Making Sense

“Experience is what you got when you didn’t get what you wanted.”  Federal Reserve announced a 50 bps cut to the Fed Fund Rate to 4.75% - 5.00%. Markets are pricing in a 50% probability of a 50 bps rate cut in the November Policy and 98% probability of 75 bps of rate cut by Dec 2024. Market Pricing is clearly more dovish than the Fed's base case as laid out in the SEP. US2s10s bear steepened and closed the week at 14.40 bps highs. We close the US2s10s position here and re-evaluate.  The FOMC Committee judges the balance of risk to be roughly in balance and would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of goals. The Summary of Economic Projections (SEP) saw a 40 bps upward revision to U/R and 30 bps downward revision to PCE Estimates which clearly shows Fed's increasing concern around Unemployment. In the Press conference, Chair Powell focused on the recalibration of policy as Fed gains greater confiden...

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...

In this Central Bank Heavy week, Fed was the first to blink. The other Central Banks rate decision were hawkish despite growth faltering and that supported their currencies against the USD.  U.S Retail Sales rose 0.30% mom ag consensus estimates of -0.10% and the prior month reading was revised lower by 10 bps to -0.20%. Meanwhile, Intitial Jobless Claims (IJC) for the w/e Dec 9 fell to 202K and CJC for the w/e 02 Dec came in lower at 1.876 mn. The market was oblivious to the strong Retail Sales print as Bonds continued their rally. US2s dipped to as low as 4.28% before closing the day at 4.39%. 4.35% is resistance zone and we have a one day reversal candle. We will wait for price action to develop here to see if the level holds. The long end of the UST curve outperformed as US10s closed at an yield of 3.92% (-10 bps) and US30s closed the day at an yield of 4.04% (-14 bps). US2s10s bull flattened 5.40 bps to a closing spread of -46.70 bps.  The Dec 24 FFR imply 148 bps of rate...