United States

• Durable-goods orders leapt 9.2 % m/m in March (core flat), triple the 2 % consensus and the third monthly rise, thanks almost entirely to transportation equipment.

• Building permits edged up to 1.467 million a.r. after three monthly declines, but still fell short of the 1.482 million forecast, signaling only tentative momentum in residential construction.

• Existing-home sales slumped 5.6 % to a six-month low of 4.02 million, undershooting expectations of 4.13 million and confirming the housing cool-down).

• University of Michigan consumer sentiment (final) dropped to 52.2 (57.0 Mar) – the weakest since mid-2022 but still above the 50.8 flash estimate, with inflation worries prominent.

TLDR: Manufacturing demand looks sturdy, yet housing and sentiment show higher rates and tariff uncertainty are biting ahead of this week’s GDP/PCE prints.

Euro Area & Germany

• Euro-area flash PMIs: manufacturing crept up to 48.7 but stayed in contraction, while services slipped back below 50 to 49.7 – a five-month low.

• Germany – HCOB manufacturing PMI ticked down to 48.0 (47.6 exp.) and the Ifo business-climate index rose to 86.9, beating the 85.2 consensus; firms see slightly better current conditions despite gloomier expectations.

TLDR: The hoped-for industrial rebound remains elusive, but modestly better business sentiment hints the worst of the German downturn may be passing.

United Kingdom

• Flash PMIs: manufacturing stuck at 44.0 and services fell into contraction at 48.9 (51.3 exp.), pulling the composite to a 29-month low of 48.2.

• Retail sales (Mar.) surprised to the upside, +0.4 % m/m versus –0.4 % consensus, helped by mild weather.

• GfK consumer confidence index slipped four points to –23, the weakest since late 2023 and below forecasts of –22.

TLDR: A soft private-sector PMI and sliding confidence point to a slowing economy, even as headline retail spending shows pockets of resilience.

Market Moving Narratives

Sudden White-House climb-down.

After days of threatening to sack Fed Chair Jerome Powell and waving a 145 % tariff club at China, President Trump abruptly pivoted. The Oval Office declared it had “no intention” of firing Powell, and headline China levies were cut to roughly 60 %. Customs officials simultaneously carved out exemptions for smartphones, chips and autos. Stocks and the dollar surged, gold slipped and crude retreated as traders priced out the worst-case policy-error scenario. ​

A bond-market “kerfuffle” and the return of the Vigilantes.

Even with cooler CPI/PPI prints, 10-year Treasury yields punched through 4.7 %, steepening the curve and draining liquidity. Jamie Dimon warned that regulation-clogged markets could “panic” before the Fed steps in. Treasury Secretary Scott Bessent kept long-bond issuance on a tight leash and hinted at yield-curve control by stealth, while foreign buyers crowded into short-dated bills. The rate volatility bled into equities and credit spreads all week. ​

Death Cross vs. Zweig Breadth Thrust – the chart duel.

Technicians were whipsawed by two diametrically opposed signals flashing almost together. The S&P 500 and Nasdaq 100 registered a textbook Death Cross (50-day moving average below the 200-day), historically bearish. Yet the market also triggered a rare bullish Zweig Breadth Thrust—advancing-stock breadth rocketing from sub-40 % to above 61.5 % inside ten sessions. The standoff kept volatility high and encouraged short-horizon swing-trading rather than committed positioning. ​

China weaponises rare-earths, stoking a Taiwan premium.

Beijing abruptly slapped export controls on seven rare-earth elements vital to defence and EV supply chains, just as Washington floated a $1 trn Pentagon budget. The S&P 500 Aerospace & Defence index fell nearly 6 % from late-March highs and gold found support as investors dusted off Taiwan-risk hedges. ​

“Too many bears” light a contrarian fuse.

Three straight Economist doom covers, record AAII pessimism and widening credit spreads produced what Ed Yardeni dubbed the “strongest buy signal ever.” From its 8 April low the S&P 500 has bounced more than 7 %, while the VIX slipped below 28, suggesting a tactical bottom even as macro headlines stayed ugly. ​

Bottom line: policy whiplash, bond-market angst, contradictory technicals, geopolitical surprises and extreme sentiment combined to keep asset prices range-bound but jumpy. Navigating this tape meant reacting faster than the next headline—until the next pivot arrives.

Momentum Analysis

Markets are acting as if the “Trump pivot” removed the tail-risk of a policy accident but did not remove the drag on real-economy growth.

FX – a soft-dollar, pro-risk skew

• GBP (+3.4 % 1-day) and EUR (+3.1 %) lead the G-10 pack, extending their post-pivot rallies.

• AUD is green intraday but flat on a one-day look-back, signaling that the China-exposed commodity bloc is still wary.

• JPY’s negative 1-hour score (-1.2) tells us higher U.S. yields are pinning the yen down even as the dollar slips elsewhere.

Read-through: Capital is rotating toward higher-beta FX on the view that the Fed will stay put while foreign central banks ease, but there is no wholesale dash for growth-sensitive Asia-Pac names.

Rates – front-end bid, long end offered

• Momentum in 2- and 10-year Treasuries is positive on every timeframe; the 30-year flips negative on the 1-day window.

• That pattern matches last week’s “bond-vigilante kerfuffle”: the curve is steepening as traders fade a near-term recession but continue to demand a premium for long-run inflation and supply risk.

Read-through: The market is settling into a bear-steepening regime—rate-cut hopes at the front, structural worries at the long end.

Equities – duration beats cyclicality

• Nasdaq (+4.3 % 1 h, +1.6 % 4 h) and S&P 500 (+3.4 % / +1.0 %) are the short-term leaders, echoing the Zweig Breadth Thrust and “too-many-bears” contrarian squeeze.

• Russell 2000 momentum is already negative on a 1-day basis (-0.9) and barely positive intraday, underscoring how higher real rates and tariff noise still bite domestically focused small caps.

• Dow prints red on the 4-hour and 1-day horizons.

Read-through: Traders are favouring long-duration, cash-rich tech over cyclicals—classic “late-cycle risk-on”.

Commodities – defence, not demand

• Gold shows accelerating strength (1-h +1.5, 1-day +3.9) as central-bank buying and tariff-hedging trump the softer dollar.

• Copper is modestly positive, but crude oil is the standout laggard (1-day -1.8) after the White-House tariff de-escalation and OPEC+ supply chatter.

Read-through: The tape is hedging inflation with gold yet pricing weaker real-economy demand through energy.

Digital assets – high-beta relief

• Bitcoin posts the strongest scores across all horizons (4.9 / 4.5 / 3.1). The bid for “liquidity-beta” confirms that the street sees last week’s policy U-turn as a green light for speculative risk.

Strategy for the Week Ahead

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A lot happened in markets last week, and it is easy to get lost in the noise. One story stands out, and you MUST pay attention!

The chart above shows the price action of 3”10Y Bond Futures (Blue) and the USD Index (Red). Both fell sharply last week, at the same time stocks were cratering.

