Making Sense

"I fear not the man that has practiced 10,000 Kicks once, but I fear the man that has practiced one kick 10,000 times." ~ Bruce Lee Morning Everyone ,  This   Week gave us a sense of how the prices or inflation has evolved and we had benign readings across CPI and PPI and the updated PCE estimates are now for a reading of 0.01% mom on the headline PCE and -0.01% on Core PCE Prices which translates to an annual reading of 2.4% yoy and 2.4% on Core PCE Prices.  The Implied pricing off Fed Fund Futures is now pricing in o ne full 25 bps of rate cut into the September Policy and 61 bps of cumulative rate cuts for 2024. If you go further out the curve, 100 bps is priced in until March 2025 and 138 odd bps until June 2025.  In the 23rd June Wrap, I had written  On the DXY, 106.25 is a crucial resistance  zone for DXY bears and an important point of reversal. So keep a watch on the levels with SL above 106.75.  DXY declined  over the last 2 weeks fro...

"The Desire for more, the fear of missing out, the tendency to compare against others, the influence of the crowd and the dream of the sure thing - these factors are near universal. Thus they have a profound collective impact on most investors and markets. The result is mistakes and those mistakes are frequent, widespread and recurring." The FOMC Rate Decision was on expected lines but the surprising bit came out from the Summary of Economic Projections where 2024 FFR projections were revised higher to 5.10% from 4.60% and for 2025 , FFR was revised higher to 4.10% from 3.90% . The estimates of PCE were revised higher by 20 bps for 2024 and 10 bps for 2025.  At 5.10%, in light of the benign CPI Data and market pricing well in line with the Fed's revised guided path of 1 rate cut into 2024, 2024 FFR SEP was largely seen as an adjustment to the Fed's policy projection rather than new information which could be construed as hawkish .   15 of the 19 members were seen a...

Liquidity conditions were very market supportive over the last week as equities rallied, Roaring Kitting was back, USD index and bonds yields declined over the week. Gold prices touched fresh all time highs, Bitcoin surged and Copper went parabolic touching all time highs. US2s10s bull flattened. Over the last week, we did not get the much hoped for USD bounce and it was a one way USD decline through the week holding the 105.75 resistance. Any retracement into the 104.80 - 105.00 levels now offers resistance.  Markets continue to price in 43 bps of rate hikes into 2024 and 65 bps of rate hikes through to March 2025.  Markets are pricing in 28 bps of rate cuts by the November policy with 19 bps of rate cuts priced into by the Sep policy. Largely, what this means is markets are pricing the chance of first rate cuts between the Sep - Nov Policy and and another 15 bps of rate cuts into the year end.  Chair Powell's leaned dovish in his comments "We did not expect this to be a...

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 have two classes of forecasters: Those who don't know - and those who don't know they don't know" We had 3 data releases out of the US yesterday. Snapshots below: 1. Jobless Claims data – The week reflected annual revisions to the seasonal adjustment factors 2. Retail Sales data – Retail Sales Control was flat mom following an upward revision of 10bps to prior month’s figure of -0.40%. The control group is all sales, excluding receipts from auto dealers, building-materials retailers, gas stations, office supply stores, mobile homes and tobacco stores that feeds into the GDP.  The Atlanta Fed GDPnow estimates Q1 GDP at 2.30% from prior 2.5%. 3. The most important print out yesterday was the PPI report which stoked inflationary concerns after the strong CPI data. The rise in Core Goods CPI was also seen in Goods PPI which rose a 1.21% mom and surge in Energy which rose 4.35% mom. The estimates of core PCE deflator following the PPI report suggest ...

 Overnight we had the release of the US FOMC meeting minutes.  Members are divided on future rate rises Run up in treasury yields could substitute for a final increase Focus should shift from how high to raise the policy rate to how long to hold the policy rate at restrictive levels.  Comments from Fed's Waller echoed earlier comments from Fed officials that the recent tightening in financial conditions will do some work for the Fed.  US PPI came in above consensus expectations but the market focused on the core PPI print which came in line with expectations at 0.20% mom with a downward revision to the prior month.  All eyes will be on today's CPI data where consensus is for a headline reading of 3.60% yoy and Core CPI reading of 4.10%. Keep a watch on the initial jobless claims data too which has been holding surprisingly well.  The market impact of the Israel - Hamas conflict appears to be well contained with crude now trading at USD 85.55 a barrel , down...