While recent Fed speak has been all about patience, last week's minutes were unique in the sense that they discussed pausing QT in light of debt ceiling drama as well as the relief on SLR for USTs. We believe that this week's Fed speak will put more light on these two topics. We believe that QT might be paused in the 19th March meeting itself. On economic data front in US, we expect core PCE at .27% MoM & 2.6% YoY which should be a relief to Fed. We expect 2nd estimates of Q4CY24 GDP to be reduced to 2% from 1st estimates of 2.3% in light of Jan's weak retail sales. We believe that high long end yields can’t be sustained by US economy for ever. The sentiment boost with a new administration might last for maximum 2-3 months more but then the fatigue of frequent policy changes as well as uncertainty on tariffs will set in. This might lead to sharply lower economic output which might then be better appreciated by long end UST yields. We believe that medium term 10yr UST peak 4.65 is difficult to breach and the new short-term range is 4.35-4.65. For the same reasons, we believe DXY has topped out and new short-term range is 105-108. In UST auction supply, we have a total of 183 BN USD of 2,5 & 7 year USTs. In rest of the world data, German election results on 23rd Feb are most significant as the results will drive the relaxation in debt austerity limits for Germany. We also have Feb flash inflation nos for Eurozone this week which are expected to remain elevated. Tokyo CPI on 28th Aug is also likely to remain elevated which strengthens our case for 2 more hikes of 25 bps each by BOJ in REMCY25. Our Short USDJPY call has been proven right and we expect to see 140 soon (CMP 149). We had initiated the call on 18th Jan'25 when USDJPY was at 156. Australian Jan'25 CPI data due on 26th Feb is likely to remain elevated but we believe the Feb'25 CPI reading due on 26th March might be more relevant. We believe April is a status quo for RBA followed by a 25 bps cut in it's May meeting.
