Making Sense

We established a tactical short here as discussed in the morning post  with SL at 1.0945 as the PMIs point to improving prospects for the EZ but Germany and France (two of the largest economies in EZ) weigh on the EZ recovery. Eurozone PMIs painted a mixed picture EZ Mfg PMI 46.6 prior 44.4 German Mfg PMI 45.40 prior 43.70 France Mfg PMI 43.2 prior 42.21 EZ Services PMI 48.40 prior 48.80 German Services PMI 47.60 Prior 49.30 France Services PMI 45.00 prior 45.70 Key Takeaways Recession persists into 2024 though the Jan decline was the smallest since July 2023 The downturn continued to be led by France , where output fell for an eighth successive month and at the sharpest rate since last September thanks to steepening contractions in both manufacturing and services. Output also fell at a steep and accelerating rate in Germany , albeit a moderating downturn in manufacturing helping offset a worsening service sector situation. In contrast, the rest of the eurozone as a whole returned...

Just in, PBOC would cut the CRR by 50 bps from Feb 5 and cut re-lending and re-discount rates interest rates bby 25 bps for the rural sector and small firms from Jan 25.  Overnight, U.S equities continued the trend higher after breaking out of the right-angled triangle. Three targets are in sight for the S&P 500. AB=CD Target of 4908, Right Angled Triangle break out target of 4935 and Trendline resistance close to 5075. If we cross the trendline resistance, then the next meaningful resistance comes in at 5180 which is the 1.27% of the move from 4820 to 3492. The implied market pricing for Fed Fund Rates moved 4 bps lower to 137 bps of cumulative rate cuts and March is now pricing in 12.5 bps of rate cuts. The US2s10s tightened 4.4 bps to 24 bps. Yields High Low Close DoD ▲ US 2Y          4.42          4.37 ...

Asian Equities are off to a positive start following yet another record closing for U.S Equities. U.S equities rose to fresh highs encouraged by the start of the earnings season and buoyed by hopes of a Trump Presidency. Bloomberg Headline “China weighs stock market rescue package backed by $278 bn” are supporting the sentiment. According to Reuters, Chinese major state-owned banks are curtailing lending to tighten CNY liquidity in the offshore market and banks were seen selling USD in the onshore FX market. There is also some expectations that some easing will be announced before Lunar New Year celebrations in early February. On the day, BoJ will announce the monetary policy decision today with expectations for an end to NIRP pushed out to April in the wake of the 7.6 magnitude Earthquake earlier this month. Yields High Low Close DoD ▲ US 2Y          4.42  ...

Interest Rate Pricing off Fed Fund Futures pared back 36 bps of cuts this week as Comments from Federal Reserve’s Christopher Waller reinforced what markets were thinking – sharp deviation in Futures pricing from Fed Projections without a corresponding deterioration in Economic Data. UST bears were emboldened and the data release supported the Soft-Landing Narrative. S&P 500 closed at all time highs.   USD did not participate in Tsy rally at close of last week. USTs caught up to the USD bearishness. USD index closed the week higher by 0.80%. Atlanta Fed GDPNOW Final Est for Q4 GDP are at 2.4%, Control Group Retail Sales rose 0.80% (est 0.20%, prior revised higher to 0.50%), Initial Jobless Claims fell to Sep 22 lows and Continuing Jobless Claims fell to levels seen in Oct 2023. So far we have not seen the trends in employment numbers as were seen in   the sharp dip in Employment component of the ISM Non-Mfg. This week’s release of the S&P PMI numbers would be close...