Bonds, stocks and USD being sold together doesn’t just signal capital flight from the USA. It signals that USTs are no longer a “safe haven” due to political instability, unanchored inflation expectations and an administration determined to frustrate China’s rise and defend the US position as global hegemon at any cost.

This “doom loop” price action is typical of emerging market, but certainly not typical of the sovereign that issues the world’s reserve currency. Stagflation asset pricing dynamics are a toxic combination for policy makers because it means the FOMC may just need to hike rates into falling growth, else the currency will crater. And it puts a knife in the heart of economic modelling which predicted foreigners would substantially bear the costs of tariffs via exchange rate declines.

We are in a period of heightened volatility and correlations may not persist. But keep an eye on both the USD and long-end of the bond market. In the space of just days we erased weeks of bullish price action spurred by the “Bessent wants the 10Y lower trade”. If we break the bottom of the ranges, there is no technical support and we will enter pure price discovery.

Market Moving Narratives

Here are the top five market-moving narratives from the past week's economic and market developments:

1. Escalation of U.S.-China Trade War

   • The U.S.-China trade conflict intensified with substantial tariff hikes—China imposed a 34% tariff increase on U.S. goods, prompting the U.S. to respond with tariffs of up to 145% on Chinese imports.

   • This severely impacted investor sentiment, causing sharp declines in stock markets globally, with notable drops in U.S. stock futures, plunging Treasury yields, and significant currency depreciation for the Chinese renminbi.

   • Markets now anticipate multiple Federal Reserve rate cuts beginning as early as May due to rising recession fears, with the U.S. recession probability in betting markets nearing 70%.

2. Significant Volatility in U.S. Equity and Bond Markets

   • U.S. equity markets saw extreme volatility, marked by sharp declines and partial rebounds. The S&P 500 neared bear market territory, suffering one of its largest multi-day losses historically due to tariff-induced fears, with a potential loss of $5.8 trillion in stock market value.

   • Bond markets experienced turmoil, with the 10-year Treasury yield swinging significantly—from below 4% to 4.45%. Credit spreads widened, reflecting increased risk perceptions and investor stress.

   • The VIX surged to near 60, indicating heightened investor anxiety and widespread market distress, exacerbated by record-high volumes in put options and de-risking by hedge funds.

3. Canada Faces Severe Labor Market Setbacks

   • Canada reported its largest monthly job loss in years for March, driven mainly by full-time employment reductions, elevating unemployment rates and causing declines in labor force participation.

   • The Canadian economy faced further challenges from the U.S.-imposed auto tariffs, critically impacting its automotive industry and highlighting vulnerabilities in North American supply chains.

   • Bond yields in Canada continued to trend downward as investors priced in anticipated rate cuts from the Bank of Canada, suggesting deepening economic concerns.

4. Global Commodities Under Pressure Amid Recession Fears

   • Commodity markets broadly declined, led by significant sell-offs in crude oil and industrial commodities like copper and iron ore, driven by growing fears of a global recession and weakened demand.

   • Brent crude oil prices dropped below $65 per barrel amid rising OPEC+ production and reduced demand forecasts, causing investors to significantly scale back positions in energy equities.

   • However, gold surged to record highs, reinforcing its status as a safe-haven asset in the face of growing global economic uncertainty and volatility.

5. Divergent Economic Signals and Central Bank Responses Worldwide

   • Japan faced falling equity prices, declining government bond yields, and a reassessment of monetary policy expectations, with the market moving away from anticipating rate hikes by the Bank of Japan.

   • The Eurozone grappled with a declining industrial production in Germany and a recession in construction sectors, pushing European bond yields lower and heightening expectations of rate cuts by the European Central Bank.

   • Emerging markets showed mixed results; currencies benefited from a weaker U.S. dollar, but equity markets remained volatile amid ongoing global uncertainties. Cryptocurrencies faced substantial pressure, with Bitcoin notably falling below $80,000 amid broader risk aversion.

Economic Data Recap

• Australia saw declines in consumer and business confidence. Westpac Consumer Confidence fell sharply to -6.0% in April from a positive 4.0% previously, significantly below expectations. The Consumer Confidence Index dropped to 90.1 from 95.9. Additionally, NAB Business Confidence fell slightly to -3 in March from -1, in line with forecasts.

• Canada's Ivey PMI dropped to 51.3 in March, down from 55.3, missing market expectations of 53.2.

• Japan experienced a decline in consumer confidence to 34.1 in March from 35.0, below the anticipated 34.7.

• China's inflation rate improved marginally but remained negative at -0.1% in March from -0.7%, slightly below the 0.1% expectation.

• US Core Inflation increased modestly by 0.1% month-over-month in March, lower than the expected 0.3%.

• UK GDP grew positively, outperforming expectations. Year-over-year GDP rose to 1.4% in February, significantly beating the expected 0.9%, and monthly GDP grew 0.5%, surpassing the forecasted 0.1%.

• Germany's inflation rate in March was reported at 2.2%, down slightly from 2.3%, matching market forecasts.

Momentum Analysis

Current momentum data and recent market narratives highlight a clear risk-off regime characterized by increasing economic uncertainty and recession fears, primarily driven by escalating U.S.-China trade tensions and weakening global economic indicators.

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The following analysis is for educational and informational purposes only and should not be considered personalized financial advice. Always do your own research and consult a qualified professional before making investment decisions.

Apology

Firstly, I want to apologize for not getting this note on time this week. Normally, I like to write over the weekend but I got jammed with family commitments. Then yesterday, we had a death in the family and so although the note was already 70% written I couldn’t complete it.

Given constraints, the note is shorter in terms of commentary but contains many more charts. In times of panic, like the present, it pays to zoom out and look at the long term trends; that is, linear trends on 1 year and 5 year time horizons.

Hopefully my “bear market” and “don’t buy levels” advice helped keep you on the right side of the market. Personally, I’m disappointed to have monetized my short stocks position too early and there is a lesson; I should have waited until we saw signs of positive momentum before taking off the short position. Problem is my time zone is Melbourne, Australia and this approach would result in big reversals against my position by the time I get the signal. In any case, my risk was monetized at 5,100 which is where we are trading right now, and we do have positive momentum signal on 5m timeframe.

Sorry, I’m pushing out the note in a state of almost completion but I feel it is better late than never. Thanks for your understanding.

As usual, if you have any questions please reach out via the comments or within chat.

Must Watch Content

Scott Bessent was interviewed by Tucker Carlson last week and it is the “must watch” content of the week.

Before seeing the video, I saw Micahel Kao’s take on Trump’s grand plan:

It seems to me that the Trump 2.0 Tariff Strategy is ultimately aimed at cinching off all escape valves for China.

If we play it out to the limit, let’s say we Balkanize into regional blocs and China tries to power through with their Runaway Assembly Line Top-Down model without the US Consumer.

If the US succeeds in blocking off transshipment opportunities with these Global Tariffs, without the US Consumer as the end market, they will just wind up hollowing out the PBOC balance sheet as it bails out uneconomic businesses, churning out goods no one wants.

Result: Spectacular CNY implosion.

