2025.03.03 Weekly
The book is now long Nasdaq, and long Dollars vs EUR JPY CHF and Gold. The view is that while I think the market was right to turn pessimistic about the US growth outlook, it has got prematurely extreme and see the risk being to the upside from here, giving decent chances and ISM and Jobs reports will show some stability. Should the data disappoint, I would look at short equities and cross-Yen again. For the broader view, I also suspect the market cycles/swings we’ve seen over the past few months will be how risk markets trade til mid-2025.
Ukraine Peace Deal
‘A tale of two cities’ is how I would sum up the significant developments of a potential peace deal this past weekend ...
Meeting with Trump
Zelensky travelled to the White House with some expectation to sign a ‘Minerals for Security’ type deal, but Zelensky called “disrespectful” for making strong demands with no willingness to make a compromise needed to strike a deal that would bring a ceasefire to the conflict. “You’re either going to make a deal or we’re out” said Trump.
Meeting with UK and EU leaders
Meeting in London would be considered a success for Zelensky. Starmer emphasised ‘unity and securing a collective future’ saying “we are with you and the people of Ukraine for as long as it takes” with the message echoed by EU leaders. UK pledged further military aid, agreed to a $2.84bln deal with the Ukraine and allowing access to revenues generated from frozen Russian financial assets. Starmer also announced the UK and France would work on a peace plan to be presented to and discussed with the US.
Challenges
While Europe has reaffirmed their support, Trump and Zelensky appear far apart on their respective ideas of a peace deal. “Russia must lose the war against Ukraine” Zelensky told MPs on Wednesday as he laid out a five-point “Victory Plan”. He ruled out ceding any Ukrainian territory to Russia and insisted on his number-one priority of “NATO integration”. Zelensky went further to say he “would trade his Presidency for NATO membership” for a deal with the US, but Trump was clear about that being off the table saying “Ukraine can forget about NATO”.
Data Review
The softening in US data still remains a major concern for US macro where I still see stagflation risks persisting as the data has showed last week …
PCE showed disinflationary progress with Core lower to 2.39% but Headline continued to rise to 2.94% (3month annualised basis). Savings rate rose to 4.6% (3.5% prev), Incomes rose 0.9% (vs 0.4% prev, 0.3% exp) while Spending declined -0.2% (0.8% prev, 0.1% exp). I pay lesser attention to core these days as its fairly stable while current concerns are in the volatile food and input price levels as evidenced by consumer/pmi data. Also, the higher savings and incomes suggest those risks could remain.
Unemployment claims moved higher in February with Initial claims seeing a larger than expected 22k rise for the week-ending Feb-22nd to 242k (222k exp, 220k prev revised 1k higher).
Consumer confidence saw the third consecutive and largest monthly decline since Aug’2021 driven by the Expectations index falling from 82.2 to 72.9 going below the 80-threshold for the time since Jun’2024, the threshold of which “usually signals a recession ahead”.
Economic surprise index of the major economies observed above shows the UK and Switzerland as the only two sinking lower last month. The US index is at the lowest since end of Q3 last year.
Looking Ahead
ISM and NFP the main events this week. ECB also meets but other Eurozone data (Inflation, Uenmployment, Retail sales) will be of greater focus. BoJ’s Ueda also speaks on Tuesday at an IMF event in Tokyo which isn’t listed on the above calendar.
Equities
The sell-off in US equities bottomed at the high-end of the pre-election range (shaded in Yellow) which in recent months, was the high end of the reference area I had in mind for market correction to return to.
SPX made a beautiful bounce from the intersection of longer-term trendline support and the recent one from which it broke out at the start of the year — thus providing the basis for strong short-term support. As mentioned in my opening remarks, the growth scare seems too premature at this stage for more losses after going ~2.5 standard deviations (3yr basis) below the 20dma, and the 100dma which capped the Friday rally should be an important marker for this week.
NDX went 2.7sd below the 20dma skirting along the lower 3sd band at the end of last week, all the way from the upper 2sd band just weeks before! As with SPX, I still think there is some risk of the market putting in another lower low towards the bottom end of the pre-election range (shaded Red band) should it become clearer that tariffs are implemented to the extent that it negatively impacts global growth, and inflation continuing to persist.
Dow put in a nice bounce right at trendline support and 61.8fib with price action of the past week marking the lows for the ensuing trading range.
Mag-7 fixed-weight also put in a nice bounce off the 200dma and recoveing above the well observed trendline. The low was almost 3.4sd below the 20dma and 2.6sd below the 50dma after being at those moving averages just weeks ago. The fact that the index sunk deeper into the pre-election range as well as closing the gap (Red) sets us up well for further recovery, particularly if this week’s data allys growth fears.
Breadth behind this recovery move is solid looking at the 5day series across the major indices, and the majority of stocks looking to regain and make progress above the 20dma.
There is broad momentum building across the style factors also.
Apart from Technology (which understandably lags here being the hardest hit), S&P500’s largest sectors are showing the tide has turned.
The extent of how much we can ask out of this recovery would, for me — depend on the data, rather than Trump driven headlines. Trend has been clear for some time and I think data needs to show more economic positivity for stocks to get back to pushing record highs.
For now, volatility is elevated, and should the market calm down this week, that would greatly skew the odds in favour of further gains.
Commodities
The weekly bearish engulfing in commodities will be a welcomed sight for the weaker-growth story with the stagflation themed PMI reports.
The Energy sub-index put in a bearish inside week and on the verge of breaking lower. Individually though, Gas prices will probably stay resilient given Europe showing little desire to back down from Russia by bolstering military support for Ukraine, while Crude should stay under pressure from the troubled growth outlook.
Similarly — to Crude, Industrial metals will probably stay under pressure to mean revert the year-to-date rally some more. Interestingly, the FT had an interesting piece on Copper “waiting to leave warehouses hits highest level since 2021”.
Precious metals has clearly broken trend and is now eyeing the 50–61.8 fib region, though I’m a little less sure about whether it has legs after the newsflow around Ukraine. I currently hold some residual gold shorts after scaling down before PCE on Friday and for now, will rely on the technicals — US yields (5 and 10yr real yields inverted in Green) are looking quite stretched and I think risks are towards a recovery and therefore no longer providing precious metals the tailwinds to rally; and 1month options sentiment is has turned negative for Gold, and both Silver and Gold risk reversals (bottom panel) are the lowest its been since the turn of the year.
Finally, Agriculturals reversing most of the year-to-date gains in the space of just 1-week. Iif I had to take a view on this, I’d probably expect it to find support not far below without tremendous upside as we are coming out of Winter months that is typically strong for Ags seasonally.
Rates
Yields have a long way from the beginning of the year (Green, change in Yellow) and over the past week (Purple, Red).
Technical implies we could see some unwinding at these levels with the rallies capped by the 200dma, TD sequential 9s, and stochastics looking to revert lower. Should US ISM and NFP reports in focus this week soothe growth fears, there is technical foundations for a recovery in US yields.
To compare with Schatz and Bund futures, these are showing less convincing signs of upside exhaustion which implies potential bullishness for the DXY.
FX
Looking at the German-US 2yr and 10yr spread, it looks as though it could very well be topping out.
Lots of data to digest this week including Eurozone CPI, Unemployment and Retail sales, but it’s likely to be the US data moving the needle with momentum already shifting bullish for DXY.
I’m long USD vs EUR CHF and JPY and intend to stay long this week so long as the data and yield moves are in favour of USD. Will post on twitter for anything further on FX as I have to head to a dinner appointment.
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That’s all for now. Good luck trading!
