2025.04.28 Weekly

Don’t care and won’t care

I’ve been framing a lot of my trading views around narratives in recent weeks:

• 2025.04.07 Peak escalations looks at the possibility of the worst-case scenario adequately priced in for the time being where a high unemployment type recession was still not looking a realistic enough expectation, and where SPX at 4800 would therefore be strategically reasonable level to be taking on risk.
• 2025.04.14 The Art of the Backpedal looked at the Trump-put coming into effect which I thought drew some similarities to the 2018–19 period that saw a Powell-put reassure markets and kick off a rally, as well as a few hated rallies.
• 2025.04.22 Detached from Reality where I put various narratives into context of how narratives change (when it gets too detached from reality), and how a new narrative forms and propagates into a reflexive loop and why I think the market will continue higher.

Despite all the various news reports and analyst calls about how everything is going to come to a screeching halt in the summer, what really matters for markets at the moment for me is the narrative driving the rally that further fuels the narrative, and so forth into a reflexive loop (i.e. momentum) up until the point that it becomes detached from reality. For now, the path of deescalations can’t really be argued against just yet, and neither can the chances we may avoid a severe recession; in other words, markets Don’t care about analyst calls or reports of what various producers and shippers are saying, and Won’t care until they have to.

With that, I think equity markets will continue to rally another 4–6 weeks til early-June, by which point we could start to see the impact of 10% baseline tariffs come through in the economic data, as well as assess what deals will be made, and how much of the reciprocal tariffs will be rolled back 1-month before the July-9th deadline. I was shown the below chart from Torsten Slok in today’s morning call with Fink members which sort of fits in with my timeline of how much longer the current narrative can extend and when that narrative could start to look detached from reality and change.

I would add that the timeline does feel tight for me, for instance, I would not quite expect trucking demand to come to an abrupt halt, and shelves to be empty followed by layoffs in a sudden manner; on the other hand, had there been more evidence that households and corporates were not in such a strong position, I may be more inclined to think that a summer recession is highly likely — I’m not so sure…

MACRO DATA

Latest Flash PMIs were in last week which further added to slowdown risks. US relatively stable though slow, UK composite has gone below 50 for the first time in over a year, EU looks to soon be following considering the weakening trends in Germany France and Italy. ‘Uncertainty’ is the major theme flagged in all the PMI reports as being the major disruptor to business, hitting new orders and hiring while price pressures are intensifying again.

US economic surprise index flipped positive of which the recovery above the zero-line has coincided with the huge Durable goods beat last Thursday and, of which should be taken with a pinch of salt coincide with the big Durable goods beat and likely to be tariff related noise. Despite that, think the 2wk trends vs EU UK worth bearing in mind for euro and cable rallies that are signaling exhaustion on the last weekly bar

The index uses a rolling three-month window, applying a time decay function so that more recent data releases have a greater influence on the index, reflecting the market’s “limited memory

LOOKING AHEAD

Don’t think macro data matters a whole lot in the current trading environment (barring any significant negative surprises) but nonetheless, a busy week.

And for earnings with a diverse range of big names reporting this week to see what companies are saying about their respective microeconomies.

EQUITIES

Global equity indices all start the week on very strong footing with some strong bullish continuation bars printed last week and majority closing above their 4-wk averages.

US equities putting in a bullish engulfing last week with sector performances exhibiting a very risk-on profile with cyclical sectors performing strongly while defensives lagged and staples closing negative.

Healthy majority of about 2/3rds of US equities now trade above their 20-day averages from more than 20% just a week before.

Tech and cyclical sectors showing a notable breadth thrust past week and looks set to continue as they generally remain oversold against the long-term averages.

Technically the SPX has recovered the yellow trendline which has been a strong pivot for price action through 2022 and 2023, and breaking out of the trendline projected from the peaks of the ytd-downtrend.

VIX continued to come in last week. What's interesting is that while hedging demand stayed elevated via Skewdex (1sd put premiums in Orange), TailDex (3sd put premiums in Red) having more closely tracked the VIX suggests the focus has been more about the left tails of tariffs of which has been largely priced out.

Putting the prevailing narrative and all the various technical perspectives above together — strong price action, broad breadth thrust, and tail risks continuing to be priced out, points to further gains this week so long as earnings and NFP does not sound the recession bells again.

COMMODITIES

Bloomberg commodities index finished slightly lower last week as the rebound looks to to have run out of steam.

Energy continued to trade heavy with price action generally struggling for direction.

Precious metals put in a weekly reversal bar last week and now looking like a blow-off top is in as it begins this week’s trade below the trendline.

I continued to be focused on gold shorts to express the current market direction of tariffs being rolled back with near-term targets set on 3170 and 3100 in extension.

RATES

The yield curve continued to recede last week alongside the sell-America narrative. I think yields specifically the 2yr and 10yr look fair at current levels could struggle for some direction from here for the time being the uncertainty around recession risks vs solid economic data.

After mean reverting and settling down, bond volatility should also continue to soften as the market rides on the de-escalation narrative for the time being.

FX

USD selling stalled, EUR showing tentative signs of weakness, and CHF the weakest performer followed by JPY last week.

The USD is still fairly oversold against its longer moving averages (top-to-bottom: 20/50/100/200dmas) and also has some positive momentum in data surprises while EUR and GBP are turning more negative:

All of what I’d like to see for my long USD vs EUR JPY CHF positions.

That’s all for now, good luck trading!