— Michael Kao (Urban Kaoboy)

My takeaways from the Bessent interview are:

• Trump tariffs aims to break the “runaway assembly line” business model of China.

• More interesting than discussions with countries will be the Trump administration’s discussion with companies. Deregulation and tax incentive are coming; companies are going to have a strong incentive to go big on capex within USA.

• I loved Bessent’s “body builder analogy” about the perceived strength of the US economy; it has inspired me to write a post (in progress) on GDP.

• Lastly, who could miss Bessent’s ambivalence about stock market returns. In his words, look at who owns stocks:

  • top 10% of wealthy Americans own 88% of equity market

  • next 40% of wealthy Americans owns 12% of equity market

  • bottom 50% of Americans don’t own equities, they owe debt.

Market Moving Narratives

Below are my top 5 market-moving narratives from the past week. I would add to these the “Black Monday” narrative that gained traction over the weekend, and catalyzed a giant 4% opening gap this morning in Asia.

These narratives collectively underscore a macro backdrop of policy shocks, tightening financial conditions, and fractured global trade—making markets highly sensitive to forward guidance and geopolitical developments.

Investors and traders alike wait with baited breath for a walk back from Trump, but this is just cope in my view. However, he will gloat the “wins” ie. favourable trade deals stuck with trading counterparties. In my opinion, that is the best news we can anticipate.

1. Trump’s Trade War Escalates – Stagflation Risks Surge

President Trump’s imposition of a universal 10% tariff on all imports (effective April 5) and reciprocal tariffs of up to 25% on 60 countries is the dominant market narrative. This “Trump Tariff Turmoil 2.0” has:

• Triggered a broad equity sell-off (S&P 500’s worst day since the pandemic, Nasdaq entering bear market).

• Fueled stagflation fears, with PCE inflation expected to rise to 3–4% and growth stalling.

• Increased the probability of a U.S. recession to 50%, with the Atlanta Fed GDPNow projecting Q1 contraction of 1.4%.

• Sparked retaliatory tariffs from China (34% on U.S. goods), and increased risk of global trade fragmentation.

2. Global Manufacturing Downturn Intensifies

Manufacturing PMIs showed ongoing contraction in major economies:

• U.S. ISM Manufacturing PMI fell to 49, below expectations.

• Germany and UK remain in contraction despite minor rebounds; UK’s PMI is a particularly weak 44.9.

• Eurozone’s unemployment fell to 6.1%, but services confidence is deteriorating.

• Cost pressures are rising, signaling future goods inflation, especially in the U.S. and Canada.

3. Financial Conditions Tighten – Equity and Credit Markets React

Markets are re-pricing risks across the board:

• U.S. equities posted steep losses, particularly in tech and small caps. The S&P 500's forward P/E fell below its 10-year average.

• High-yield spreads widened sharply, matching the 2020 COVID stress levels.

• Long/short hedge funds reduced exposure, and SPY ETF saw large outflows.

• Rate cuts are now fully priced in, with 3 Fed cuts expected in 2025 amid growth concerns.

4. Resilient Labor Market vs. Cracks Emerging

Despite economic turmoil, March’s Non-Farm Payrolls beat expectations (228k vs 135k) and unemployment rose only slightly to 4.2%. However:

• Layoff announcements have surged, especially in tech, retail, and government.

• Job openings (JOLTS) fell again, and continuing claims are rising.

• The Beveridge Curve indicates labor market cooling, but not breaking—yet.

5. Commodities Rally and Policy Divergence

• Gold surged to record highs ($3,192) amid safe-haven demand, with projections reaching $4,000 if tariffs persist.

• Copper and silver markets are volatile: CTA demand is high, but short interest in silver ETFs hit records.

• Oil prices collapsed (~7% drop in Brent) as OPEC unexpectedly boosted supply.

• Diverging central bank paths: ECB and BoE are expected to cut rates, while Japan and Canada face policy constraints.

Momentum Analysis

Momentum across global macro assets presents a clear picture of a high-volatility, stagflationary risk-off regime with elements of flight to quality and policy-driven dislocation across global macro assets.

Read more

United States

• Retail Sales (Feb): +0.2% MoM, rebounding from -0.9% but below expectations of +0.6%.

• Housing Market:

  • Building Permits: 1.456M (slightly below previous 1.473M but above the 1.450M forecast).

  • Housing Starts: 1.501M, beating expectations of 1.38M.

  • Existing Home Sales: Rose to 4.26M, well above the 3.95M forecast.

• Federal Reserve: Held rates steady at 4.5%, in line with expectations.

China

• Retail Sales (Jan–Feb): +4.0% YoY, up from 3.7%, in line with forecasts.

• Industrial Production (Jan–Feb): Slowed to +5.9% YoY from 6.2%, but beat the expected 5.3%.

• 1Y Loan Prime Rate: Unchanged at 3.1%, as expected.

Japan

• Inflation (Feb): Slowed to 3.7% YoY from 4.0%, below the 4.2% consensus.

• BoJ Policy Rate: Increased to 0.5%, in line with market expectations—marking a continued step away from ultra-loose policy.

• Trade Balance (Feb): Surplus of ¥584.5B, a significant improvement from the prior deficit, though below the expected ¥722.8B.

Euro Area

• Inflation (Feb): Fell to 2.3% YoY from 2.5%, slightly better than the expected 2.4%—continuing the disinflation trend.

Canada

• Inflation (Feb): Rose to 2.6% YoY, exceeding the 2.2% forecast, signaling some stickiness in price pressures.

United Kingdom

• Unemployment Rate (Jan): Held steady at 4.4%, in line with forecasts.

• Consumer Confidence (Mar): Improved marginally to -19 from -20, better than the expected -21.

Australia

• Unemployment Rate (Feb): Unchanged at 4.1%, as expected.

Market Moving Narratives

Based on the global macroeconomic and market developments from last week, we have cherry picked the top 5 narratives driving investor sentiment and asset prices:

“Trump Tariff Turmoil 2.0” and the Looming Trade War Risk

Anticipation of the April 2 reciprocal tariffs under President Trump’s “Liberation Day” agenda has become the dominant macro risk narrative. Market participants are increasingly pricing in the potential for escalating trade tensions—with downside risk to global growth, rising input costs, and possible retaliatory measures. Investor concerns are amplifying amid:

• Surging mentions of “stagflation” in financial media.

• Elevated uncertainty around which countries and sectors will be hit.

• A softening of valuation multiples as a hedge against tail risk. While some bulls still hope for political backtracking under pressure, bearish scenarios (recession or stagflation) are gaining probability.

The Federal Reserve’s Balancing Act Amid Growth and Inflation Risks

The Fed held rates steady at 4.5%, but downshifted growth forecasts and slightly upgraded inflation expectations. This reflects a growing risk of policy mistake: cutting too early in the face of sticky inflation or holding too long and overtightening into weakening growth. Key developments:

• The Fed will slow QT by capping Treasury roll-offs at $5B starting April.

• Real GDP projections lowered to 1.7% (2025), while unemployment forecast was revised up to 4.4%.

