Making Sense

After the data in the prior week which included the FOMC Rate Decision (Chair Powell said  there’s a high bar right now for the Fed to cut rates and an even higher bar for the Fed to resume rate hikes and announced slow down in BS run off) , soft employment and PMI data numbers, this week was relatively muted in terms of fresh data releases. We had an inside day candle on the US2s and the DXY.  The Jobless claims numbers increased over the prior week but the outright levels only suggest labor market coming into better balance.  The University of Michigan Consumer sentiment, however was quite concerning with consumer sentiment retreating about 13% mom with consumers perceiving negative developments over inflation, employment and interest rates. Year ahead inflation expectations rose over 30 bps to 3.50% and long run inflation expectations rose 10 bps to 3.10%relative to the 2.20-2.60% range in the 2 years pre pandemic.  According to latest estimate released...

As I write this article, I will quote Howard Marks again in the context of the cyclical extreme as I had quoted him earlier in one of my articles on Jan 15, 2024 which was the point of turn of the market pendulum.  "It is important to be aware of the mood swings of the market, the Pendulum as Howard Mark says. When the Pendulum is at the extreme , it is inevitable it will move back towards the mid point sooner or later. The movement towards an extreme itself that supplies the energy for the swing back. Risk management is a challenge purely when one looks at measures of deviation move to the extreme. The timing of the move to the mid point, if captured wrongly, will prompt you to act in ways that will reduce the overall returns. Hence, it is of paramount importance, that we assess if we have reached cycle extremes.  __________________________________________________________________________________ Over the week, US economic calendar had the PMI release wherein the Services and ...

Over the week, US2s found support at the 4.75% level and US10s found support ahead of the 4.35% level.  U.S Monetary policy is in a restrictive territory and Fed projections show 75 bps of rate cuts into 2024. Stickiness of Inflation and reaching the last mile of inflation is a dominant concern for the Federal Reserve and the same has resonated in the Fed Speak. Fed's Barkin commented "I am in no hurry to cut rates" as echoes by Fed Williams and Fed Bostic.  However, the market paused repricing Fed Fund Rates over 2024 as the pricing largely converged with the Fed Projections.   USD index languished between the 103.60 and 104.25 levels. Fed Fund pricing for rate cuts into 2024 largely hovered around the 80 bps mark over the week before slipping to 92 bps post the ISM Mfg Release with 25 bps of rate cuts fully priced into the June meeting.  Yields High Low Close WoW ▲ Weekly Range US 2Y ...

"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...