Making Sense

I have two basic rules about winning in trading as well as in life:  1. If you don't bet, you can't win. 2. If you lose all your chips, you can't bet.   ~ Larry Hite Over the last 3 weeks, after the Aug 5 lows, yields on US2s have consolidated in the 3.90% - 4.10% price range and US10s have progressively made lower lows to close the week at 3.92% and 3.80% respectively. US2s10s bull steepened to close the week at -11.90 bps. USD index closed the week at 100.68, 5% off highs of 106.13 June highs and within close proximity to the established range of 100.50 - 106.50 since last year.  There is a 76% probability of a 25 bps rate cut in the Sep Policy. The market is broadly equally divided between a 25 bps and a 50 bps in the November Policy and holds a 87% probability of FFR in the 4.25% - 4.50% range by end of 2024. By next year September Policy, the market assigns a 90% probability of FFR at 3.25% - 3.50%, i.e. 200 bps of cuts in next 1 year.  The Atlanta Fed GDP Now ...

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 ...

Look at the charts below, USD index chart has a H&S formation and also a wedge formation which appears to be breaking out to the downside. 104.78 is the 61.8% Fibo retracement of the larger 107.35 to 100.62 and resistance offered by the trendline joining the Sep 22 top seen at 114.78.  Also the second chart will show a descending triangle in formation on the larger time frame.  We saw AUDUSD earlier breaking out of the wedge formation and EURUSD broke out earlier. I suggested AUDUSD long at 0.6520 and we briefly dipped to 0.6519 lows.  We see a shark pattern in USDJPY and the stops are clear at 151.00 for move lower. GBP continues to be a puzzle on the backdrop of multiple Head and Shoulder pattern but H&S are best traded on breakouts.  I am biased to short USD ahead of the 104.80 resistance.  Tell me your take on the charts?

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 ...

"There are 2 kinds of people who lose money: those who know nothing and those who know everything." Bond and equity markets in the U.S will be closed today for Thanksgiving before reopening for an abbreviated session on Friday. Acc to WSJ, U.S. stocks typically rise over the Wednesday and Friday sessions surrounding Thanksgiving going back to 1950s. Overnight U.S indices closed in the green with S&P 500 up 0.4%. Brent crude oil prices sharply fell to a low of $ 78.44 per barrel on a delay in the OPEC+ meeting from this Sunday to next Thursday. Traders saw the delay as a sign of dissent over how to extend production cuts in 2024. Weekly EIA crude oil inventories rose to 8.701 mn versus +1.160 mn estimate which also added to the bearishness. Brent crude prices later recuperated losses to close the session at $ 81.51. USD was bid in yesterday's trading session as U.S Initial jobless claims w/e Nov 18 decreased by 24,000 to 209,000 and continuing jobless claims for w/e No...

In yesterday's trade, headline US retail sales grew 0.40% mom following a downwardly revised -0.70% mom for the month of March. The number was below market consensus for a 0.80% mom increase. Retail sales number after contracting in the month of Feb and Mar 23 turned positive in April. The core retails number or the control group numbers which show non discretionary spending rose 0.70% mom following a downwardly revised March figure of -0.40%. This number was sharply higher than consensus estimates of 0.30% increase. Despite the headline surprising to the downside, resilience of the core retail sales saw US treasury yields move higher as despite the negative shock and tightening credit conditions, consumer spending strength held. 2Y US Treasuries moved higher a full 16 bps to 4.12% before closing the session at 4.09% and 10Y US Treasuries moved 12 bps higher to 3.57% before closing the session at 3.54%. Remember, we are watching the formation of a H&S pattern on US Treasury yie...

 The Jan ADP report released yesterday showed solid Job gains and elevated wage growth.Private sector employment increased by 242,000 jobs in February and annual pay was up 7.2% yoy. Job losses were seen in the Construction sector (-16K) and professional / business services (-36K) while solid gains were seen in leisure (+83K) / hospitality followed by financial services (+62K) and manufacturing (+43K). The Jan trade deficit widened to $68.3 billion as imports increased $9.6 billion over December imports and exports increased $8.5 billion over the prior month. The data shows expansion of global trade activity. The Job Openings and Labor Turnover Summary (JOLTS) showed a decrease in job openings to 10.8 million following a revised 11.234 million in December. The number shows employers are still struggling to fill vacancies. USD index continued to hold onto gains. The yield on the 2Y UST increased to a high of 5.085% while the 10Y touched a high of 3.995%. Markets continued to push th...

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...

 Meditate!!  The February ISM Manufacturing Index came in at 47.70 (prev 47.4). The reading reflected contraction in manufacturing activity for the 4 th straight month. However, what stood out in the report was the sharp increase in the Prices Index which jumped to 51.3 from 44.5 and the new orders index rose to 47.0 (prev 42.50). The activity contracted at a slower pace amid a backdrop of rising prices which adds to fears around Fed tightening. Comments from FOMC voting member   Neel Kashkari also pushed rates higher. “We’re not yet seeing much of a sign of our interest-rate increases slowing down the services sector of the economy and that is concerning to me,” he said. “Wage growth is at a level that it actually is too high to be consistent with our” 2% inflation target. He also said that if the Fed declares "victory too soon, there will be a flood of exuberance" and it will need to do even more work that if the Fed declares "victory too soon, there will be a flood...