Making Sense

As Howard Marks says The most important thing is "Awareness of the pendulum'. The mood swings of the market resemble the movement of a pendulum. Although the mid point of the arc best describes the location of the pendulum "on average", it actually spends very little of its time there. In fact, it is the movement towards an extreme itself that supplies the energy for the swing back.  Investment markets follow a pendulum like swing - b/w euphoria and depression, between celebrating positive developments and obsessing over negative ones and thus between over priced and underpriced.  While we may not know what the futures holds but me must have a fair sense of where we are headed. I hope this blog has helped you navigate the course of the markets by identifying these pendulum type swings and through the analysis, has helped you get a sense of how the data is evolving. The Economic calendar was heavy with Top Tier Data.  BoJ raised the overnight call rate by 15 bps to 2...

One of my favorite poem is by Kahlil Gibran and thought I'd share a couple of lines with you all...  Do not live half a life  and do not die a half death If you accept, then express it bluntly,  Do not mask it If you refuse then be clear about it for an ambiguous refusal is but a weak acceptance Do not accept half a solution,  Do not believe half truths,  Do not dream half a dream,  Do not fantasize about half hopes To reach and not arrive, Work and not work The half is a mere moment of inability, but you are able for you are not half a being You are a whole that exists to live a life not half a life” On that note, quick weekly roundup for the US markets below: The Fed Fund Futures are pricing in 88% probability of a rate cut by September Policy.  The Atlanta FED GDPNow Estimates for Q3 growth readings are running at 2.8%. The Cleveland Fed estimates for Core CPI and Core PCE are running at 0.27% and 0.22% respectively mom.  In the last blog piece...

"Many of life's failures are people who did not realize how close they were to success when they gave up" ~ Thomas Edison Bonds made fresh highs this week as yields on US2s dipped to 4.411% and later bounced off lows to close the week at 4.517%. Likewise for US10s, yields closed at 4.241% after printing lows of 4.144% at the start of the week. US2s10s bull steepened to -22.2 bps before pulling back to close the week at -27.60 bps.  S&P saw sharp price correction as markets reversed off  5 642 levels. We identified last week that 5642 levels correspond to the 1.618% of the corrective move from 4820 to 3492 and is a level worth watching to see if prices stall here for a corrective move lower. On DXY we briefly dipped under the 104 handle to touch lows of 103.65 before closing higher on the week at 104.37.  The move in USD index could stall at the 104.50 levels or could stretch towards 105 levels. On the US2s we closed right at the H&S Neckline at 4.52%. The narrativ...

"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...

"You don't have to be great to get started, but you have to get started to be great" -  Les Brown The Employment data and the soft ISM print lead to strong bond buying interest with yields on US2s down 14.80 bps and on US10s down 11.80 bps bps over the week. US2s10s steepened 3 bps to close the week at -32.60 bps from -35.60 bps at end of last week. The Atlanta FED GDPNow estimates were revised lower to 1.50%.  We  did not get any post news drift after the initial  sell off in bonds post the Presidential debate barring a move on Monday to 4.795% which was largely faded. Yields on US2s held the 4.76% resistance through the week before dropping sharply. The next support comes in at 4.50% - break below which opens the room for a move likely towards 3.50%. The markets are now pricing in 51 bps of rate cuts into 2024 with 72% probability of the first 25bps rate cut by September 2024.  Fed Chair Powell in his speech mentioned that Inflation is now showing signs of re...

"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 ...

"If you can trust yourself when all men doubt you, B ut make allowance for their doubting too;    If you can wait and not be tired by waiting..... If you can fill the unforgiving minute,  With sixty seconds’ worth of distance run,    Yours is the Earth and everything that’s in it...." ~ Rudyard Kipling  Let's Quickly review the U.S Economic Data released over the week.  The GDPNow Model estimate for real GDP growth in Q2 was revised downwards to 3% after the release of the data this week. CBO estimates show that U.S Budget Deficit will be around $ 400 bn larger this year at $ 1.90 trn.  USTs consolidated last week's gains in a 9.50 bps range and US2s10s closed relatively unchanged for the week at - 48 bps and DXY continued to climb higher after taking support at the 103.00 level at the start of the month and S&P 500 made fresh highs at 5517. On the DXY, 106.25 is a crucial resistance zone for DXY bears and an important point of reversal. S...

 The RBI released the Minutes of Monetary Policy Committee Meeting held during 5 - 7 June 2024. The estimates of Growth and Inflation are stated below: Key Highlights: 1. Domestic growth is likely to maintain momentum into 2024-25 aided by expectations of a above normal SW Monsoon, Government's continued thrust on capex, projections of improved Global Trade, Healthier Corporate Balance Sheet etc. 2. Pace of last mile of disinflation has been grudgingly slow on intersecting food price shocks, impact of exceptionally hot summer months, rabi production shortfall, upward revision in milk prices. Normal monsoon would likely ease price pressures and also support growth.  3. On the most interesting debate around the Neutral Real Policy Rates (NIR),  Dr. Aashima Goyal mentions that NIR is around 1% for India and restated her stance  that inflation approaching the target suggests absence of over-heating.  She mentions since core inflation has moved steadfastly lower,...

HSBC Flash India PMI Report Output Growth : India's private sector output growth increased in June, recovering from a slowdown in May. Both manufacturing and services sectors saw quicker rates of expansion. HSBC Flash India Composite Output Index : The index rose from 60.5 in May to 60.9 in June, indicating a substantial and historically significant expansion. This is aligned with the average growth rate over the past 12 months. Manufacturing Sector : The Manufacturing PMI rose from 57.5 in May to 58.5 in June, driven by stronger new orders, output, employment, supplier delivery times, and stocks of purchases. All five sub-components of the index contributed to this improvement. New Orders and Exports : Total new orders rose sharply, surpassing May's growth. Export orders increased for the 22nd consecutive month, with June's growth being the second-fastest since September 2014, despite a slight deceleration compared to May. Employment : Employment saw a substantial increase...

"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...

"Success comes down to rare moments of opportunity. Be open, alert and ready to seize them." At the start of this week, I wrote in the Sunday's US Employment wrap that I'm now in mode READY to fade the richness in pricing in Fed Fund Futures and voila, CPI release was the trigger.  Yields on US2s dipped to 4.67%  (17.7 bp off highs) and US10s to 4.25% (17.60 bps off highs) and DXY fell from 105.30 levels to 104.25 levels on the CPI release. The U.S. CPI report was benign in much aspects,  coming in below consensus expectations and  printing a mom reading of 0.01% on the headline number.  Readings on Super Core Services at -0.07% mom were a reason for celebration while readings on the shelter component were a sore reminder of the stickiness of the numbers. Going into second half of the year, as adverse base effects kick in, inflation stickiness could add fuel to the "higher for longer" narrative.  Please look at the table below for a summary.  Post the ...

"To achieve superior investment results, your insight into value has to be superior. Thus you must learn things others don't, see things differently or do a better job of analyzing them - ideally, all three." Fed Fund Futures closed the week with 28 bps of Rate Cuts priced into for 2024. We had a slew of employment data which is summarized below. ADP numbers  showed private employers added 152,000 jobs, though job gains slowed due to a significant decline in manufacturing and weaker hiring in leisure and hospitality. Pay gains for job-changers decelerated, with yoy increases dropping for the second consecutive month to 7.8%. Meanwhile, pay growth for job-stayers remained steady at 5% for the third month. These trends suggest a cooling labor market, with particular weaknesses in specific sectors and a slowdown in wage increases for job-changers. Jobless Claims data For the w/e June 1, initial claims for unemployment rose to 229,000, up by 8,000 from the previous week's...