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Varad Markets Profile picture
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28 Jun, 4 tweets, 3 min read
#FX CFTC Positioning: Large short-USD position reduction post FOMC

▪️ Largest USD buying since mid-2018 v/s EUR
▪️ ~$5.85 bn USD bought vs G10 FX => mostly long EUR & GBP reduction & short JPY addition
▪️ Long EUR positioning ~half of Aug'20 peak but still double its 4yr avg
1/4 ImageImage
▪️ Post FOMC's perceived hawkishness, short USD position reduction expected
▪️ Mkt still holding onto Long CAD, Short JPY, Long GBP
▪️ Interesting jump in Long CHF position => possibly reduced Long EUR/Short CHF, increased Long CHF/Short JPY

2/4
▪️ Addition to short MXN positions (as of 22 Jun) but that was before Banxico surprise rate hike on 24 Jun
▪️ Interestingly, while USDMXN had large retracement from post-pandemic highs (25.00 to 20.00), haven't seen any large Long MXN position buildup yet

3/4 Image
▪️ Consolidation in US Real rates => Dollar range-bound
▪️ Collapse in FX Vol after knee-jerk excitement post FOMC
▪️ 1m AUDUSD Vol at post-pandemic lows; EURUSD in ~60 pip range last 3 days
▪️ Key US triggers ahead:
- NFP 2 Jul
- CPI 13 Jul
- FOMC 28 Jul

Image

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More from @VaradMarkets

Varad Markets Profile picture
15 Jun
Three largest Asians may end up with early tightness:
▪️ #China: Never went too accommodative to start with + credit tightening
▪️ #India: Inflation surge may force RBI's hands
▪️ #Korea: BoK increasingly hawkish

KRW 2y IRS +17bp since May MPC
INR 5y NDOIS +11bp post CPI yday ImageImage
BoK's recent hawkishness => rates sell off (higher yld) v/s Received rates positioning:
🔹 'Normalization should not be put off too much'
🔹 'Rapid debt rise may hurt consumption'
🔹 'Should secure policy room for future issues'
🔹 'Inflation may accelerate faster than expected'
India: Inflation surge

Key to see how RBI interprets the CPI data - transitory or persistent?

Read 4 tweets
Varad Markets Profile picture
13 Jun
#China Credit Tightening?

▪️ Aggregate Financing AFRE or Total Social Financing TSF growth slowed to 11% yoy May v/s 11.7% Apr
▪️ Renminbi RMB Loan growth inched down to 12.2% yoy May v/s 12.3% Apr
▪️ Optically Broad Credit YoY charts look scarier than they actually are

1/9 ImageImage
▪️ To start, target Fiscal Deficit 3.1% in 2021 v/s over 3.6% in 2020 => bound to be fiscal tightening by design
▪️ AFRE outstanding stock indeed points to recent marginal slowdown relative to post-COVID trend
▪️ But AFRE stock still above more longer term (4yr) trend

2/9 ImageImage
▪️ Credit did tighten in 2021 v/s exceptional surge in 2020 (base effect) but 2021 still ahead of pre-COVID yrs of 2017-19 => better call it credit 'normalization'
▪️ Govt completed only ~25% of 2021 bond issuance in first 5m of yr => backloaded => likely pickup in H2'21

3/9 Image
Read 9 tweets
Varad Markets Profile picture
2 Jun
Role of #USD & #EUR in Global Monetary System:

[Charts from ECB Paper: 'International Role of Euro']

#Dollar continues to dominate FX Reserves, International Debt, Loans, Deposits, FX Turnover & Global payments

1/7
FX Transactions settled in CLS System (Continuous Linked Settlement)

▪️ USD led FX market => involved in ~90% of all settlements in Dec'20
▪️ EUR second most actively settled ccy

2/7
FX Share in Global FX RESERVES:

Sub-thread below

3/7
Read 7 tweets
Varad Markets Profile picture
31 May
US #Inflation #DiveIn: CPI v/s PCE
Also why FED follows PCE?

▪️ Attached Summary of differences
▪️ Since 2000, overall CPI ~11% higher than PCE

▪️ Definition:
🔹 CPI: Out-of-pocket spending by non-institutional Urban Consumers
🔹 PCE: Includes Rural & all personal sector
1/12
Four Sources of differences: Scope, Formula, Weight, Others Effects

1⃣ Scope Effect:
🔹 CPI: Consumer Price Index => Survey of Households
🔹 PCE: Personal Consumption Expenditure => Survey of Businesses
▪️ 25% of PCE spending not captured by CPI

2/12
▪️ PCE includes spending by Govt, Firms, Non-Profits on behalf of Households
- E.G: Medical spending = Direct purchases by Consumers + Spending on medical goods & services by Medicare OR Employer's Health Insurance
- E.G: Public school education not an out-of-pocket spending
3/12
Read 12 tweets
Varad Markets Profile picture
17 Apr
#INR Macro check

▪️ #USDINR last 74.35 => ~1.4% off 75.35 highs => RBI's persistent #USD selling above 75.00 => with soft DXY, s/t consolidation in 74.00-75.35?

▪️ Risk Reversals, good gauge of nervousness, off highs (+1.6=>+0.9 vol) => less demand for USD Calls

1/11
▪️ Various economists revised India's GDP forecast lower
▪️ Good summary by @latha_venkatesh below
▪️ RBI GDP Projection +10.5% yoy FY 21/22 (Apr MPC)
▪️ Chart below: graphical overview of GDP trajectory - not that bad but whether worse yet to come?

2/11
▪️ When GDP collapses =>Trade Deficit tends to improve=>lower imports on poor aggregate demand
▪️ Q2 Apr-Jun'20=>massive reduction in trade deficit as GDP collapsed
▪️ Assuming only mild GDP hit in this COVID wave, associated trade deficit improvement should also be smaller

3/11
Read 11 tweets
Varad Markets Profile picture
12 Apr
#US #CPI March #Inflation tomorrow:

🚩Headline Exp 2.5% (vs 1.7% Feb)
🚩Core Exp 1.5% (vs 1.3% Feb)

▪️ That +1.0% gap would be largest Headline v/s Core CPI gap since 2011 on huge Energy driven base effects; 5yr avrg gap -0.20%, 2yr avrg -0.37%

1/4
▪️ Chart: Energy Inflation indeed so volatile
▪️ Food Inflation key contributor since COVID - likely to ease off marginally on base effects
▪️ Energy base effect => massive spike to Headline over Apr/May => Headline vs Core likely to diverge further

@chigrl
2/4
▪️ Energy Inflation, negative recently, was +2.4% Feb, could jump to as high as +8.5% yoy in Mar & +20% in April
▪️ Energy Index collapsed Apr/May'20 but Food Index jumped => opposite base effects

3/4
Read 4 tweets

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