Making Sense

Yields on 10JGBs continued the march higher towards 1.10% as Services Sector inflation came in higher than expectations. The next BoJ meeting is scheduled for 13 - 14 June. BoJ intervened to the tune of $ 62.20 bn over two days of intervention. JPY weakened past the 160 handle when BoJ first intervened and dropped to lows of 154.50.  We have the Bank of Canada and the ECB Monetary policy meeting where expectations are for 25 bps of rate cuts.   The implied Fed Fund Futures priced in 29 bps of rate cuts for 2024 from 32 bps last week. The Fed Fund Futures are pricing in first complete rate cut by the November policy.  The PCE release was on expected lines. Prices of Energy and Non Durable goods rose at an uncomfortable mom momentum while prices of durable goods showed mom contraction. The Services component of the PCE release showed mom price rise of 0.27% which was lower than the average 0.37% mom pace over the last 6 months.  The Market reaction to the PCE rele...

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...

 ECB kept the key interest rate unchanged in today's policy decision.  Marginal Deposit 4.00% Main Refinancing Operations 4.50% Marginal Lending 4.75% The APP portfolio is declining at a measured and predictable pace, as the Eurosystem no longer reinvests the principal payments from maturing securities. It intends to continue to reinvest, in full, the principal payments from maturing securities purchased under the pandemic emergency purchase programme (PEPP) during the first half of 2024. Over the second half of the year , it intends to reduce the PEPP portfolio by €7.5 billion per month on average . The Governing Council intends to discontinue reinvestments under the PEPP at the end of 2024. Key Takeaways from Monetary Policy Decision Tighter Financial Conditions dampening demand. Eurosystem staff expect economic growth to remain subdued in the near term. Beyond that, the economy is expected to recover because of rising real incomes – as people benefit from falling...

Chains of habi t are too light to be felt until they are too heavy to be broken. After the EIA Inventory build-up and extension of OPEC Meet to 30 Nov in Vienna, Brent Crude Oil prices briefly dipped to $ 80.07 as OPEC will now hold it's next Ministerial meeting online as it discusses the production levels for next year. The reported delay is likely on account of disagreement over the production levels of African Nations. Angola and Nigeria, the cartel’s biggest African producers, disagree so far with production estimates supplied to OPEC by third-party analysts.  Price action was largely muted overnight as US markets were closed for Thanksgiving Holiday. Today, Asian markets are mixed.  Jibun Bank Nov flash manufacturing PMI came in at 48.1, lowest since February while flash services PMI came in at 51.7. Japan's Oct core inflation rate rose to 2.9% (prior 2.8%)and the headline print came in at 3.3%, Prior 3%. On China, Chinese regulators are considering allowing banks to exte...

"Resilience is the capacity to recover quickly from difficulties; toughness. It is the ability to bounce back from adversity and to keep moving forward towards your goals, despite the obstacles in your path" Yesterday, ECB raised rates by 50 bps as inflation continues to be elevated. Euro area Feb inflation is pretty elevated with inflation running at a hot 8.5%. Acc. to the monetary policy statement, the policy decision will be informed by a data dependent approach which will be guided by three factors: 1. The inflation outlook based on incoming economic and financial data (development in the financial markets, financing, financial cost, terms and conditions and the financing of the economy at large) 2. The dynamics of inflation 3. The strength of monetary policy transmission On the current banking sector stress, ECB expressed confidence that t he euro area banking sector is resilient, with strong capital and liquidity positions and limited exposures to the US institutions....

"Optimism isn't a belief that things will get automatically get better, it is a conviction that we can make things better" Hi everyone, so this has been an extremely action packed week both on the domestic data front and global data front. For this article, we will be purely focussing on the EURUSD Trade  recommended earlier to sell at 1.0950 with a SL at 1.1000. Unfortunately, we got stopped out of the trade. What I have realised during the course of trading is to give ourselves some leeway in terms of time for the view to play out. It is also helpful to understand whether a trade is driven by technical considerations or there is a catalyst to drive a pivot in price. If a trade is driven by technical considerations then you wait for the price to consolidate to give you a clear entry and exit point. However, if the trade is driven by a catalyst, then you study the catalyst and dive in.  In this trade, we were driven by technical levels and hypothesis around fundamental fa...

EURUSD is currently trading at 1.0880 steadily climbing for 83 trading days off lows of 0.9534 in Sep 2022 shortly after the peak in natural gas prices and a peak in trade deficit . A steady run of 14.60%.  Look at how Euro Area trade deficit worsened in the aftermath of the Russia - Ukraine war. Do we see an opportunity to sell into the rally yet?  Let's look at two aspects here -  1. What are the interest rates telling you?                Key ECB Rates                Deposit facility     2.00 %                Main refinancing operations 2.50 %                Marginal lending facility   2.75 % Market implied interest rates are pricing in a peak terminal rate of 3.5%. Next 5 policy meeting dates are 02 Feb 23 / 16 Mar 23 / 04 May 23 / 15 Jun 23 and 27 Jul 23 where in t...