Making Sense

Risk Sentiment up in the sky as U.S. Equities made all time fresh highs  as did the Stoxx 50 & 600 index, Nikkei 225 and our loved Domestic Equities. Gold came within a whisker of ATH of 2145 and similarly for Bitcoin within a whisker of ATH of 69000. However, USD continues to languish around the 103.60 level which makes sense if one theorizes about it from a standpoint of USD Smile Theory. The USD smile theory says that “ US dollar tends to rally when the US economy is ripping and the Fed is hiking. And the dollar also rallies during US recessions. On the other hand, the dollar tends to sell off in periods of moderate US growth as long as global growth is decent.” NYCB fell sharply lower but the Markets shrugged off the decline possibly because they see no contagion risks at the moment. The Fed Fund pricing shifted from 92 bps in 2024 to 84 bps and US2s10s bear flattened. Yields High Low Close DoD ▲ US 2Y ...

"STARTING STRONG IS GOOD. FINISHING STRONG IS EPIC." This is the first article I am writing this week post the higher-than-expected CPI inflation print from India and the US.  Data Release: US CPI rose 0.5% in January on a seasonally adjusted basis following an upward revision in Dec data to 0.1 % from -0.10%. Headline CPI rose 6.4 % before seasonal adjustment against market consensus of a 6.20% reading. Core CPI rose 0.40% mom, services (excluding energy services) rose 0.50% mom, shelter rose 0.70% and transportation services rose 0.90% mom. The food index increased 0.5 % mom. Interesting point to note - Egg price index rose  8.5% mom on account of Avian Flu, high cost of feed and transportation etc. In the US , a dozen eggs cost INR 400 / INR 33.33 per egg. Compare that to India where 1 egg costs Rs. 7. The energy index increased 2.0 % mom. The rent index and the owners' equivalent rent index each rose 0.7% mom while the index for lodging away from home increa...

The Release : December CPI -0.1% (Exp 0.0%); Core CPI 0.3% (exp 0.3%); Prior 0.2%. The index for gasoline was by far the largest contributor to the monthly all items decrease, more than offsetting increases in shelter indexes. The shelter index continued to increase, rising 0.8 percent over the month. The rent index rose 0.8 percent over the month, and the owners' equivalent rent index also rose 0.8 percent. The index for lodging away from home increased 1.5 percent in December, after falling 0.7 percent in November.  Small note for those who may have missed why the calculation methodologies of the shelter component of the CPI make it a lagging indicator: Shelter inflation is a major driver of the CPI index. Housing represents about a third of the value of the baskets of goods that the Bureau of Labor Statistics (BLS) examines when preparing the Consumer Price Index. For renters, shelter inflation measures both rent and utility payments. For homeowners, the BLS calculates imputed r...

CPI Inflation estimates  India will release the Dec inflation number on 12th Jan and the market consensus is for a reading of 5.88%. My own estimates are for the Dec print at 5.91%. The next quarter trajectory is seen at an average of 5.52% with 5.93% (Jan), 5.69% (Feb) and 4.92% (Mar). While the headline print will be important, the core component will be even more crucial which has been holding at 6% since the last quarter. The decline in the Nov print to 5.84% was largely driven by food disinflation. Milk and cereal prices which account for 16.28% of the basket have seen an increase in December while vegetable prices have seen disinflation. Refer to the summary  Daily items .  The economist estimates range from 5.70% - 6.10%. A print closer to 5.50% alters the future trajectory of inflation and interest rates likewise. US Headline inflation is expected to rise 6.5% yoy, flat mom. US inflation appears to have peaked in the month of June 9.10% and is seen steadily declin...

 Hi Good morning folks,  "Our life is what our thoughts make it" We had the release of the much awaited US CPI data. Headline CPI rose 0.10% mom (est 0.30%) and core CPI rose 0.20% mom (est 0.30%). CPI yoy grew at 7.10%. The CPI numbers show a declining trend from the peak of 9.10% in June 2022. The number was lower than the range of estimates. Market is pricing in a terminal rate of 4.835% for the May 23 Fed policy. Peak terminal rate expectations have shifted by a full 42 bps between Nov 4 and today. The expectations are for a 50 bps hike in today's policy ( Dec 14, 2022) and another 50 bps until the May 23 policy with rates peaking between 4.75% - 5.00%. One interesting point about today's CPI print is the divergence between goods and services inflation ( chart below: source RealVision). The goods price inflation is coming off on demand weakness and de-clogging of supply chains.  Andreas Larsen of RV points to the strong correlation between China - US Freight Rates...