Making Sense

Overnight USD index plummeted and closed at the lows of the day at 104.23 on a soft Services ISM Print. Likewise , US yields surged on strong ADP numbers (actual 184K , prev 140K) but closed a tad bit softer compared to the previous day. Chair Powell's Remarks were in line with the narrative from the earlier post policy conference to which the markets reacted positively. Fed Fund Futures are pricing in 71 bps of rate cuts into 2024 from yesterday's 69 bps. US2s10s bear steepened 1.30 bps. Gold has not seen a meaningful pull back and continues to surge ahead.  Key highlights of the ISM print Headline PMI registered 51.4% in March, indicating expansion in the services sector for the 15th consecutive month. In February, the PMI was 52.6 percent. Employment Challenges: The Employment Index contracted to 48.5% in March, marking the third contraction in four months. In February, the index was at 48%. Supply Chain Concerns: The Supplier Deliveries Index registered 45.4% in March, in...

USDJPY / EURUSD / AUDUSD broadly performed in line with expectations as highlighted in the view earlier  with strong gains in JPY and w e hit our  SL on the GBPUSD  trade.  USDINR is seeing a rounded top technical formation and we may be breaking out lower. Today's close will be important and then the next immediate support is seen as 82.66.  Fed Chair Powell's testimony offered nothing new - Fed believes that they are peak of the tightening cycle.  T he statement reflected a cautious approach to monetary policy, with a recognition of the uncertainty surrounding the economic outlook and a focus on achieving the central bank's inflation target while supporting economic growth and employment and the delicate balance that policymakers must strike. The statement acknowledged that if the economy continues to develop as expected, there may be a need to start easing the current policy stance at some point during the year. The Central Bank would follow a data driv...

S&P 500 closed the day higher 0.89% at 4789 on U.S data resilience, in sight of the 2023 highs of 4802. Initial Jobless Claims fell 16000 from previous week. Continuing Jobless claims fell 26000 from previous week. and the 4W Moving Avg of Continued claims fell 13750. The level of Initial claims was lower than the 194000 low printed in 2023.  Housing Starts and Permits data was better than consensus expectations and Senate Passed the Stop Gap Funding Bill through March 8.  Nick Timiraos, WSJ cited modelers who forecast Core PCE est the PCE readings for Dec at 0.17% mom which would lower the annual rate to 2.93% from prior reading of 3.16%. The preferred trend measure over 3m and 6m will come in at 1.5% and 1.85%.  Long end of the UST curve fell and US2s10s steepened. The cumulative Fed Fund pricing pared bets further with cuts of 139 bps (143 bps yesterday). This week has seen sharp moves in USTs.  Yields High Low Close ...

Sharp moves overnight as US Economic data continued to show resilience. US Retail Sales rose 0.60% mom and Retail Sales ex Auto rose 0.40% mom. The Atlanta FED GDPNOW estimate was revised higher to 2.40% from 2.20% earlier. The final estimate for Q4 growth will be made on Jan 19 and the advance US GDP for Q4 will be released on Jan 25. Elsewhere, Hawkish commentary dominated EZ speeches with CBs pushing back excessive rate cuts into 2024, higher UK headline and Core Inflation print plus the disappointing data from China, GDP  grew by 5.2% in 2023 and the country’s population fell by 2m. Post the stronger than exp Retail Sales number following hawkish comments from Christopher Waller, the rates market further paired bets on the rate cuts in 2024. The implied pricing suggests a cumulative rate cut of 143 bps from previous lows of 166 bps seen post the CPI release. US2s10s bear flattened and the USD index spiked higher to 103.69. Yields High Low...

U.S S&P closed near the 2023 highs and the USD index moved sideways, down 0.16% on the day. SEC gave an approval for BITCOIN ETF.   Overnight, NY FED President John Williams in his "Rule of Three" Speech, while discussing the outlook for 2024 mentioned that he sees GDP growth for 2024 to slow to 1.00% - 1.25% (Fed Proj. 1.40%), U/R to rise to around 4% (Fed Proj 4.10%) and PCE inflation to decline to slow towards 2.25% (Fed Proj 2.40%). On the stance of monetary policy, he maintained that policy is restrictive and will need to be restrictive to achieve 2% inflation goals on sustained basis and the Fed will look at the totality of incoming data, evolving outlook and balance of risks to inform the future path.  On the subject of balance sheet run off, Fed has reduced the securities holding by about $1.3 trn and the decline in securities holding has mostly been absorbed by a drop in ON RRP and aggregate reserve balances are little changed since 2022. "Looking ahead to t...