• Powell emphasized “uncertainty” repeatedly—a sign of strategic patience, but also hesitance.

Earnings Deterioration and Market Rotation

US equities are at a critical inflection point, with:

• 13 consecutive weeks of net earnings downgrades in the US.

• The "Magnificent 7" mega-cap cohort down ~15% YTD; tech and consumer discretionary underperforming.

• A rotation into high-dividend and foreign equities, especially in Germany and China, as valuation gaps compress. While insider buying has picked up marginally, retail sentiment remains deeply bearish, suggesting fragile support levels.

Resilient but Fracturing US Economy

The US economy continues to show mixed signals:

• Manufacturing is buoyed by auto production and the Philly Fed beat, but capital expenditure plans are turning negative.

• Existing home sales bounced, but inventories are up and affordability is constrained.

• Labor market remains tight with historically low jobless claims, yet wage pressures and insurance costs are weighing on consumer sentiment. The macro picture is one of resilience with cracks forming, raising the stakes for policy missteps or external shocks.

Global Divergences and Capital Reallocation

Macro divergence across regions is driving cross-border capital reallocation:

• Europe: Germany's fiscal expansion boosts outlook; UK muddling through stagnation; SNB cuts stoke deflation fears.

• Asia: Taiwan, Japan, and New Zealand are seeing stronger-than-expected momentum, while China’s FX dynamics suggest hidden stress.

• EM: Brazil’s stocks surged post-hike, Turkey’s markets tumbled amid political risk, and capital outflows from Emerging Asia continue. Investors are increasingly rotating out of high-multiple US equities into international exposures with better valuations and macro tailwinds.

Read more

U.S. Inflation & Consumer Sentiment Cooling

• February CPI rose 0.2% MoM, below the expected 0.3% (prev. 0.5%).

• Core CPI dropped to 3.1% YoY, softer than the 3.2% expected (prev. 3.3%).

• Producer Prices (PPI) stagnated in February at 0.0% MoM, missing the 0.3% forecast (prev. 0.4%).

• Michigan Consumer Sentiment plunged to 57.9 in March, well below the 63.1 consensus (prev. 64.7). And also the Michigan Inflation Expectation survey exploded to the upside; an extreme/political result, but directionally correct.

Europe: Weak Growth, Stable Inflation

• UK GDP shrank 0.1% MoM in January, reversing from December’s 0.4% growth (expected 0.1%).

• Annual UK GDP growth slowed to 1.0%, missing the 1.2% forecast (prev. 1.5%).

• Germany's inflation held at 2.3% YoY in February, as expected.

• France’s inflation cooled to 0.8% YoY (prev. 1.7%), in line with expectations.

China Deflation Deepens

• China’s CPI fell 0.7% YoY in February, below the -0.5% forecast (prev. 0.5%).

Australia: Mixed Signals

• Business confidence deteriorated in February to -1 (expected 6, prev. 4).

• Consumer confidence surged in March to 95.9 (prev. 92.2, expected 92).

Takeaway:

• Disinflation is taking hold in the U.S., with both consumer and producer prices cooling faster than expected.

• Consumer sentiment plunged, raising concerns over demand resilience.

• UK and China show signs of economic weakness, with contractionary UK growth and deepening deflation in China.

• Australia remains divided, with business sentiment weak but consumer confidence rebounding.

Easing inflation supports the case for rate cuts in the U.S. and Canada, while weak UK GDP may add pressure on the BOE. China's deflation and UK’s slowdown highlight global demand risks.

Influential Narratives

Tariff Turmoil: The Market is Calling Trump's Bluff

Markets are waking up to the reality that Trump's second-term trade war isn't just a negotiating tactic—it's a structural shift. Unlike his first term, where tariffs were a tool to force trade deals, this time around they're a fiscal policy experiment—an attempt to fund the government while reshoring production. The problem? Tariffs are an inefficient tax that raises costs for consumers while doing little to plug fiscal holes. Wall Street is pricing in the risk of a prolonged trade war, with retaliatory tariffs from Europe and Asia likely to escalate. If Trump stays the course, expect continued equity weakness and a shift toward defensive assets.

S&P 500: From “Buy the Dip” to “Wait for the Flush”

The S&P 500 correction has pushed valuations toward a more reasonable level, but the big question remains: is this just a pullback or the start of something worse? Small caps (S&P 600) are already near bear market levels, and the Magnificent 7 are unwinding hard. Corporate earnings are facing downward revisions, and forward P/E compression suggests we are not at the buyable bottom yet. Add in a rising risk premium from political uncertainty, and the smart money is sitting on cash, waiting for a better entry.

Inflation: Easing but Not Enough for the Fed

CPI and PPI both came in softer than expected, but the Fed isn't flinching. Core PCE—the Fed’s preferred inflation gauge—is still sticky, and any tariff-driven price pressures could force them to delay rate cuts. While bond markets have aggressively priced in multiple cuts this year, the Fed is more likely to hold, especially if fiscal and trade policy remain chaotic.

Global Trade Fractures: The Economic Slowdown is Here

• China’s deflation is deepening, confirming weak domestic demand and a lack of external growth drivers.

• The US dollar is off to its worst start of the year in decades, indicating global investors are shifting capital away from USD assets.

• Euro-area industrial production is recovering, and European government bonds are attracting capital as the rate differential with US Treasuries narrows.

• EM credit markets are tightening, as capital flight from riskier assets accelerates amid global slowdown fears.

Credit Markets: Something is Breaking

Widening credit default swap (CDS) spreads in corporate bonds suggest that stress is building under the surface. High-yield is underperforming investment-grade, and leveraged loan returns are slipping—clear signs that funding costs are tightening for weaker companies. If we see a credit event in the coming months, it will likely emerge from middle-market US firms struggling under rising borrowing costs and supply chain disruptions.

Gold and Commodities: The Rotation is On

• Gold near $3,000 signals a rush for hard assets as global uncertainty spikes.

• Crude oil demand forecasts have been revised lower, but OPEC+ supply cuts could keep a floor under prices.

• US natural gas futures are climbing, while industrial metals like copper are catching a bid, suggesting the market sees some industrial resilience despite broader macro weakness.

Takeaway: Markets Have Shifted to Defense

The narrative is shifting from “soft landing” to “policy-driven instability” as Trump’s tariffs, geopolitical tensions, and economic slowdown risks mount. Investors are rotating into defensive assets, watching for the next shoe to drop in credit markets. The S&P 500 correction isn’t over, but select opportunities in commodities and quality defensive stocks are emerging. Stay nimble.

Momentum Analysis

Trends & Signals

Risk-Off Rotation Intensifies: Weak Equities, Strong Gold

• S&P 500, Dow, and Nasdaq continue to show negative momentum, reinforcing the market's corrective phase.

• Small-caps (Russell 2000) are taking the biggest hit, down almost 3% in the last 4 hours, signaling risk aversion and liquidity concerns.

• Gold remains the standout performer, with momentum accelerating across all timeframes—a clear flight to safety.

