Making Sense

As identified in the last blog post, USD Index made a low of 100.51 on Tuesday and retraced to close the week at 101.732 . I will be closely looking at how the price action evolves around the 102.50 levels to re-initiate shorts. In my post earlier, we identified the first braking zone to the downward momentum on USTs as the 3.64% - 3.81% zone where US2s found resistance. During the week,  Yields on US2s dipped to 3.848% before closing the week at 3.92% inside of the 3.90% - 4.10% range seen for better part of the month. The steepening trend persisted this week as the US2s10s closed the week at -0.014%. On US10s, yields moved higher to close the week at 3.907%.  I'm looking at 2 spots to re-initiate trades on US2s ~ 4.10% and 4.20% handle.  The break in US2s10s outside of the triangle targets 15.50 bps.  US economic data shows a softening trend but it does not outright suggests a sharp deceleration to warrant further pricing of rate cuts. The thought is predicated o...

"Champions aren't made in the gyms. Champions are made from something deep inside them -  a desire, a dream, a vision" ~ Muhammad Ali Fed Fund Pricing for interest cuts was seen at 47 bps for 2024. Q1 GDP came in line with estimates at 1.4%, however, consumer spending was revised lower to a modest 1.50% which means consumer coming in at a lot weaker position in Q2.  The Atlanta Fed GDPNow estimates were revised lower to 2.20% IN Q2 from 3.00% at the end of prior week. DXY found resistance at the 106.13 levels and is seen lower in Asia Open today at 105.67.  Durable Goods Orders rose 0.10% mom driven by an increase in new orders for transportation equipment.  U.S. PCE Prices showed a welcome moderation with headline number flat over the month and the Core PCE numbers 0.10% higher over the month. Deflation in Durable goods at -0.79% mom and -0.15% in non durable goods alongside a less than 0.20% rise in price of Services and -2.12% mom change in price of core services ...

On the headline number, steady disinflation in PCE prices from 7.12% highs in June 2022 has stalled over the last 2 months and the pace of change in prices over a 3 month period has been concerning.  Going Forward, base effects kick in (core PCE Prices fell from 4.25% to 3% over June to Dec 2023), energy prices have been on a rise amid escalation in Geo-political tensions with great uncertainty on the outlook of future prices,  the immaculate disinflation in prices of durable goods seen in second half of 2023 has clearly reversed as prices rose for 3 consecutive months at an average 0.15% and Non Durable Goods are also seeing some price pressures build. Goods have a relative importance of 33% in construction of PCE Price Indices. Services inflation has seen a steady price build up. The U.S PCE Release showed headline PCE Prices rose 0.32% and Core Prices also rose 0.32%.  Over the 3 months, Price of Services rose 5.55% while energy good and services rose 8%. PCE Services ...

G eopolitical Tensions further escalated as Iran fired drones and missiles over the weekend in response to Israel's attack on the Embassy in Damascus. Israel successfully defended the attacks with the support of the allies with no casualties or damage. Of course, post the retaliation, Israel's allies have come to it's support and are trying to contain the situation. Tweet from the official account of Iran to U.N says "the matter may be deemed concluded" if Israel deters from a response and warned that U.S must stay away from a conflict between the two nations.  Price action in Crude Oil prices continues to be muted during Asia Trading hours with crude oil prices trading around Friday's close of $ 90.15 which suggests markets may be discounting a base case of no further retaliation from Israel.  Risk sentiment may continue to be tenuous for the next few days as string of headlines from both sides and Global Powers dominate wires.  Meanwhile, DXY closed the wee...

  We had the release of the U.S PCE Report which broadly came in line with consensus expectations. Snapshot ▲ YoY ▲ MoM ▲ 3M Change ▲ 6m Change Headline PCE 2.45% 0.33% 3.35% 2.50% Core PCE 2.78% 0.26% 3.47% 2.87% Durable Goods -2.02% 0.19% -0.26% -1.76% Non Durable Goods 0.76% 0.66% 0.66% -0.82% Services 3.81% 0.26% 4.84% 4.33% Energy Goods & Services -2.30% 2.30% 2.26% -4.24% Headline CPI 3.17% 0.44% 3.93% 3.18% Core CPI 3.76% 0.36% 4.12% 3.82%   PCE Price Index for Feb rose 0.33% mom and Core PCE Prices rose 0.26% mom following a 0....

"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%...

 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...

Do not attribute your success / failure to other people. Take responsibility for your actions and cultivate a sense of willingness to improve the quality of your actions. And that my friend shall put you on the path to success. Fed Chair Jerome Powell's semimanual monetary policy testimony to the Congress and the NFP are 2 major events this week. In prepared remarks, on day 1 of the 2 day testimony, Fed Chair said a lot of ground has been covered on monetary tightening but the full effects are yet to be felt. He said the declining trends in economic data seen in December reversed in January which could partially be on account of warmer weather. The breadth of reversal suggests inflationary pressures are running higher than expected.  PCE                     5.38% yoy (Recent peak 6.98% June 2022) Core PCE         4.70% yoy ( Recent Peak 5.42% Feb 22) He attributed the recent decline in inflation pr...

Success is a moving target. You have to be constantly aiming for the bull's eye and adjusting your aim as you go!! Bureau of Economic Analysis released the PCE data on Friday. PCE is the preferred inflation gauge of the Federal Reserve. Fed’s 2023 median projection for PCE inflation is at 3.10% ( range 2.9% - 3.5%) while Core PCE inflation is projected at 3.5% ( range 3.20% - 3.70%). PCE price index for January increased 0.6 %. Prices for goods and services both increased 0.6 % as well. Food prices increased 0.4 % and energy prices increased 2.0 %. Excluding food and energy, the PCE price index also increased 0.6 %. The PCE price index for January increased 5.4 % yoy, with increase in goods prices of 4.7 % and services price of 5.7 %. Food prices increased 11.1 % and energy prices increased 9.6 %. Excluding food and energy, the PCE price index increased 4.7 % yoy. PCE data showed no signs of disinflation and the market toed the Fed’s line of higher for longer and accordingly pu...