Making Sense

"Volatility is an opportunity in disguise." US yields continue to move lower as markets price in 81 bps of rate cuts beginning July 2023 and by end of Dec 2023 to 4.02%. Market pricing is in significant departure from the Fed interest rate guidance of Fed Fund Rate at 5.10% through 2023. Data released yesterday showed Initial jobless claims for the w/e March 18 decreased by 1,000 to 191,000 and continuing jobless claims w/e March 11 increased by 14,000 to 1.694 million. Initial Jobless claims under 200K still denotes a healthy market and shows no signs of strain post the SVB Collapse. Sales of new single‐family houses in February 2023 were at a seasonally adjusted annual rate of 640,000, 1.1% above the revised January rate of 633,000, but is 19.0% below the February 2022 estimate of 790,000.  In yesterday's price action,  US Yields 2Y High low range 25 bps to close the session at 3.81% near lows of 3.76% US Yields 10Y High low range 15 bps to closed the session at 3.40% n...

  Quick wrap on the market moves in the Asian Session: USDINR touched a low of 81.63 on Monday and caught a bid towards the end of the session as risk sentiment deteriorated. Today, trading in USDINR has opened with a gap up on hawkish remarks from the Federal Reserve Chairman. Balance 25% holdings were squared on the gap up. Next crucial resistance for the pair is 82.30. Domestic equity markets are trading in the red with Nifty at 17700, down 0.30% and is seen facing resistance at the 17770 level .  India  Money market operations (figures in bracket show prev day closing numbers) LAF absorption                     -49,000 crores (-61,000 crs) O/S Repo                                  +89,000 crore (+86000 crs) SDF+MSF                       ...

"Thorough preparation makes its own Luck" - As a trader, I couldn't believe in this more. We are all involved in a game where the outcome is probabilistic and that is the universal truth. But attributing the unknown to chance rather than lack of preparation is a fundamental error and sets us up for failure. Guard against failure through thorough preparation.  Know as much as you can to improve the edge and be thorough as hell. After all the satisfaction of doing it right supersedes the chance success.  Interesting moves overnight with a sharp rally in US Treasury yields on the back of a weak 30Y auction, initial jobless claims data at 196000 still suggesting a strong labor market data and sell off in equities.  US 2Y @ 4.50% ( T-1 low 4.41%) - On the 2Y we see a double bottom with a price objective of 4.48% which has been met. The next areas of support for the bond are at 4.57%, 4.61% and 4.73%. US 10Y @ 3.68% (T-1 low 3.575%) - US 10Y took support at swing low of 3.32% t...

 The big news today morning was the release of the Tokyo CPI Inflation. The core CPI for the area of Tokyo in Japan jumped 4.3% in January 2023, accelerating at the fastest pace since 1981 and exceeding forecasts for a 4.2% rise amid broadening inflationary pressure. Tokyo’s core inflation rate, a leading indicator for nationwide price trends, also followed a revised 3.9% gain in December and surpassed the Bank of Japan’s 2% target for the eighth straight month, signaling that upward price trends in the country have not reached its peak yet. **trading economics The BoJ announced the  Funds-Supplying Operations to Support Financing for Climate Change Responses for a notional of $ 21.73 bn as yields inched closer to the upper bound of the YCC band at 0.50%. The CPI data sparked a sell off in yields in the Asian session with US 2YT at 4.19% and US 10YT at 3.53% and the 2x10 inversion at 66 bps. Domestic yields also opened higher with 10Y treasury trading at 7.39% from Wednesday's...

I wrote in my earlier  blogpost - US Market Wrap  why I do not like to chase the current momentum lower in yields.  US2YT has been facing resistance at 4.18% since late November 2022 and though US yield fell below 4.18% to trade a low of 4.12%, the yields have since bounced back towards 4.18%. Likewise, the US10Y has been facing resistance at 3.44% since Dec 2022. The 10Y yields fell to lows of 3.32% last week to bounce back higher and currently trades at 3.47%.  Data releases last week pointed to deteriorating economic fundamentals on the Retail Sales (-1.1% mom), Industrial production (-0.70% mom), housing starts (-1.4% mom) and building permits (-1.60% mom). However, the labor market continued to be resilient with initial jobless claims at levels lowest since late Sep at 190K. This made me question if the current market pricing has run ahead of itself and the same is covered  here .

"There is nothing so fatal to character as half finished tasks" - David Lloyd George RBI released minutes of the MPC The minutes of Dec 5 - 7 MPC meeting were released. Please refer to the earlier posts  MPC Dec 7  and  Nov Inflation  blog post. RBI had raised policy repo rate by 35 bps to 6.25%. The SDF - MSF corridor stands at 6% - 6.5%. The broad narrative rests around downside risks to global growth and the drag from net exports; resilience of domestic growth; stickiness of inflation on partial pass through of higher input cost price pressures seen earlier. While the members agree on a lower trajectory of inflation, some members expressed their concerns on the lagged effect of monetary policy and that a wait and watch stance will be more appropriate other expressed concerns on inflation expectations becoming unhinged. Jayant Verma was a lone dove who dissented to the repo rate hike and status quo on stance (withdrawal of accommodation) while Ashima Goyal dissente...

China Re-opening narrative / US Data / Indian markets The Chinese reopening story had fueled a risk rally however the evolving situation remains tenuous at best. Chief epidemiologist Wu of the Chinese Center for Disease Control and Prevention said the current outbreak would peak this winter and run in three waves for about three months (mid Dec - mid Jan, mid Jan - mid Feb - Chinese Lunar year starts on Jan 21 which typically sees a lot of people movement. mid Feb - mid March). In another news , A US-based research institute said this week that the country could see an explosion of cases and over a million people in China could die of COVID in 2023. There are 2 narratives on China - one is of optimism that the gradual easing of restrictions will unleash pent up demand and the second is even as China pivots towards reopening , the covid cases will surge and the authorities will be focused on flatlining the infections. The tapering of the covid wave in the second quarter could see re...