2025.04.14 Weekly

The Art of the Backpedal

While Trump may continue to sound firm on his objectives to balance the trade deficit, or to partly offset them via Tariffs, I’m getting the sense that he is starting to get squeezed as some of his actions, effectively, amounted to market intervention. But first, let’s start by reviewing the insanely wild markets last week to set the scene.

Treasuries saw rare crisis level type moves last week with a 70.6bps range in the 10yr and 68bps for the 30yr which appeared to stem from a general loss confidence in the US for a multitude of reasons, and it will probably take some trade deals by Trump shore up confidence.

US equity markets also made historic moves last week with the SPX recording the 3rd largest rally since the index’s inception in 1957.

It was also the first time the % of stocks above the 5-day moving average measure going from nearly 0% to above 80% within a single day (though measure only goes as far back as January 2017). To put that into perspective, it previously took 3 days to produce such a turn around

What’s particularly interesting is that the aforementioned statistic occurred off the 2018 bear market bottom on Dec-27th which was at the height of Trump’s first trade war, as well as a goldilocks-to-recession narrative that contained many similar parallels to our current environment — e.g. high valuations, tighter monetary policy, and fading fiscal stimulus. It was from that moment that trade war escalations peaked with the US and China beginning to negotiate. That seems to resonate well with current expectations of Trump using reciprocal tariffs as a way to start negotiating new, and what he might consider more ‘fair’ trade terms.

It’s also interesting to note that US fundamentals (Orange) began to improve with unemployment trending lower from 4% to the mid-3s over the course of 2019, and the rolling over in market-based perceptions of macro risks (Purple) coinciding with, not only the peak in US-China tensions, but also a dovish pivot by the Fed (i.e. the ‘Powell put’) which was an enormous tailwind given to US assets that is likely to remain absent in the current environment, given far greater inflation risks this time round.

Corporate America in 2019 was also improving, macro risks began to fade leading to a strong P/E rebound, and solid earnings and a surge in share buybacks that year led to SPX rallying 40% since the Fed pivot and the peak in trade war escalations. While it would be highly unlikely that SPX can replicate the kind of the performance seen in 2019, especially given that the SPX started the year at a 21+ multiple and coming off a strong growth revival late last year that has rapidly petered out, earnings expectations remain somewhat firm, hard data remains solid — an ‘okay’ year or having put in a durable ‘medium-term bottom’ last week wouldn’t be completely out of the question either if Trump is able convert his threats into trade deals and some clarity for global markets.

That’s a big if. But given how quickly sentiment has deteriorated over the past month, it looks like Trump has found himself squeezed into a corner. Financial markets have spoken as witnessed in recent weeks, the public (PANICAN’S) are starting to lose faith (approval ratings beginning to slide) are losing, and a lot confusion among his own ranks (given the very mixed messaging from his lieutenants and out of DC ‘sources’). And since continuing to ignore that feedback would erode all chances of leaving a lasting legacy and taking America into the ‘Golden-age’, I think he’ll want to start putting some points on the board, if only if it were to buy more time.

ECONOMIC DATA

I don’t feel much need to going into last week’s data in detail given everything is about Trump and the upcoming earnings season, while the Fed will probably leave rates unchanged for another 2 meetings. CPI and PPI inflation reports were very soft last week with misses across the board — I have leaned towards July as the next cut but should we see another round of big misses in the next set of inflation reports, that would shift me to June. UoM consumer sentiment continues to be in freefall while inflation expectations continues to explode higher — the latest reading, rather amusingly coming in at 6.7% from 5% the month before.

It’s Easter weekend with Retail sales the main data point in focus which will be a big test to my general take that hard data continues to be fine. That may stay that way with BofA credit card data reporting a 0.2% m/m increase in household spending. Should Retail sales report print week, and as I biased as I may be, I think we’re in a bad news is good news given the current flow of the market and the soft inflation reports last week.

EQUITIES

Global equity markets are showing an interesting cross-sectional view — namely US markets rebounding back into the prior week range, and European markets shifting down the ranges though, they are showing some signs of turning around along with Asia.

Looking at US equities, price action suggests the selling has begun to subside and no longer diving off into the abyss. The 4week (or 20day) moving averages looks a good reference point to observe the price action this week.

SPX looks on its way to the 50fib. I think the significant technical levels to be test is the levels above in Yellow which happens to be at the top of the gap, and the Green band which is the pre-election lows in extension, though it has been well tests on the way down.

I noted my preference to be buy into NDX in my last weekly as I think tech stocks are likely to lead the rebound given that they look like good value after the selloff, and will respond well to trade tensions easing — e.g. AAPL and NVDA with risks around their offshore manufacturing, META and GOOGL seeing European regulatory risks lessen etc.

Similar to the SPX, NDX also looks ready to push on towards the 50fib and the red area in extension around the 20k handle.

VIX has gapped down and put a lower close on Friday, and unlike other recent sessions, its noticeably calmer, hinting we are entering calmer waters for the week ahead.

COMMODITIES

Commodities is broadly showing some stabilisation last week. A tactical try on long Crude and Copper seems a decent bet that could pay off well on Trump announcing a few deals and the narrative towards more resolutions gains further traction.

RATES & FX

Huge shift higher in the yield curve over the past week. I do question if we’ve seen the end of the deleveraging out USTs for whatever reason.

Bond vol is starting to get elevated and if we have indeed seen the end, I would expect this to begin stalling out. And should it do so, that would suggest the bulk of the flows out of US bonds and dollar to be done.

Recent move in yields highly favours EURUSD lower. It still looks like it wants to push on and take out the 1.15 handle.

Mean reversion theme appeals to me the most going forward selling the strongest performers (CHF and EUR) against the weakest (USD) whose moves last week coincided with the UST sell off.

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That’s all for now. Goodluck trading!