report adds to the expectation of a stronger NFP print due to be released today (exp 200k, u/r 3.70%, wage growth 0.40% mom). Initial jobless claims are a leading indicator and the low level of claims goes to show the tightness of the labor market. Labor market tightness fuels concerns that the Fed migh...