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...

 The Non-Farm payroll numbers came in at 303K, sharply higher compared to consensus expectations of 200K and +22K revision to the last 2 month figures. Average Hourly Earnings (AHE) rose 0.35% mom, hourly earnings grew at an average pace of 0.34% over the last 3 months. Yoy number grew 4.14% (prior 4.28% ), the decline in annual rates on Higher Base effects . The Labor Force increased by 469K driven by a 498K increase in employment level and reduction of 29K in Unemployment level. The Average Weekly Hours rose 34.40 from 34.30 in the prior month. The data follows release of above consensus ADP numbers and a lower level of Job Openings. The ISM Manufacturing print gave a strong beat but the Services PMI price subcomponent brought some welcome relief to the markets. The Jobless Claims data ticked slightly higher by 9K but Continuing Jobless Claims fell 19K.   After pricing in as much as 166bps of rate cuts into the start of the year, markets are now leaning towards the poss...

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 technical view prevailed and the internals of the U.S CPI data were not encouraging. Core Services Inflation ticked higher. The Rent of Primary residences moved lower from prior month , rising 6.09% yoy, 0.36% mom (wt 7.71%) but the OER (Owners' Equivalent Rent) rose 6.23% yoy, 0.56% mom (wt 26.02%). The much awaited decline in Core Services Inflation and the Shelter Inflation eludes.  Snapshot YoY MoM Prior YoY Prior MoM 2023 High 2023 Low               CPI 3.11% 0.31% 3.32% 0.23% 6.36% 3.05% Food 2.56% 0.39% 2.73% 0.21% 10.13% 2.73% Energy -4.34% -0.91% -1.84% -0.21% 8.59% -16.68% Core CPI 3.87% ...