Chinesedata,ECBChiefandSuperoverfinish

We had last week looked at the cause of probability and improbable events, and we had talked about the ludic fallacy. The notion of probability derived from games and dices is misleading in two counts, firstly that we don’t know how many sides the dice has in the market, and secondly that in the real world the dice doesn’t remain the same always i.e. the number of sides is constantly changing. The idea that the events are completely independent is actually a logical trap.

Now let’s take a recent example. We currently have a famous cricket league going on. The annual cricket carnival is in its 13^th edition currently. For its 12 year history there were 11 matches which ended in the super over finish (teams tied at same score). For 60 matches per season, that is total of 720 matches in total. The number of 11/720 represents a tiny 1.5% historical probability. But in the current season already 4 matches out of 36 have gone for super over finish. The point to ponder for readers here is that is there a structural change happening the way we calculate the probability of such outcomes. Maybe the teams are becoming much more balanced and equal in skills over the period of time. Hence the way we estimate the probability needs an update.

Similarly in the context of the aviation industry, if there is one crash somewhere it need not change our historical probability estimate but in case there are some crashes in quick succession then it essentially means that some structural malfunction has entered into the aircraft design and the past probability estimates should be put in cupboard until that cause is identified and addressed.

Moving from probability estimates to the global market round up. We had the important Chinese data coming up today. The GDP for July- September quarter grew 4.9% against the estimate of 5.2% forecast and 3.2% growth in the second quarter. If we see the 2019 Q4 GDP data for China and quarters before that we can see a consistent 9% YOY growth every quarter. The Jan-March saw the drop to -6%. Chinese retail sales data was however better than expectation. The Australian dollar which is generally connected to the Chinese data more closely than any other currency, moved in a range post the data.

We can see that a V shaped recovery has happened in China as the economy has come back on stream. In all other parts of the world, both the US and Euro zone, policy makers initially hoped for a V shaped recovery but now have to grapple with a more turbulent road ahead as the virus makes its second coming. ECB Chief Christine Lagard said on Sunday that re-imposed lockdowns have heightened the uncertainty for companies and families.

In the market round up, DXY trades at 93.75, US 10 year yield at 0.76, the euro and sterling at 1.17 and 1.2925 respectively. Domestically, the rupee opens around 73.40 levels where as the 10 year benchmark bond trades around 5.94 levels. The full subscription of 30k Cr INR bonds on Friday was good news from the bond market. In an important data release, the WSS release on Friday showed that India Fx reserves have gone up by 5.86 bn USD to stand at 551 bn USD currently.