• The correlation shift between bonds and stocks suggests the market is no longer treating Treasuries as a hedge, leaving gold and cash as preferred defensive allocations.

Currency Flows Indicate a Shift Away from the U.S.

• Euro, British Pound, and Japanese Yen are all strengthening, indicating capital rotation out of the dollar.

• Australian Dollar is struggling, despite a short-term bounce, suggesting global risk appetite remains low.

• U.S. Dollar's downward momentum aligns with its worst start in decades, as investors recalibrate Fed expectations and trade war risks.

Bond Market Volatility Suggests Uncertainty on Rate Cuts

• Short-term U.S. Treasury yields are rising, while long-duration bonds remain under pressure, suggesting the market is still pricing in uncertainty around rate cuts.

• The 2Y Note's positive momentum is notable, indicating the front-end of the curve is stabilizing, but the overall yield curve remains a challenge for equities.

Commodities: Gold Outperforms, Oil & Copper Hold Up

• Gold is leading the commodity space, benefiting from weaker dollar flows and safe-haven demand.

• Copper’s positive momentum suggests industrial demand remains resilient, although it may be a short-term bounce rather than a new trend.

• Crude Oil remains in a downtrend, reflecting weak global demand, despite supply-side risks.

Bitcoin Stabilizing, But Still Risk-Off

• Bitcoin flipped positive on a 1-day timeframe, but its shorter-term momentum is choppy.

• Crypto remains a secondary risk asset, meaning if equity volatility persists, Bitcoin will likely struggle to establish a clear uptrend.

Strategy for the Week Ahead

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I’ve been managing a short in S&P futures all week — executed early Monday morning during the Asian session, shortly after publishing the Weekly Edge.

I was very fortunate with my execution, getting the whole package on at 5,980.

That has been a great hedge for my long equity beta and short volatility exposures that are mainstays of my portfolio. However, this trade/hedge now represents a sizeable unrealized gain which I don’t want to give back to Mr. Market.

Today I executed a ratio spread to lock in the gains on my short position, and at the same time gain upside exposure.

I sold ATM puts struck at 5,750 and bought OTM calls struck at 5,880 and did the whole package for a small credit. If we continue selling off (entirely possible) my gains won’t increase. However, if we experience a sharp rally (inevitable at some point) then I’m looking pretty as a picture.

Speaking of pictures, during times like this it is always helpful to observe the bigger picture.

5 Year Trend

If we calculate a linear regression of daily closing prices from 1 Jan 2020 to 31 December 2024, we get the chart below. This chart shows both the trend (dotted line) and 2 standard deviations above/below trend.

Today, the mean of the 5-year trend is 5,500. It is impossible to know whether we will get there, but you should at least be aware of this key level.

1 Year Trend

The chart below applies the same principles, this time based on a linear regression of daily closing prices from 1 January 2024 to 31 December 2024.

We have broken down from the channel, which is one of the reasons for accelerated selling.

If we are still in a bull market, and based on economic data there is no reason to think otherwise, sharp and painful pullbacks are par for the course. They are dips to be bought.

1 Month Trend

Lastly, this chart shows the 1 month liner regression of daily closing prices. Yes, it is ugly!

We were already setup for bearish trend going into this week, and we’ve broken out of the channel to the downside.

We can begin to anticipate what the trend might look like next week. We usually calculated the monthly trend based on the 4 prior weeks of price data. However, if we calculate the trend based on the last 3 weeks and 2 days (from 10 February to 4 March) we get the pink channel below.

Clearly, the slope of the pink channel is very steep to the downside. When expectations for the future path of prices get extreme, whether to the upside or the downside, it doesn’t take much to get a move which upsets expectations and forces poorly positioned traders to cover.

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Recent data shows a patchwork of slowing consumption, softer housing, and mixed manufacturing signals.

• U.S., January personal spending declined (-0.2%), while durable goods orders beat expectations (+3.1%). The labor market remains tight despite upticks in layoffs—particularly in government-related roles.

• Eurozone data was mixed: Germany’s Q4 GDP slipped (-0.2%), and consumer confidence fell short (GfK -24.7). Meanwhile, French inflation dipped below 1%, a surprise on the downside.

• China’s manufacturing PMI surprised to the upside at 50.2, suggesting a modest expansion.

Market Impact and Price Action

• Equities: Renewed caution amid “growth scare” headlines has driven a rotation out of high-profile tech (the “Magnificent-7”) into broader markets. Despite this, AI-related names (like Nvidia) remain resilient on strong sales forecasts.

• Fixed Income: Treasury yields continue drifting lower, reflecting a pivot toward safety as central banks are expected to further cut rates.

• Commodities & FX: Gold has seen consistent inflows as a safe haven. Oil has weakened (Brent < $73) on oversupply concerns and demand uncertainty. The U.S. dollar retreated slightly from its peak, but overall remains historically elevated.

Momentum Analysis

Despite an ongoing uptrend in many risk assets at the daily level (especially for major stock indices), short‑term momentum is uneven. Meanwhile, Treasuries remain the clearest winner, with strong positive momentum across all timeframes.

FX

FX mostly leans toward a firm USD, with AUD and EUR notably weak; GBP is slightly more balanced; JPY choppy.

• Australian Dollar: momentum is consistently negative across timeframes.

• British Pound: mixed with longer horizons are near zero/negative, short intraday just turned mildly up.

• Euro: uniformly negative across every timeframe.

• Japanese Yen: choppy and inconsistent, with different timeframes flipping in opposite directions.

Fixed Income

Bond markets are showing strong bullish momentum across the curve (lower yields).

• 2 Year: strong bullish momentum (price up, yields down) across all timeframes.

• 10 Year: broadly bullish across the curve—10‑Year momentum is positive in every window.

• 30 Year: entire Treasury complex remains in a strong up‑phase (bond prices rising, yields trending down).

Equity Index

Equities are a “split screen,” with the Dow outperforming on every interval, while S&P and Nasdaq show short‑term chop and the Russell leans weaker.

• S&P 500: bullish bias on the daily chart, but choppy intraday signals—some negative (240/60) vs. a recent small pop (15‑min).

• Nasdaq 100: Longer‑term trend remains up, but near‑term (intraday) momentum is negative or barely below zero, suggesting headwinds in the short run.

• Russell 2000: longer timeframes remain under pressure (negative momentum), yet the very short‑term (15‑min) recently flipped up. This may be a minor bounce within a bigger downtrend.

• Dow Jones: stands out with consistent positive momentum across all timeframes right now.

Commodities

Commodities show short‑term reversals (Oil higher intraday, Gold softer intraday).

• Crude Oil: still in a broader daily downtrend but has flipped positive in shorter timeframes, hinting at a short‑term bounce.

• Gold: remains in a bigger uptrend on the daily, but short‑term momentum turned negative—likely a minor pullback within an ongoing bullish trend.

• Copper: overall positive on daily and most intraday frames; a brief short‑term wobble on the 15‑min reading, but the bigger picture remains bullish.

Crypto

BTC looks to be staging an intraday bounce against a longer backdrop that’s roughly neutral/negative.

