2025.03.10 Weekly
Fade everything
Those who read my weekly journal may have gathered that I’ve had a rough patch in getting my ideas to work — centered around fading the growth scare, the sell-off in stocks, and also the USD. My views remain largely unchanged and would consider myself early on those ideas.
I still see good reasons to get behind ideas that now appears tactically stronger than it was a week ago after recent moves ventured into the extremes, some strong technical levels, and the skew of risks to the macro calendar over the coming weeks. I’ll opine further on those further as I go through the charts …
Data Review
Despite NFP expectations appearing to deeply negative some forecasters giving weight to the impact of government layoffs on private sectors and the fading fiscal impulse, the jobs report was solid. The emerging trend is pointing to slowing job growth however which pushes slowdown risks incrementally higher.
February headline printed roughly in line with consensus at +151k with -3k net revisions to prior 2 months. Pace of job growth has turned — Nov-Dec had combined gains of 584k while Jan-Feb totaled 276k taking the 3-month average lower to 200k from 236k.
Comparing the +151k jobs added against the preceding 3 and 6-month averages of 236.3k and 177.3k, jobs growth is clearly beginning to slow. Losses in Leisure and Hospitality stands out vs recent trends but closer inspection suggests it shouldn’t be much cause for concern given the pick-up in hiring late-2024. Recent weakness in other industries also doesn’t look as bad is it might first appear to contrast both the above charts. Overall, the 3month average is still well above trend growth (roughly 125k/month) and there is still plenty of room before a legitimate growth scare.
Services PMI was expected to cool slightly from 52.8 to 52.5, but instead accelerated to 53.5 in February. Conversely, Manufacturing PMI cooled slightly more than expected to 50.3 from 50.9 the prior month.
Services employment activity continued to pick up, new orders was stable, while new export orders picked up. All in all an encouraging PMI report.
The Beige Book was generally positive albeit modestly. Most districts remained optimistic on outlook despite heightened uncertainty and lingering price pressure - some expressing difficulty in passing on costs while some expected to raise prices or have already done so preemptively due to tariffs. Labour market remains in good shape and again, there’s yet to be much reason to get overly concerned.
Looking globally, macro data trends appear to be in decent shape with the exception of the LATAM region, so there shouldn’t be too much concern about a global growth slowdown from the perspective of economic data.
Tariff risks are of course the dark house in all of this, and we should probably accept that there will be some negative externalities on global macro than just simply being the art of the deal.
Equities
Late January I was traded the bounce in equities with a view to flip short at the key consolidative ranges based on the below chart view (post-election and pre-December FOMC ranges), and to target a return back to the October lows on the view that the market would shift its focus from positives of Trump’s sweeping victory, to negatives of his policies.
Weaker economic data added fuel to the ‘Trump positives to negatives’ view and though generally right, trading conditions and some regrettable lack of conviction for a deeper follow through got me out too early, and to even more detriment — too eagerly looking to trade the other way as well.
With that behind us and now having flushed those key lows I had in mind, I think there’s a good chance we find a short-term base here. While it remains difficult to argue for anything more than an upside retracement, a recovery of 5800 would, in my view, open up a move back to the 5900 handle and I think such a move will be brought about by a rotation back to the tech and other high quality large-cap stocks.
All the main indicies are looking promising for a bounce. SPX bounced at the October-lows — an area I consider to be significant given the market was pivoting in some choppy trading pre election.
OEX didn’t quite reach those lows but the bounce from the post election consolidative range I’d deem to be constructive for a higher quality index. And it’s not far from looking positive from a technical standpoint — just needs a higher daily high and close within a couple sessions.
NDX chart is a beaut’ — bounced off a key pivot and October lows, the 50fib retracement of the Aug-to-ATH rally, and off an intersection of trendlines. Price action traders often look for strong confluence of supports and this is certainly one of those cases.
Although the market has been rotating defensively YTD, tech-giants are still among the best-quality / wide-moat companies that are likely to find buyers when the market calms down a little.
Market breadth is showing a strong recovery against the 5-day moving averages last week which raise the potential to be start of further relief.
XLK putting in a strong recovery against the 5dma, XLC looking stable, XLY closing the November election-gap with a bullish hammer for a bit of potential, and XLI looking perky against the short-term averages.
