Making Sense

“There’s a big difference between probability and outcome. Probable things fail to happen—and improbable things happen—all the time.” That’s one of the most important things you can know about investment risk.” ~ Howard Marks With Fed Chair's Front and Center focus on evolving outlook of the US employment situation , this week carried extra significance and the Employment data catalyzed the move in Yields. Yields on US2s fell 35 bps (High - Low Range) and on US10s 28 bps (High - Low Range) over the week . On US2s Yields, we closed right at 3.65% and on US10s at 3.71% which is in close proximity to the braking point we mentioned earlier in the backdrop of the larger H&S Formation. We did not get the upticks towards the 4.10% handle we were hoping for. Another Trade I had thought about and did not write was the break below the 3.90% - 4.10% consolidation range but that's because consolidation break outs many times chop you out so better to trade at the top of the consolidatio...

This was an interesting week, for all the tensions in the ME, crude oil prices closed 3.30% lower. Crude Oil touched a weekly high of $ 90.80 and closed the week at $ 87.15. It appears markets base case is of no escalation to the State Conflict and Iran continues to fight the proxy war across the Middle East through Hezbollah, Hamas, Shi'ite and the Houthis.  Iran's oil exports are surging and Iran would not prefer a situation where the progress is impeded. EU and US are preparing new sanctions on Iran but with Iran's proclivity to circumvent sanctions, it is to be seen if any meaningful progress can be made in bringing Iranian supply lower.  Disruption to crude oil supply either through destruction of Oil production facilities in Iran or supply route through the Strait of Hormuz or maximum pressure sanctions are events that could catalyze a spike higher in crude oil prices. A huge deterrent also comes from the U.S as President Biden tries to contain the situation ahead of ...

 "We have two classes of forecasters: Those who don't know - and those who don't know they don't know" We had 3 data releases out of the US yesterday. Snapshots below: 1. Jobless Claims data – The week reflected annual revisions to the seasonal adjustment factors 2. Retail Sales data – Retail Sales Control was flat mom following an upward revision of 10bps to prior month’s figure of -0.40%. The control group is all sales, excluding receipts from auto dealers, building-materials retailers, gas stations, office supply stores, mobile homes and tobacco stores that feeds into the GDP.  The Atlanta Fed GDPnow estimates Q1 GDP at 2.30% from prior 2.5%. 3. The most important print out yesterday was the PPI report which stoked inflationary concerns after the strong CPI data. The rise in Core Goods CPI was also seen in Goods PPI which rose a 1.21% mom and surge in Energy which rose 4.35% mom. The estimates of core PCE deflator following the PPI report suggest ...

 U.S Yields moved higher and USD index consolidated overnight. A Ukrainian drone strike caused a fire at the Ryazan oil refinery near Moscow, one of Russia’s biggest crude-processing facilities. A site in the southern Rostov region was also hit. Both halted operations. Ukraine has stepped up its attacks on critical infrastructure in recent months. On Tuesday it launched strikes targeting energy sites in at least seven Russian regions [Source: Economist].  Brent Crude prices have been consolidating in a 81.00 - 84.00 zone since early part of February 2024. From a technical standpoint, there is a H&S formation plus and ascending triangle and a decisive breakout above $ 84.50 could turnout to be potent with 2023 highs of $ 96 per barrel in potential targets. Fed Fund Futures are now implying 78 bps of rate cuts into 2024 from 84 bps yesterday. We have the all important PPI [consensus 0.30%] / Retail Sales [ consensus 0.40%] and the Initial and Final Jobless Claims data. ...

"An investor needs to do very few things right as long as he avoids big mistakes" I was facing some technical issue and hence the crazy delay in publishing the post.  On the Domestic side, Bloomberg Index Services proposed to include India FAR bonds in its EM local currency index over a 5 month period starting Sep 24 and invited feedback on the same. The inclusion could result in $2 - $3 bn of inflows acc to media reports. System Liquidity continued to be in deficit at inr 155k crs and WACR was at 6.77%. Forwards continued to be paid with Dec Swap points closing 2 bps higher on the day. Mifor curve was 2 - 3 bps lower with volumes of inr 4830 crs across 40 trades. OIS was 4 - 5 bps lower in the 2Y-5Y segment.  Bitcoin and Crude Oil prices were large movers yesterday. Bitcoin surged ~ 7% in anticipation of SEC Bitcoin ETF Approval decisively breaking above the 44750 level. Crude Oil prices however slumped over 3%. Saudi Arabia cut the official selling prices (OSPs) for its cru...