• Bitcoin: near flat to slightly negative on the daily, but showing a short‑term upside pop on the intraday timeframes.

Chart Book

FX

Australian Dollar

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• The narrative vacuum of the past few weeks is over. “Growth Scare” is the dominant market narrative; it is time to take down risk and/or open short positions. If you’re nimble, USTs can be ridden higher and probably USD also.

• Friday’s close was a bloody for equities. Every index will open this week below the 2 standard deviation lower boundary of our monthly linear trend.

  • Russell 2000 has already broken the 1-year linear trend.

  • S&P 500 is set to break its 1-year linear trend.

• JPY and GBP are the strongest pairs against the USD, but risk short-term corrections on a “flight to safety”.

• Copper is bullish trend but may pullback to test $4.45-4.50 per pound.

• USTs have been ignoring hot inflation data for weeks, and I have no doubt they will continue rallying short term if the growth scare gathers steam.

  • 2Y has already fired a bullish signal on the daily timeframe.

  • 10Y and 30Y are close to triggering bullish signals on the daily timeframe.

• Macro is light this week but Nvidia earnings on Wednesday could be the volatility catalyst. Friday is monthly options expiration.

Macro & Economic Data Recap

Recent economic data paints a picture of generally rising inflation across major economies, with a few pockets of divergence. Notably:

• Japan’s inflation rose to 4.0% in January, above the expected 3.7%.

• UK inflation climbed to 3.0% in January, higher than the 2.8% forecast.

• France’s inflation (YoY) accelerated to 1.7% from 1.3%, surpassing expectations.

In North America, inflation concerns persist, but employment trends remain relatively stable. The Federal Reserve appears poised to keep rates on hold, emphasizing a “dovish pause” in response to still-elevated, albeit slowly moderating, price pressures. Meanwhile, Canada’s inflation aligned with expectations at 1.9% YoY, and foreign investment in Canadian government debt continued to rise. US housing data was mixed: permits (1.483M) narrowly beat consensus, while housing starts (1.366M) missed. Existing home sales also softened to 4.08M.

Europe showed patchy growth. Germany’s Manufacturing PMI beat expectations at 46.1, but remains in contraction territory, while the UK’s Manufacturing PMI slumped further below 50. Despite headwinds, Eurozone equities attracted robust inflows, helped by lower valuation multiples and optimism surrounding monetary policy easing in some parts of the region.

In Asia, Japan’s trade balance swung into a larger deficit of -2,758.8B yen, driven by an uptick in imports alongside the yen’s strength. China’s 1-year Loan Prime Rate stayed at 3.10%, roughly matching expectations, although broad money supply growth is easing. Chinese equities have enjoyed fresh inflows on the back of monetary/fiscal easing and attractive valuations, despite persisting tariff concerns.

Australia’s unemployment rate ticked up to 4.1% from 4.0%, matching estimates.

Market Impact and Price Action

1. Fixed Income & Rates

   • Bond yields fluctuated in response to global inflation data. A “hotter-than-expected” US CPI earlier caused the 10-year Treasury yield to jump about 10bps, reflecting renewed inflation worries. More recently, the Fed’s signals of caution (and the possibility of a future rate cut if inflation cools meaningfully) kept yields in check.

   • Across Europe, German Bund yields edged up, but peripheral spreads tightened amid continued optimism on European GDP revisions.

2. Equities

   • The S&P 500 briefly touched a new high before stalling as investors juggled lower unemployment claims and persistent inflation chatter. But the Friday close was decidedly bearish.

   • Homebuilder stocks in the US lagged after weaker housing starts and renewed tariff concerns on construction materials.

   • In Europe, renewed inflows and more dovish European Central Bank language helped stocks in the eurozone outperform, with bank shares in particular rallying on better-than-expected earnings.

   • China-related equities advanced on supportive policy maneuvers, stronger consumer spending signals, and an uptick in portfolio flows seeking value.

3. Commodities & Currencies

   • Gold reached a record $2,952/oz, marking a robust year-to-date outperformance. Central bank buying and renewed investor preference for safe havens underpinned its rally.

   • Oil markets stayed relatively range-bound, with OPEC+ spare capacity slowly rising and US crude inventories building.

   • The Japanese yen strengthened to below 150 per USD, partially on rising domestic yields and safe-haven flows.

4. Corporate Highlights

   1. Walmart slid 6.5% post-earnings on a cautious outlook citing potential tariff pressures and currency headwinds, triggering a ripple effect across US retail and bank stocks concerned about consumer-credit delinquencies.

Policy & Economic Outlook

• Monetary Policy: The Fed’s January FOMC minutes emphasize vigilance on inflation but do not rule out a gradual shift toward easing if inflation falls closer to the 2% target. Look for additional clarity in upcoming Fed communications, particularly around debt-ceiling dynamics and quantitative tightening.

• Tariff Watch: Potential reciprocal tariffs, especially in the US-China context, threaten to keep price pressures higher. This risk could be amplified if the administration proceeds with more tariffs in early Q2, putting upward pressure on inflation expectations and bond yields.

• Equities: While corporate earnings have been mixed, mega-cap tech and cyclical manufacturing names benefit from stabilizing supply chains and consumer resilience. However, high valuations (e.g., forward P/Es near historically elevated levels) raise the risk of volatility if earnings or macro data disappoint. A tilt toward select non-US equities may continue, given more attractive valuations in China and Europe.

• Housing: US housing indicators signal sustained headwinds from higher mortgage rates and tighter lending standards. However, continued job market strength supports near-term stability in purchase activity. Expect real estate to remain sensitive to any policy-driven rate changes or further macro shocks.

• Gold & Safe Havens: Gold is incredibly overbought and I’m expecting strong resistance at the round number USD$3,000 per ounce. Crypto markets are subdued relative to gold’s performance, suggesting that gold remains the primary inflation-hedge asset attracting inflows.

Overall, stagflation concerns (rising price pressures and slowing growth) are reemerging in some pockets, especially if tariff expansions materialize.

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The labour market is tight, speculation still rampant and financial conditions are easy. Even the FOMC is beginning to recognize it: yesterday FOMC voter Willi…

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Geopolitical & Trade Developments: Tariffs, Energy, and Supply Chains

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No trade ideas in today’s note but there is a solid overview of the big picture. I will need to do …

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Digesting the DeepSeek Asset Shock

My initial reaction to the DeepSeek asset shock on Monday was to see the stocks down/bonds up reaction as classic “flight to safety”. Many of asset flows are systematic and happen because signals like VIX are embeddded into trading and risk management systems. CTAs, for example, add leverage when VIX declines and decrease leverage when VIX advances.

I’ve had some time to further digest the DeepSeek catalyst and intermarket moves on Monday. DeepSeek can be seen interpreted as a hugely disinflationary signal, ie. the cost curve of the development and runtime of compute environments for AI applications has just collapsed.

It means growth expectations should increase and inflation expectations decrease. Growth increases because both the production and consumption of AI applications become more accessible. Remember economic output is measured of as the sum of transactions in the economy, and economic throughput could ramp with the aid of AI. Think about what has happened as high-speed broadband. Internet has become cheap and abundant; there would be no Web 2.0 and no "web apps", Zoom or work from home.