Defensive sectors have performed strongly with XLV XLU showing negatively divergent highs.
When looking at the breadth charts in totality, market looks ripe for the defensive rotation to reverse and garner for some short-term momentum to fuel an up-leg.
Downside protection premiums continue to point to a higher vol regime ahead (2027–02–10), so this is something to bear in mind even if markets are able to pull off a strong bounce to the upside.
Commodities
Bloomberg Energy index has been resilient, mostly owing to the rally in NatGas as WTI hit the mid-60s and Brent taking out the 70 handle. While Crude longs does look interesting at these levels, I think there are better assets to focus on. That said, I will be keeping an eye on Crude as a bounce from these levels could be one factor that helps to solidfy a short-term base in US yields (TY futures inverted in Purple).
Industrial metals looks like it could go into a stall from here.
Precious metals slowly losing its upside lustre.
Move lower in yields looking done for now, CFTC Gold positioning has been reducing length, and options sentiment is turning less bullish than it was in early Feb.
Lastly, Ags saw a sharp pullback but found support on the retest of trendlines it had broken out of at the start of the year. The turn from the high (along with precious metals) coincided with Trump announcing that he will be able to bring a peace deal between Russia and Ukraine. It remains to be highly unclear, and while that hangs in the balance, I’d expect grains to be consolidating off those lows.
Rates
US yields saw some bear steepening last week as bonds pulled back from a growth scare fueled rally that say longer end yields move 50bps lower.
The 10yr is technically in good shape to make a recovery back to the 4.4% area and perhaps some solid data this week will help it upwards.
Some big data and the FOMC in the coming weeks where I think the risks would be mildly to the upside for yields. That is assuming the data is generally as expected, and the Fed reiterates their wait-and-see stance that would imply their views on inflation risks, in relation to tariffs, as being elevated. Probably a nothing burger event but I think there is room for disappointment than appeasement for market expectations that’s leaning into a cut in June, or even in May.
FX
EUR rallied ~4.5% vs G10 last week on news that could allow EU countries to issue substantial amounts of debt for the purpose of expanding defense and infrastructure spending. Potentially a monumental watershed moment that would end decades of debt-related PTSD and fiscal austerity. While I agree that there could be some doubts on how effective this initiative may be further out — because European bureaucracy never gets anything done, I’ve no doubt this will gain some traction for the foreseeable future. This is the most political excitement the EU has seen since maybe 2015(??) and I think policymakers will want to keep this going in a way that all parties get a little something out of the deal. That said, for the short-term trading window, I think there is a trade to the downside in EUR.
Other European currencies also benefited from the news while USD was the worst performing on fixed weight basis in G10, even as economic data fared better than recent growth fears have suggested.
Interestingly, EUR positioning as of Thursday didn’t see a big increase implying that the rally should have legs. Commodity currencies, AUD in particular, turned increasingly out of favour with positioning beginning to go net bearish on a trailing 3–month basis, and USD shorts appearing to unwind against the selling in higher betas. There us some divergence between these moves and spot prices, so perhaps there is could be some momentum building from a flows perspective.
Looking at data surprises, CAD GBP and JPY saw the largest negative changes last week, while CHF SEK and USD turned positive. Given the big moves we’ve seen, I favour fading all the best performers against the recent USD weakness from these levels and think US inflation, retail sales, and FOMC will give the market some reasons to take a step back from selling Dollars — such as Powell reiterating their hold stance while they continue to assess the risks of tariffs on inflation, and MoM Retail sales having a favorable base given a weak print the prior month.
The DXY has hit the 61.8 fib retracement unwinding the 5-month rally since September in the space of a few weeks. Recent moves have been quite extreme and arguably, so has the sentiment around a US growth slowdown and the European fiscal optimism at this juncture. I do accept that those narrative can dominate into the medium term but for the coming week/2, I think the tactical risks greatly favours a USD rebound.
For bigger picture ideas, EURCHF is for me, the most compelling theme to position trade around over the next 3–6 months. I think the potential for a fiscal bazooka will provide some self-fulfilling positivity in EUR sentiment and growth outlook, that could be further supported by the ECB taking a slower path of easing. For the other side, lowest rates in G10 and front of the ZIRP queue makes CHF the most attractive funder against an improving EU growth outlook and steepening of European yield curves.
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That’s all for now, good luck trading!
