Making Sense

 The Non-Farm payroll numbers came in at 303K, sharply higher compared to consensus expectations of 200K and +22K revision to the last 2 month figures. Average Hourly Earnings (AHE) rose 0.35% mom, hourly earnings grew at an average pace of 0.34% over the last 3 months. Yoy number grew 4.14% (prior 4.28% ), the decline in annual rates on Higher Base effects . The Labor Force increased by 469K driven by a 498K increase in employment level and reduction of 29K in Unemployment level. The Average Weekly Hours rose 34.40 from 34.30 in the prior month. The data follows release of above consensus ADP numbers and a lower level of Job Openings. The ISM Manufacturing print gave a strong beat but the Services PMI price subcomponent brought some welcome relief to the markets. The Jobless Claims data ticked slightly higher by 9K but Continuing Jobless Claims fell 19K.   After pricing in as much as 166bps of rate cuts into the start of the year, markets are now leaning towards the poss...

 On Friday, US equities closed in the red with Dow Jones leading losses of 1.12% while today morning saw Asian equities trade mixed. US equity futures are seen trading in the green. Crude oil prices pulled back from Friday's high thus consolidating the push lower to $ 87.70 levels on Oct 24 for the 4th day between $ 87.70 - $ 91.  US Treasuries are off to a negative weekly start with yields on US2s rising 7 bps to 5.07% (swing high 5.26%) and US10s rising 7 bps to 4.91% (swing high 5.02%) on chatter around BoJ tweaking YCC in tomorrow's meeting. US2s10s steepened with the spread at a high of -12 bps on Monday of last week and traded a low of -30 to close the week at -17 bps. The implied Fed fund pricing shifted lower, I have written in the earlier blogpost the risk reward favors going long the contract as the market pricing for Dec 24 contract finds resistance at the 4.80% - 4.85% level.  Overnight Fed Funds Rate 5.33% Current Pricing Peak terminal rate is priced at 5.41...

The US Treasury curve bear steepened with 2x10 spread now at -64 bps. Yield curve is considered an important predictor of recession. The FOMC forward projections outlined a case of strong economic growth with estimates of growth in 2024, 30 bps lower than the trend growth of 1.80%, lower inflation which falls to 2.00% by 2026, U/R of 4% in 2026 but higher interest rates of 2.90% against longer run FFR of 2.50%. Economic resellience of the US economy may have pushed the neutral rate higher in the short term. The point on neutral rates was raised in the press conference following the FOMC meeting and Fed Chair acknowledged that short term neutral rates may have moved higher.  Bond market 2x10 inversion touched a peak of -111 bps. The recent steepening could simply be explained as a consequence of US economy being on a path of soft landing , when a situation of sharp cuts to policy as priced by the bond market earlier may not fructify.  The data also supported further rise in yie...