2025.03.31 Weekly

Uncertainty Paralysis

Someone from the Fink discord (I can’t recall who) aptly described the current risk environment as “Uncertainty Paralysis”. The idea is that despite economic data being good, markets could not find any positivity due to the immense uncertainty where headlines leaves us with more questions than answers — China intending to retaliate should Trump press on with more tariffs; Trump and Carney going ahead with imposing tariffs on each other after a ‘constructive’ call; and the EU making concessions for the ‘partial’ removal of tariffs. And since the data hasn’t been bad where a strong PCE report, low jobless claims, big beat in S&P PMIs would ordinarily give yields and stocks a lift, we saw the opposite reaction to good news. So with a market that clearly suffers from increasing geopol-Trump premium more than anything else, the key focal point this week is therefore what exactly Trump announces on Liberation-day, and what extent it clears or clouds outlook. If uncertainty can ease off (though not necessarily clear), I see numerous ideas that could perform strongly; if not, I’m really not sure what good trades there are to chase at this point.

DATA REVIEW

March Flash PMIs shows the US still exhibits strong activity with Services accelerating to 54.3, beating expectations of 51.2 and the upwardly revised prior month of 49.7 to 51.0. UK and Australia also showed good readings, Europe lags with Services missing expectations but generally stable, while Japan Services turned sharply into contraction.

I have ignored the UoM survey recently due to its politically charged distortions but the surveys are essentially saying the same thing — US Consumer confidence is collapsing and its mainly driven by future expectations. There is some discrepancy in how consumers see current conditions however where I feel the CB survey is more representative of the actual reality versus the UoM survey which has politically polarising distortions. In other words, I think consumer confidence reports are essentially saying conditions are fine but concerns about the future (likely due to Trump’s policies) is extremely high. For instance the Conference board’s assessments of Family’s Current Financial Situation improved slightly vs Expected Financial Situation weakened to a 2½-year low, while Perceived Likelihood of a US Recession over the Next 12 Months held steady.

Headline PCE was unchanged on a yr/yr basis at 2.5% but Core printed 2.8% above expectations of 2.7% with January revised up +0.1ppt. Unrounded m/m Core was 0.365% which is almost a 4.5% annualised run rate. Despite the many calls that inflation is beaten, the reacceleration over the past 8 months indicates otherwise.

Latest claims data suggests the labour market is in good shape. The seasonally adjust intial and continuing claims is steady, while the unadjusted initial claims fell sharply below 200k and well below the pre-pandemic average of ~245k.

US economic surprises have been roughly unchanged through the first quarter of the year as the RoW is fairing quite well.

Looking at the major economies, US is improving while the UK EU and AUD have lost their positive momentum. If the death of US exceptionalism is gauged on what we are seeing those trends, it’s probably over exaggerated (as I’ve been suggesting in my last weekly The Great Extrapolation note.

LOOKING AHEAD

Busy week with ISM and labour market data in focus, then Inflation reports the week after to keep in mind along with some auctions and Fed minutes.

EQUITIES

Equities made a dramatic turn last week as there seemed to be little buying interest ahead of Trump’s tariff announcements this week. A lot of bearish outside weekly bars out there points to further risk aversion, but I do wonder whether Trump’s Liberation-day announcements could mark a short-term “peak” in uncertainty and pessimism.

I had an amusing exchange with my colleague last week after saying “this is starting to feel like a bear market again”. “When was it ever gone?” he replied and I said, “Monday lol”. While I somewhat expected that we could pullback from the initial bounce, I totally did not expect such a furiously sharp reversal. It’s mostly down to the mega-techs with the Mag7 XLK Growth groups with the most negative performances in the above chart.

Short-term breadth got decimated with the majority of stocks trading below all their moving averages. The 5-day measure is starting to approach extremes again which can be viewed as a contrarian oversold signal.

SPX made a sharp reversal from a confluent technical area of the pre/post-election pivot levels (top yellow band), the 200dma, 38.2–50fib area and trendline. In hindsight, that was a great place to take gains which I failed to take full advantage of and got trailed out much lower after the pre-election October lows was unable to hold up — levels I’ve referred to over many of my weekly notes. Nevertheless, we’ve made a swift return to the technical area I’ve pointed a couple weeks ago…

and I think this is another area to have another look at longs while keeping a close eye on the mega-cap charts which, are looking miserable but on a ‘levels’ perspective, there are some potential support levels nearby to lean on.

Skewdex (Orange) not participating in the recent move up in the VIX suggests that the market is more concerned about ATM levels than it is deeper OTM to the downside. In other words — we may be in a good place to look for bounce again around current levels, if not quickly identify the next move for the SPX. I will be keeping a close eye on the VIX for example to see if it stalls short of the prior high around the 20-level.

COMMODITIES

Commodities have had a good week via rallies in Energy and Precious metals. Risk for Oil will probably lean to the upside ahead of OPEC+ meetings that is expected to push for leaner output, but the r/r proposition is unattractive for even a reasonable target of 75 Brent for example. I’m not sure what stops the precious metals rally but I do feel its vulnerable to a pullback with Daily Weekly and Monthly RSI’s well above the 70 mark now that it’s taken out the 3100 handle. Psychologically, as I’ve observed through my many years of watching markets, 3100 and 2900 numbers (around the big 3000 type levels) usually serve as good pivot levels to watch.

Interestingly, the gold chart shows a demark monthly 9 countup with the last day of the month stalling at a fib extension level. I’ve been tempted tempted to fade this ahead of Trump’s announcements, ISM and NFP this week on the chance they spur a spike in risk, US yields and the dollar for a shakeout move back below the 3k handle.

RATES & FX

Yield curve shows the 10year a touch lower so far this month, while the longer end is higher versus a lower short-end leading to a steepening twist of the curve. We are predominantly in a bull steepening regime however with the 2yr to dropping much more than the 5s and 10s driven by the growth scare narrative dominating US markets.

On recent momentum, Europe is the most negative, followed by the US, while antipodean yields are the only ones in the above set with a positive 3-day move — these moves would favour short EURAUD in FX which will need to see risk bouncing for the short to work — perhaps after liberation-day.

GBP and CAD exhibiting some positive momentums across the above 3 perspectives while others are showing less discernible trends.

Change in Economic surprises have been the most positive for USD, and the least positive AUD JPY over the past month, and SEK more recently.

FX feels very conflicted on the risk-off and various other fundamental narratives. I’ve flattened many of my fx trades last week and left myself with USDJPY runners which I am looking to add back into this week — data isn’t flagging any fundamental weakness while inflation isn’t quite defeated; thus should some uncertainty clear in the near-future, I expect cross-Yen pairs to perform well. I’m also long USDCNH for a small punt into Trump’s announcement while EURAUD short and AUDJPY long is on the radar should the market start to develop some appetite for risk.

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That’s all for now. Good luck trading!