Making Sense

As identified in the last blog post, USD Index made a low of 100.51 on Tuesday and retraced to close the week at 101.732 . I will be closely looking at how the price action evolves around the 102.50 levels to re-initiate shorts. In my post earlier, we identified the first braking zone to the downward momentum on USTs as the 3.64% - 3.81% zone where US2s found resistance. During the week,  Yields on US2s dipped to 3.848% before closing the week at 3.92% inside of the 3.90% - 4.10% range seen for better part of the month. The steepening trend persisted this week as the US2s10s closed the week at -0.014%. On US10s, yields moved higher to close the week at 3.907%.  I'm looking at 2 spots to re-initiate trades on US2s ~ 4.10% and 4.20% handle.  The break in US2s10s outside of the triangle targets 15.50 bps.  US economic data shows a softening trend but it does not outright suggests a sharp deceleration to warrant further pricing of rate cuts. The thought is predicated o...

I have two basic rules about winning in trading as well as in life:  1. If you don't bet, you can't win. 2. If you lose all your chips, you can't bet.   ~ Larry Hite Over the last 3 weeks, after the Aug 5 lows, yields on US2s have consolidated in the 3.90% - 4.10% price range and US10s have progressively made lower lows to close the week at 3.92% and 3.80% respectively. US2s10s bull steepened to close the week at -11.90 bps. USD index closed the week at 100.68, 5% off highs of 106.13 June highs and within close proximity to the established range of 100.50 - 106.50 since last year.  There is a 76% probability of a 25 bps rate cut in the Sep Policy. The market is broadly equally divided between a 25 bps and a 50 bps in the November Policy and holds a 87% probability of FFR in the 4.25% - 4.50% range by end of 2024. By next year September Policy, the market assigns a 90% probability of FFR at 3.25% - 3.50%, i.e. 200 bps of cuts in next 1 year.  The Atlanta Fed GDP Now ...

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...

"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...

Fed Chair Comments on the Economic Outlook can be summarized through the table below. The comments are in line with Fed Speak from earlier in the week. Nothing new there. WSJ is running a headline "Fed’s Jerome Powell Signals Extended Pause in Interest Rate Rises".  Market leaned on the dovish side following the comments. Fed Fund implied pricing shifted downwards. Jan 31, 2024 5.43% (prior 5.46%) Jun 12, 2024 5.18% (prior 5.25%, 1 cut by mid next year) Dec 18, 2024 4.74% (prior 4.82%, 64 bps of cut from peak terminal rates) US2s10s bear steepened with the spread now tighter at -17 bps from previous -31 bps with the front end of the curve outperforming the back end of the curve. US2s peaked at 5.26% before closing the day at 5.16% thus giving a one day reversal candle and US10s peaked at 4.996% before closing the day at 4.92%.  Crude oil prices and Gold continued to climb closing the session at $ 93.35 and $ 1974. On the data front, Initial Jobless Claims data w/e Oct 14, dec...

"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...

 A slew of U.S. economic data were released today.  Pending Home Sales rose 2.50% mom against prior revised contraction of 2.60% (prior -4%). Pending home sales sank 33.8% yoy. However, the current surprise uptick in pending homes sales suggests a bottom could be in the offing. The University of Michigan Sentiment rose to 64.90 from prior 64.60 Personal Consumption Expenditure fell 0.20% from prior revised number of 0.10% contraction Core PCE Price Index rose 0.30% mom (4.40% yoy) vs prior 0.20% (4.70%) Market pricing of interest rates continues to be stable. 2Y US Treasuries trade at 4.21% while 10Y trades at 3.52% but the 2Y and 5Y USD SOFR swaps are trading right at 4.22% and 3.41% respectively. The DXY Index is down 11.50% since Sep end and has taken support at 101.50 for the last 8 trading sessions. The index looks ripe for a corrective bounce but in absence of a catalyst, we like to stay on the sidelines or invest about 20% of the capital just to dip our hands.