Making Sense

 It's as easy to do something big as it is to do something small, so reach for a fantasy worthy of your pursuit, with rewards commensurate to your effort ~ Stephen A. Schwarzman Overnight USD strengthened as the FOMC minutes suggested Peak Rates are in place but did not show a meaningful debate on the timing of rate cuts. The USD index touched a high of 102.73 and closed 0.20% higher on the day. US2s rose 1 bps to close the session at 4.33% after touching a high of 4.38% and US10s closed 1.50 bps lower on the day at 3.92%. US2s10s spread widened 2.60 bps to close the session at -41 bps. Markets are now pricing in 146 bps of rate cut in 2024 after having priced in 160 bps of Rate Cuts. Bonds 03-Jan-23   High Low Close DoD Change US 2Y 4.38 4.31 4.33 1.10 US10Y 4.01 3.90 3.92 -1.50 US2s10s -0...

"We may never know where we're going, but we'd better have a good idea where we are" Existing home sales fell to a 13-year low in October with sales dropping a surprising 4.1% mom. Minutes from the Fed’s most recent Nov 1 meeting did not offer any new information and echoed the comments from the Policy meeting and Press Conference. Read the prior decision takeaways here. Minutes Recap 1. Financial Market Conditions tightened - Higher Yields / Lower Equity Prices / Stronger USD  FOMC Meeting US10Y USD INDEX S&P 01-Nov-23           4.93% 106.72 4186 22-Nov-23           4.42% 103.73 4536 Change           -51 bps -2.80% 8.36% Since the last policy, financial conditions have loosened. Does it mean that in the days ahead, Fed starts to sound more hawkish but looking at the data over the last week, there is less reason to do so? 2. Labor - Better alignment of labor...

 Overnight we had the release of the US FOMC meeting minutes.  Members are divided on future rate rises Run up in treasury yields could substitute for a final increase Focus should shift from how high to raise the policy rate to how long to hold the policy rate at restrictive levels.  Comments from Fed's Waller echoed earlier comments from Fed officials that the recent tightening in financial conditions will do some work for the Fed.  US PPI came in above consensus expectations but the market focused on the core PPI print which came in line with expectations at 0.20% mom with a downward revision to the prior month.  All eyes will be on today's CPI data where consensus is for a headline reading of 3.60% yoy and Core CPI reading of 4.10%. Keep a watch on the initial jobless claims data too which has been holding surprisingly well.  The market impact of the Israel - Hamas conflict appears to be well contained with crude now trading at USD 85.55 a barrel , down...

"The details are not the details. They make the design" RBI MPC Meeting minutes: Dr. Ashima Goyal and Prof. Jayanth R. Varma voted for no change in policy rates and favored a change of monetary policy stance to neutral while the other 4 members voted to increase the policy rate by 25 bps and maintained stance to withdrawal of accommodation. Dr. Bhide / Dr. Ranjan / Dr. Patra and the Governor expressed concerns on the sticky core inflation and maintained durable disinflation in prices is a necessary condition to necessitate a pause in hikes.  Fed Meeting minutes: The Federal Reserves also released the minutes of the monetary policy meet on Feb 1, 2023. The committee acknowledged that while significant progress had been made towards a sufficiently restrictive policy stance and inflation pressures have moderated, inflation continues to be elevated and labor markets continue to be tight contributing to wage price pressures. The consensus was for a 25 bps rate hike as a slower p...

Minutes of the  FOMC Rate Decision  were released last night. The minutes did not offer anything surprising.  Participants generally observed that maintaining a restrictive policy stance for a sustained period until inflation is clearly on a path toward 2 percent is appropriate from a risk-management perspective. In view of the persistent and unacceptably high level of inflation, several participants commented that historical experience cautioned against prematurely loosening monetary policy. Participants generally indicated that upside risks to the inflation outlook remained a key factor shaping the outlook for policy. No participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023. Market pricing for Fed Funds rate is dovish than the statement of economic projections which expects Fed funds rate in 2023 at 5.10%. US Yields closed as 2Y at 4.355% and 10Y at 3.686% with 2x10 spread at 67 bps US Mfg PMI dipped for the s...