Making Sense

Bonds / Equities and Bitcoin sold off in yesterday's session  and Brent Crude Prices   ( H&S in play as written earlier) rallied higher to highest levels since Oct and Gold rose to highest levels of 2282.  5.60 bps of Bear Steepening in US2s10s  Interest Rate pricing was relatively unchanged with FFR pricing in 69 bps of rate cuts into 2024 with first full cut priced in for July 2025 policy. In the December Policy, 5 participants had judged the appropriate FFR to be below 4.63% - 4.87% i.e. lower bound of the corridor to be below 4.50%. In the most recently policy, there is now only 1 participant who judges FFR between 4.38% - 4.62%.  On the data front, February Job Openings , Hires and Total Separations were little changed.  Data snapshot below. We also had the release of the Factory orders data which rose 1.40% mom following a downwardly revised -3.80% number. 

S&P 500, NIFTY, SENSEX, Gold made fresh all time highs while Bitcoin recovered Tuesday's drop to 59313 to close at 66941.  U.S. Market Wrap US2s10s bull steepened / Fed Funds are now pricing in 1 full 25 bps rate cut by June 2024 / USD index declined further / Key Employment figures due today Michelle Bowman (voting member)   speech yesterday’s acknowledged continued progress in inflation, the challenge in achieving last mile of inflation,  labor market coming into better balance, strength in consumer spending and recent data shows rebound in jobs market. Her base case is further decline in inflation but there are upside risks to inflation that emanate from Geopolitical developments , loosening of financial conditions and strong labor market could lead to persistently high core services inflation. Uncertainty in economic outlook warrants a data dependent cautious approach and it will be appropriate to reduce rates when there is more confidence that inflation...

Yesterday was an interesting day with profit taking seen across U.S Equities and Bitcoin and U.S Yields lower across the curve with US2s10s flattening 2 bps. The US ISM Non - mfg PMI came in at 52.60 with internals showing  Business Activity Index at 57.2% (prior 55.80) ,  New Orders Index at 56.1% (prior 55.00),  Employment Index at 48% (prior 50.50) and Prices paid at 58.60% (prior 64.00).  Cumulative Fed Fund pricing for 2024 saw 89 bps of rate cuts priced from prior 84 bps as the data gave comfort that Fed may stick to 75 bps rate cut guidance in light of soft employment and prices paid component. 

Overnight, US2s10s saw 6 bps of flattening as US Consumer Confidence and JOLTS data surprised on the upside. The Consumer Confidence increased to levels not seen since end of 2021 and the JOLTS Job openings data showed openings at 9.026 mn with vacancy rate at 5.30%. All eyes today will be on the FOMC Rate Decision and Powell's press conference.  Yields High Low Close DoD ▲ US 2Y          4.39          4.30          4.34                 1.70 US10Y          4.10          4.03          4.03      ...

 Risk means more things can happen than will happen.                                               ~ Elroy Dimson After the sharp gains yesterday, markets consolidated overnight. I am a better seller of USD on rallies in a data light week. US2s +10 bps, 4.94% US10s + 8 bps, 4.65% US2s10s -30 bps (-3 bps) DXY 105.26 +0.20%  FOMC Voter Lisa Cook said the Fed is determined to reach 2% inflation target; hopes that current policy settings are restrictive enough to return inflation to target. While Kashkari commented "we need to let the data keep coming to us to see if we really have got the inflation genie back in the bottle". The SLOOS survey showed a net tightening of  standards on loans for businesses and commercial real estate coupled with falling demand. Standards on loans to households, including credit card and auto loans, also tigh...