Making Sense

“Every once in a while, an up-or-down-leg goes on for a long time and/or to a great extreme and people start to say "this time it's different." They cite the changes in geopolitics, institutions, technology or behaviour that have rendered the "old rules" obsolete. They make investment decisions that extrapolate the recent trend. And then it turns out that the old rules still apply and the cycle resumes. In the end, trees don't grow to the sky, and few things go to zero.” ~ Howard Marks Bonds continued to rally this week with yields on US2s printing a high and low range of 3.71% - 3.55% to close the week at 3.584% and US10s printing a high and low range of 3.76% - 3.6050% to close the week at 3.655%. I highlighted in my blogpost on Aug 31, the triangle breakout target at 15.50 bps on US2s10s. We dipped to -0.004% on the CPI release and closed the week at 0.0710%. On Crude Oil prices we dipped to lows of $ 68.71 but closed the week higher at $ 72.09. ECB annou...

 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...

"I fear not the man that has practiced 10,000 Kicks once, but I fear the man that has practiced one kick 10,000 times." ~ Bruce Lee Morning Everyone ,  This   Week gave us a sense of how the prices or inflation has evolved and we had benign readings across CPI and PPI and the updated PCE estimates are now for a reading of 0.01% mom on the headline PCE and -0.01% on Core PCE Prices which translates to an annual reading of 2.4% yoy and 2.4% on Core PCE Prices.  The Implied pricing off Fed Fund Futures is now pricing in o ne full 25 bps of rate cut into the September Policy and 61 bps of cumulative rate cuts for 2024. If you go further out the curve, 100 bps is priced in until March 2025 and 138 odd bps until June 2025.  In the 23rd June Wrap, I had written  On the DXY, 106.25 is a crucial resistance  zone for DXY bears and an important point of reversal. So keep a watch on the levels with SL above 106.75.  DXY declined  over the last 2 weeks fro...

Last week, India PMI release showed robust economic activity with input cost receding to 40 month lows . Markets also received the advance estimates of National Income for FY 2023 - 24.  The first advance estimates of Nominal GDP peg GDP at 296.58 Lac crores, lower than budgeted estimates of 302.85 Lac Crores. The Nominal GDP is estimated to grow at 8.90% as against budgeted estimates of 10.2%. The revision lower in Nominal GDP could entail either a 12 bps increase in Fiscal Deficit or a 37K cr reduction in fiscal deficit to retain a 5.90% Fiscal Deficit target.  Budget Estimates 2023 - 24 Fiscal Deficit in INR crs          17,86,816 Fiscal Deficit as % of GDP 5.90% GDP (in INR crs)       3,02,85,017     First Advance Estimates   ...

India CPI for the month of November came in below market estimates of a reading of 5.70%. November CPI came in at 5.55% yoy and 0.54% mom.  Cereals (~ 10% wt rose 10% yoy) , Fruits (~ 3% wt rose 11% yoy) , Vegetables (~ 6% wt rose 18% yoy) , Pulses (~2.4% wt rose 20% yoy) and Spices (~2.5% rose 22% yoy) were the known culprits. Oil and fats prices (~3.6% wt) were significantly down, -15% yoy. Core CPI came in lower at 4.11% yoy.  What does this means for Rates going forward? Usually the month of December sees disinflation, averaging - 45 bps mom which translates to a reading of 5.56% yoy. If Dec CPI were to come along 5.50% number, the Q3 FY24 CPI will average 5.3% , 30 bps lower than the RBIs guidance. The Q4 CPI could average 4.80%, much below RBIs 5.20%.  As mentioned in my earlier post and with the current CPI data coming softer than expected, I believe we could see 75 - 100 bps of cuts in FY 2025. IIP rose 11.75% yoy in the month of Oct 2024 with Manufacturing (wt ~...

As I have been writing in the past few posts, the trajectory of inflation is lower.  If you think about it, Inflation is nothing but percentage change in prices paid over the prior period. With the disruption caused in prices of energy and other commodities post Russia - Ukraine War and subsequent sharp declines, the base effect helps bring the headline print lower. For the month of April, the headline CPI rose 4.76% yoy while the core CPI which had been sticky around the 6% declined to 5.20% yoy. Both the numbers bring much needed comfort to the RBI. Sequentially, fuel and lighting declined mom while all other categories showed mom increases. With the April month's release, CPI inflation is projected to come in at 3.93% for March 2024 and remain closer to the 4% level for FY 25. My own estimates are lower than RBI projections of 5.20% by Q4 FY 24. My estimates call for a average inflation reading of 4.42% for FY 24.  If RBI inflation numbers evolve as per guidance, then ...

 Hi, Just been very caught up with some personal work and hence not had a chance to write. Today's day is lined up with a host of data releases. India - March CPI Inflation consensus estimates call for a reading of 5.80% following previous 6.44%. My own estimates call for a reading of 5.65%. The disinflation is lead by fall in prices of edible oils, cereals and vegetable prices. Core inflation has been sticky and will be keenly watched for direction of monetary policy. The market is currently pricing in 6.50% - 6.75% policy rate through this year followed by 2 rate cuts in 2024. Unless the data materially surprises on the upside, reckon the reaction to be muted as the evolving inflation trajectory is projected to be lower. RBI projects FY 23 - 24 inflation at 5.20%. Based on the inflation projections, real Rates are in positive territory.   March Industrial Output is estimated to grow 5.10% yoy  US - YoY US CPI Inflation (NSA) and YoY Core CPI (NSA) is expected ...

India CPI inflation for the month of February came in at 6.44% , marginally lower than 6.52% recorded in the month of January and above my estimates of 6.00% - 6.20%.  Let's quickly crunch the data: Mom headline CPI rose 0.21% . Only F&B (w. 45.86%) recorded negative momentum in prices but the rest of the basket saw mom rises. Housing (w. 10%) was up 0.80% mom; pan, tobacco and intoxicants plus clothing and footwear plus miscellaneous (w. 37% ) was up 0.40%, while food and beverages was down a marginal 0.06% (w. 46%). While declines were recorded in most of the F&B sub components, cereals, milk, spices, prepared mails recorded a rise.  Core CPI continues to be elevated at 6.10%. RBI projects Q4 FY 23 inflation at 5.70%. The Jan and Feb outturn at 6.52% and 6.44% was higher. My own estimates for March 23 inflation are at 5.62% which if the data comes in line will take the quarterly average at 6.16% above RBI's Estimates.  Market is pricing in another 25 bps of rate...

RBI will announce the monetary policy decision today where the consensus is for a last 25 bps rate hike in the current cycle to a terminal rate of 6.50%.  While there is a loss of growth momentum but the economic activity is in a position of strength. The major headwind is from a global slowdown as a result of sharp interest rate hikes. Headline inflation is to decelerate in the quarters ahead but the stickiness of core inflation is a concern and RBI rhetoric during the last policy focussed on putting the inflation beast down.  I am leaning with the consensus expectations of a 25 bps rate hike. Regarding the monetary policy stance, I think it would continue with "withdrawal of accommodation" Let's begin by reviewing some of the important data points: 1. Manufacturing PMI reading came in at 55.40 clearly showing a loss of growth momentum though still in expansion mode. A key area of weakness in the report was "Exports" which increased marginally at best and moder...