Making Sense

With my view over the last week on reversal in USD index, it was frustrating to see the moves not playing out on the Dollar Index. Geopolitical Risks were underpriced and Chinese Stimulus (both monetary and fiscal) ahead of the Golden week kept pushing asset prices higher and AUD was the clear beneficiary. Japan Election results also jolted the USDJPY due to PM Ishiba hawkish leanings. For most of the currencies and bond yields, we went no where and closed the week in the middle of the week's range. I could not complete the post yesterday so writing today.  Let's do a quick snapshot of the Economic Data releases this past week. Atlanta Fed GDP is now trending at 3.10% for Q3 and Fed Funds Pricing show an 82% probability of 200 bps of rate cuts i.e. 2.75% - 3.00% by Oct 2025. As of Friday's close, Markets are pricing in a 92% probability of 75 bps cuts by Dec 2024 but are largely seen divided b/w a 25 bps or a 50 bps cut in the next policy. An important thing to note is t...

One of my favorite poem is by Kahlil Gibran and thought I'd share a couple of lines with you all...  Do not live half a life  and do not die a half death If you accept, then express it bluntly,  Do not mask it If you refuse then be clear about it for an ambiguous refusal is but a weak acceptance Do not accept half a solution,  Do not believe half truths,  Do not dream half a dream,  Do not fantasize about half hopes To reach and not arrive, Work and not work The half is a mere moment of inability, but you are able for you are not half a being You are a whole that exists to live a life not half a life” On that note, quick weekly roundup for the US markets below: The Fed Fund Futures are pricing in 88% probability of a rate cut by September Policy.  The Atlanta FED GDPNow Estimates for Q3 growth readings are running at 2.8%. The Cleveland Fed estimates for Core CPI and Core PCE are running at 0.27% and 0.22% respectively mom.  In the last blog piece...

"Champions aren't made in the gyms. Champions are made from something deep inside them -  a desire, a dream, a vision" ~ Muhammad Ali Fed Fund Pricing for interest cuts was seen at 47 bps for 2024. Q1 GDP came in line with estimates at 1.4%, however, consumer spending was revised lower to a modest 1.50% which means consumer coming in at a lot weaker position in Q2.  The Atlanta Fed GDPNow estimates were revised lower to 2.20% IN Q2 from 3.00% at the end of prior week. DXY found resistance at the 106.13 levels and is seen lower in Asia Open today at 105.67.  Durable Goods Orders rose 0.10% mom driven by an increase in new orders for transportation equipment.  U.S. PCE Prices showed a welcome moderation with headline number flat over the month and the Core PCE numbers 0.10% higher over the month. Deflation in Durable goods at -0.79% mom and -0.15% in non durable goods alongside a less than 0.20% rise in price of Services and -2.12% mom change in price of core services ...

Fed Fund Futures implied interest rate pricing closed the week at 32 bps of rate cuts priced into from 43 bps cuts seen at the start of the week. Also making the headline was Goldman Sachs changing it's Fed cut call to September. The street is now divided for the first rate cut between September and December policy meetings. I still think there is more legroom before we start thinking if the FFR pricing is rich . The Us2s10s Curve bear flattened 7.40 bps.  Governor Waller's speech "Some Thoughts on r*" is an interesting one and a recommend reading as he looks at factors affecting  r* from the lens of supply and demand and contributing factors that led to the decline of r*. He then goes on to delve into factors that could have reversed to explain if r* has moved higher in the current environment.  S&P Flash PMIs showed US Global Composite PMI at a 25 month high and Services PMI at 12 month high while the Mfg PMI showed an overall improvement in business conditions....

Stream of data out of the U.S.  Durable Goods orders were flat below consensus est of 1.10% Durable Goods Ex-transport rose 0.60%  Q4 Advance GDP Est showed growth at 3.30% However, the GDP deflator came in at 1.50% below consensus of 2.30% Initial Jobless Claims rose 214K above consensus of 200K, higher than exp but the Labor Market is holding up well. USD is softening post the release and US yields on 2Y are down from day's high of 4.415% to now 4.36%. No significant repricing seen on Fed Fund Futures. The data out of U.S clearly points to a SOFT LANDING narrative coming to fruition.

 Asia markets are seeing a rebound on risk sentiment after US equities fell with Dow leading losses of 1.89%. ECB kept the rates unchanged and stayed away from calling a peak in rates and focused on a data dependent approach.  Initial Jobless claims (IJC) rose 10K rom the prior week for the w/e 20 Oct to 210K while Continuing Jobless Claims (CJC) rose 63K to 1790K. CJC are seen rising since start of September and are at levels last seen in April end. Strong beat on U.S Durable goods orders, for the month of Sep, orders rose 4.70% yoy following a revised reading of -0.10% in the previous month. Pending home sales rose 1.10% mom following a 7.1% contraction in the previous month. US GDP beat expectations with Q3 growth seen at 4.9% following a 2.1% expansion in the previous quarter. The street took comfort from the core PCE deflator which came in below street estimates of 2.40% and the narrative that Q3 marks a peak in growth. A Research house reported that the PCE deflator impl...

"Details create the big picture"  US Durable goods orders fell 4.50% to $ 272.3 bn from a downwardly revised $ 285.2 bn. 13.30% fall was reported in new orders for transportation equipment driven by sharp fall in New orders for nondefense aircraft and parts which declined a whopping 54.60%. The core durable goods order which excludes transportation increased 0.7 %. Non defense capital goods order excl aircraft orders , a proxy for business investment, rose 0.80% mom.  Pending home sales data, a  monthly measure of homes under contract but not yet closed, rose 8.10% following a revision to Dec number to 1.10%. The data did not change the Fed fund pricing. Bond yields came off highs which appears more on positioning and month end flows rather than any catalysts.  In the week ahead, there are no meaningful catalysts to drive USD price action higher barring the US PMI numbers this week. Hence this week, could see consolidation or a minor pull back across USD index and Ra...

""Objective analysis should be made of the reaction to the event rather than the formation of the Opinion" US Q4 GDP grew 2.90% vs consensus expectations of a 2.60% growth and Q3 growth at 3.20%. The US Markets rallied on the economic news with S&P 500 closing the session at 4060.  GDP = C + I + G + NX Though the headline print is strong, the internals paint a mixed picture.  Consumer spending +2.1% vs +2.3% prior Net trade added 0.56% to GDP vs adding 2.86% in Q3 Inventories added 1.46% vs a cut of 1.19% in Q3 Govt added 0.64% vs +0.65% in Q3 Within residential fixed investment, the leading contributors to the decrease were new single-family construction as well as brokers' commissions.  Hopes of a soft landing increased as the headline number is strong but the activity is slowing and the growth in inventories in the context of the current global macro environment is not construed as a positive. Instead of a hard landing, the market narrative has been increasing...