Making Sense

Fed Fund Futures implied interest rate pricing closed the week at 32 bps of rate cuts priced into from 43 bps cuts seen at the start of the week. Also making the headline was Goldman Sachs changing it's Fed cut call to September. The street is now divided for the first rate cut between September and December policy meetings. I still think there is more legroom before we start thinking if the FFR pricing is rich . The Us2s10s Curve bear flattened 7.40 bps.  Governor Waller's speech "Some Thoughts on r*" is an interesting one and a recommend reading as he looks at factors affecting  r* from the lens of supply and demand and contributing factors that led to the decline of r*. He then goes on to delve into factors that could have reversed to explain if r* has moved higher in the current environment.  S&P Flash PMIs showed US Global Composite PMI at a 25 month high and Services PMI at 12 month high while the Mfg PMI showed an overall improvement in business conditions....

For Indian markets, the Interim Budget was a positive development. Consolidation path was way ahead of the expectations / Fiscal consolidation will likely be even stronger as the budget assumptions have been very conservative / No sops or Rural transfers – no major populist measures / Cap exp as share of GDP. The Government continued on the path of pre committed fiscal consolidation roadmap announced in the 2021-22 budget, to reduce fiscal deficit below 4.5% by 2025-26. The fiscal deficit in 2024-25 is estimated to be 5.1 per cent of GDP, adhering to that path. The gross and net market borrowings through dated securities during 2024-25 are estimated at ` 14.13 and 11.75 lakh crore respectively. Both will be less than that in 2023-24. Now that the private investments are happening at scale, the lower borrowings by the Central Government will facilitate larger availability of credit for the private sector. Overnight in Global Markets, Fresh concerns have risen around Commercial Real ...

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      ...

In this Central Bank Heavy week, Fed was the first to blink. The other Central Banks rate decision were hawkish despite growth faltering and that supported their currencies against the USD.  U.S Retail Sales rose 0.30% mom ag consensus estimates of -0.10% and the prior month reading was revised lower by 10 bps to -0.20%. Meanwhile, Intitial Jobless Claims (IJC) for the w/e Dec 9 fell to 202K and CJC for the w/e 02 Dec came in lower at 1.876 mn. The market was oblivious to the strong Retail Sales print as Bonds continued their rally. US2s dipped to as low as 4.28% before closing the day at 4.39%. 4.35% is resistance zone and we have a one day reversal candle. We will wait for price action to develop here to see if the level holds. The long end of the UST curve outperformed as US10s closed at an yield of 3.92% (-10 bps) and US30s closed the day at an yield of 4.04% (-14 bps). US2s10s bull flattened 5.40 bps to a closing spread of -46.70 bps.  The Dec 24 FFR imply 148 bps of rate...

"The market's not a very accommodating machine. It won't provide high returns just because you need them" US yields moved higher overnight and the US2s10s bear steepened possibly on month end flows. Eurozone CPI was 0.50% lower mom below estimates of 0.20% and Chinese PMI data was softer than consensus estimates pointing to the growth challenges.  Mortgage Rates declined further on the standard 30-year fixed mortgage to 7.22% from prior 7.29%, according to a survey by mortgage-finance giant Freddie Mac.  Economic Releases: Initial Jobless Claims (IJC) rose 218K and prior week saw a +2K revision, Continuing Jobless Claims rose to 1.927 mnn, The IJC continue to be depressed but CJC are seeing a steady rise since Mid Sep. Chicago PMI came in at a whopping 55.80 from previous reading of 44.0 October Pending Home Sales -1.5% with -10bps revision to the previous number. October Personal Income rose 0.2% with +10bps revision to prior month October Personal Spending rose 0.2%...