Making Sense

"Everything that was good for the markets yesterday is no good for it today" Yields on US Treasuries moved sharply lower and the US2s10s bull steepened by 14 bps. The moves were driven by soft PCE readings with headline number at 0.00% mom and Core PCE prices rose 0.20% mom, soft spending and income growth, upward revision to Q3 GDP to 5.20% and an Initial Jobless Claims data which showed job market holding relatively well. Dovish Speech from Chair Powell at the end of the week pushed the momentum into the close. The economic release supported a soft landing scenario where in unemployment rate does not go drastically up and growth does not go in negative. The data along side a softening inflation print from EZ 2.40% yoy Nov, Germany 2.30% yoy and lower crude oil prices saw a marked downward shift in Fed Fund pricing. The market is now pricing in 122 bps of cuts in 2024 which is the lowest in the last 3 months. Far out into the last 1 year, events around SVB Collapse, Stress i...

Rate Decision      RBI policy mentioned the use of OMO sales which is a more durable liquidity absorbing measure and the catalyst for a policy pivot comes from a durable decline in inflation to near about 4% Policy Rate                               Unchanged Stance of Monetary Policy Withdrawal of Accommodation ( 5 - 1) Growth Projections                     Unchanged (2024 FY 6.50%, Q1 25 6.60%) Inflation Projections           Unchanged (2024 FY 5.40%, Q1 25 5.20%) Liquidity                                    May have to consider OMO sales Key takeaways from the earlier meeting 1. Inflation target is 4% and a Pivot in policy from tightening to accommodative will not happen ...

 The MPC is scheduled to announce the interest rate decision on Oct 6, 2023. Expectations: Interest Decision                No change expected, 6.25% - 6.50% - 6.75% (SDF - Repo - MSF) Policy Stance             Withdrawal of Accommodation ( the monetary policy stance hinges on the direction of policy rates)   Liquidity management  After the liquidity tightness in September,  Liquidity deficit continued to improve with LAF injection as on Oct 3 at 40K from Sep 29 at 100K. As the Government expenditure kicks in and amounts impounded under I-CRR are released, liquidity could slowly turn positive. The period starting Oct - Mar will see liquidity tightness on account of increased demand for currency. Diwali, Dussehra, 5 state elections, seasonal increase in demand on Rabi Harvest, marriage season and Hindu Festivals followed by  general elections could see an estimated rise of 4% in ...

India CPI inflation for the month of February came in at 6.44% , marginally lower than 6.52% recorded in the month of January and above my estimates of 6.00% - 6.20%.  Let's quickly crunch the data: Mom headline CPI rose 0.21% . Only F&B (w. 45.86%) recorded negative momentum in prices but the rest of the basket saw mom rises. Housing (w. 10%) was up 0.80% mom; pan, tobacco and intoxicants plus clothing and footwear plus miscellaneous (w. 37% ) was up 0.40%, while food and beverages was down a marginal 0.06% (w. 46%). While declines were recorded in most of the F&B sub components, cereals, milk, spices, prepared mails recorded a rise.  Core CPI continues to be elevated at 6.10%. RBI projects Q4 FY 23 inflation at 5.70%. The Jan and Feb outturn at 6.52% and 6.44% was higher. My own estimates for March 23 inflation are at 5.62% which if the data comes in line will take the quarterly average at 6.16% above RBI's Estimates.  Market is pricing in another 25 bps of rate...