Inflation should decrease because AI applications are destined to separate humans from their employment; the next decade will be the story of immense technology induced pressure on wages which will be countenanced by politics that protect and preserve the value of voters, I mean labour. We haven't seen anything like this in our lifetime; it is analogous to the Industrial Revolution and advent of steam powered factory plant that could perform mechanical labour at scale.

The disinflationary impulse from AI is the biggest threat to the growth outlook. I assume that with some friction and lag displaced people will find themselves in new careers. Government programs and the private market will move to facilitate the reeeployment of human capital. Over the medium term destroyed jobs != destroyed income. Lost income will be transitory, a necessary friction within the context of a sweeping economic revolution that has huge ramifications for productivity ergo wealth creation. Remember in the long run growth = demographics + productivity.

Back to Bonds

We are testing a key area in bonds, and how the market responds has me contemplating a flip in my directional conviction on bonds.

Prior to the DeepSeek shock, Bleeding Edge was on record as saying that with the Fed firmly on pause, yields were on an endogenous path which should see long rates continue to rise until this tightening of financial conditions causes a slowing in the economy, and consequently a halt to the rise of risk assets like equities.

Inflation has been stickiest in services and shelter. And whilst DeepSeek (and many progeny, soon to follow) will do nothing to ease shelter inflation, it could well smash services inflation over the medium term. Markets are forward looking and will begin to discount this impact.

DeepSeek has soundly shaken and perhaps invalidated my thesis of endogenously expanding rates. As Keynes quipped, "When the facts change, I change my mind. What do you do sir?"

Let me tell you what I see on the charts.

Big picture is an uptrend on the daily and down trend on the weekly when looking at Parablic Support and Resistance (PSAR). This trend indication inconsistent with my proprietary momentum indicator; reason is my indicator is linear whereas PSAR is exponential.

The region from 113'08 to 113'21 is a pivot zone. You can see on the chart, the upper/lower boundaries of this zone are previous PSAR levels that were invalidated by strong market moves that later faded. On the 1h chart the action has been choppy.

The lower boundary of the pivot area lines up with one of the key levels I observe when a momentum flip occurs on my proprietary momentum indicator (refer to arrow shown).

When a new bull trend is signalled by a flip to positive momentum, my technique is to pencil two potential levels of support

1. the close of the signal bar

2. the low signal bar (or high of the signal bar in a new bear trend)

On this basis, the absolute level of support for the current bull trend on 1hr chart is all the way down 112'17, which was the low of the signal bar at 9:00 EST on Friday, 24 January.

When I started drafting this note my decision was to hold all my ZN & ZB positions and wait for further evidence I am on the wrong side of the market. My plan was to wait for two daily closes above 115 before scratching.

Instead I've decided to cut my exposure in half immediately, and will scratch entirely on two daily closes above 115.

As you have likely seen, AI competitor DeepSeek has acted as the catalyst. For months, the AI narrative has revolved around massive capital expenditure by the hyperscalers, with Nvidia as the primary beneficiary. For instance, in Facebook’s recent earnings call, they raised their AI capex estimate from $50 billion to $65 billion. The underlying question now is whether much of this spending has been poorly allocated.

That said, DeepSeek is merely the trigger. Today’s market move is more about the unwinding of extreme positioning and leverage than any rational assessment of DeepSeek’s actual impact. As I emphasized in the latest Weekly Edge, equities were approaching short-term overbought conditions and were primed for correctional consolidation.

While I expected an unwind, I will admit the source of the catalyst caught me off guard. In a week packed with macro events and an FOMC meeting, it is ironic that the spark came from left field, entirely within the private sector.

We’re now approaching a level where buying the dip could make sense. S&P futures are nearing the lower bound of the monthly channel; refer to Weekly Edge for precise levels. My pivot level remains 5,920. I expect it to trade this week (perhaps even today) and I am preparing to position accordingly. I remain bullish above this level and bearish below.

Key Notes:

• When an opening gap is this large, the typical cash market impulse at the open tends to move in the gaps direction (lower) due to forced selling and margin calls.

• Immediate opportunity: Bonds. I have already purchased 111-strike puts today, as the duration rally is not driven by inflation or growth expectations but by mechanical flows. Over the week, I plan to sell a lower-strike put against this position to create a zero-cost spread. My base case remains strong economic data and a hawkish FOMC.

• I am also evaluating a buy/write strategy due to favourable pricing, though I will wait for confirmation that we’re holding above the 5,920 pivot before proceeding.

The only other trades I’ve made today involve managing hedges I entered last week, anticipating a reversal risk.

If you have questions, feel free to tag me in a reply. Stay sharp, and good luck out there.

Our call last week for a bumpier ride on tariff news didn’t fully materialize—markets took Trump’s measured tariff delays in stride, and equities pushed higher but faded on Friday. While we anticipated more volatility from the inauguration headlines, the S&P 500, Nasdaq, and Russell 2000 all ended the week near or at new highs. Credit spreads stayed tight, and foreign buyers continued snapping up U.S. assets, creating a strong bid under the market.

Major Headlines/Surprises

• President Trump delayed immediate tariffs on China, focusing first on Canada and Mexico starting February 1. Markets welcomed the temporary reprieve, lifting risk appetite.

• Japan’s inflation rate jumped to 3.6%, surpassing expectations of 3.2%. Though the Bank of Japan increased rates to 0.5% (as expected), but JPY did a whole lot of nothing.

• UK data disappointed: unemployment rose to 4.4%, and consumer confidence fell more than expected.

• U.S. consumer sentiment (Michigan) also surprised to the downside at 71.1 vs. 73.2 expected. Yet, stronger existing home sales (4.24M vs. 4.19M) suggested a resilient housing market.

Price Action Across Asset Classes

• Equities: The S&P 500 raced to new highs, with small and mid-caps playing catch-up. Banks beat Q4 earnings expectations, adding fuel to the rally.

• Bonds: Treasury yields bounced around on shifting growth expectations and White House rhetoric. Overall, 10-year yields stayed in a 4.5%–4.7% range, reflecting a solid economy but no immediate inflation panic.

• Commodities: Oil slipped from $80 to $75 per barrel after new executive orders aimed at boosting U.S. energy output. Gold stayed bid as a haven, consistent with its positive daily momentum. Copper paused after a brief run-up on Chinese stimulus hopes.

• Currencies/Crypto: The U.S. dollar softened briefly on the tariff delay but is poised to rebound if foreign inflows remain robust. Bitcoin swung around on speculation over a possible U.S. “Bitcoin reserve” but settled little changed.

Prevailing Market Regime

• Tariff talk is top of mind, yet the market sees only a modest near-term shock. Growth signals remain strong (e.g., U.S. housing resilience, banks beating earnings).

• Inflation remains moderate despite Japan’s uptick—broadly, markets are pricing a continued “Goldilocks” scenario: decent growth with contained inflation. Liquidity stays ample as foreign capital inflows pour into U.S. stocks and bonds.

• Consensus regime: bullish equities, mild upward pressure on yields, credit staying tight, and no immediate break in sentiment.

Looking Ahead

Key Data Releases

• Germany Ifo (Monday) and Euro Area GDP (Thursday): Watch these for Eurozone growth sentiment and possible catalyst for reversal in Euro FX.

• US Durable Goods (Tue), GDP (Thu), Core PCE (Fri): Strong prints here would reinforce a hawkish Fed narrative if the Fed chooses to lean that way.

• Australia CPI (Tuesday): Softer inflation read might open the door for RBA cuts in Q1, pressuring the AUD.

• BoC Rate Decision (Wednesday): Markets expect a 25bp cut to 3.00% or a hold at 3.25%. Watch how they balance inflation vs. growth worries.

• Fed Rate Decision (Wednesday): Market is leaning toward no change at 4.5%, but any dovish nuance or tough talk on tariffs from Washington could swing yields.

FOMC in Focus

Why It Matters

The last FOMC in December triggered notable volatility. Since then, key U.S. data have run hotter than forecast (robust housing starts, firm retail sales, better PMI prints). Although the Fed is widely expected to hold rates at 4.5% again (the “pause”), any incrementally hawkish language—hinting at future hikes or emphasizing persistent inflation risks—could catch a complacent market off guard.

Hawkish Tilt Possibility

• Labor & Inflation: Continued low jobless claims and a stable inflation trend (albeit edging lower in some measures) could let the Fed maintain a data-dependent “wait-and-see” stance. But if they want to get ahead of any reacceleration in wage or services inflation, we might see more forceful rhetoric about “further tightening if conditions warrant.”

• Balance of Risks: The Fed might also highlight the risk of letting financial conditions stay too loose if markets rally unimpeded—especially with growth reaccelerating. That could be the hawkish “surprise” scenario, pushing yields higher and strengthening the dollar.

Momentum & Trends

• Equities: Longer-term daily momentum in S&P, Nasdaq, and Russell remains strongly positive. Shorter-term charts show mild choppiness but still lean up. Shorter-term charts show overbought conditions and Friday’s close was week; we believe minor pullback or rotation is plausible.

• Bonds: Choppy momentum signals with small flips on 15- and 60-minute timeframes. The path of least resistance seems slightly higher in yield if growth data keep impressing.

• Commodities: Gold’s daily momentum is firmly up; a breakout above recent highs could attract more flow. Oil’s uptrend broken is broken on the daily chart; rhetoric on supply expansions (U.S./Saudi) weighs. Still, fresh Russia sanctions (strictly enforced) could flip the story bullish quickly—headline risk is high in both directions.

• Currencies: The dollar index is wobbling short term, but sentiment is that strong U.S. growth plus foreign inflows keep a floor under the greenback. Potential rebound area; a hawkish Fed could spark further upside. EUR/USD near 1.05–1.06 resistance, vulnerable to a downturn if global conditions or Fed speak shift.

Best Trading Opportunities

• Short Treasuries: With the 10-year near 4.6%, strong growth prints might push yields higher again. Consider put spreads as a risk-defined way to position for a modest yield rise.

• Long Gold Dips: Safe-haven sentiment and a sustained uptrend combine to make gold attractive on pullbacks.

• Short EUR/USD near 1.05–1.06: This zone has proven sticky resistance. The EUR’s bounce last week was fueled by relaxed tariff chatter and strong European PMIs, but a hawkish Fed on Wednesday could revive the dollar’s uptrend.

• Short-Term Caution on US Stocks: Equities are still in a broader bull trend, but they look stretched on the shorter horizon. Friday’s weakness hints at possible consolidation or rotation. Consider hedges or tight stops on fresh longs.

• No Touch on Crude Oil: The uptrend looks broken. Policy headlines are pulling in opposite directions—U.S./Saudi capacity increases vs. potential sanctions to pressure Russia. The market feels like a coin toss here, so we prefer to stand aside.

• Keep an Eye on AUD: Aussie outperformed recently on China-driven commodity strength. However, if Tuesday’s CPI disappoints, the RBA might fast-track cuts given Australia’s slowing growth. That would weigh on AUD.

Chartbook

Foreign Exchange

Australian Dollar (6A)

Last week we said we liked AUD long, principally because (i) it was bouncing after hitting fresh 4-year lows, and (ii) divergence from industrial metals like Copper, which had been ripping.

Against a backdrop of broad USD weakness, the monthly trend in AUD has flipped to bullish. Momentum is now positive on 1h and 4h timeframes. We continue to be bullish AUD but are not adding more risk ahead of inflation data on Tuesday. The RBA is looking for an excuse to cut, which is why divergence had arisen between the AUD and Copper.

British Pound (6B)

Pound Sterling rallied against the dollar (as did all G7 pairs) and broke above the steep monthly down channel it had been trading. The rally wasn’t enough to neutralize the monthly down trend; however, the Pound did outperform Euro (observable via EURGBP).

Despite downbeat UK data, two factors helped push sterling above the euro:

1. Relative Monetary Policy Outlook
   Even with weaker economic data, traders still see the Bank of England staying on a hawkish footing longer than the European Central Bank—particularly if UK inflation remains sticky.

2. Short-Covering & Positioning
   Heading into last week, markets already had hefty short positions in GBP. When the negative UK data prints didn’t spark another leg lower, short sellers began covering, adding support to sterling. Meanwhile, Euro positioning was not as skewed, so EUR lacked that additional “snapback” effect against GBP.

We lean towards the latter view, ie. the trend into last week was steep and narrow. Soft data was expected and did indeed materialise, but expectations were obviously for even softer data.

Canadian Dollar (6C)

The Canadian Dollar remained rangebound with no apparent trend. Tuesday’s tariff news caused volatility but no trend emerged. We are long puts on the Canadian Dollar with a 6 month time horizon, and are data dependent in terms of whether we continue to inventory the position. We expect the BOC to ease sooner and more aggressively than global peers, and we expect the currency to weaken if the tariff threats materialize.

Euro (6E)

The Euro broke its monthly downtrend and is now in a gentle uptrend with wide dispersion. We remain bearish the Euro and believe we are in the 1.05-06 where shorts can be considered, with a tight stop loss around 1.07. Momentum is positive on 1h and 4h charts but remains negative on the daily. Further rally from here into the 1.06 area will be enough to bring daily momentum to the zero line.

Japanese Yen (6J)

Our expectations for Yen outperformance last week did not materialize. The monthly trend moved from sideways to slightly up, but only because the market consolidated at the highs rather than due to a rally. Momentum remains choppy on the 1h & 4h timeframes, and negative on the daily. Perhaps it will take sequential hot data (which seems likely) to finally reverse the persistent down trend.

Treasuries

2Y Note (ZT)

No real change in price or in view. We prefer short positions on the 10Y or 30Y; there is no near-term catalyst for 2Y notes to advance or decline—the cutting cycle is paused and incoming data continues to be hot.

10Y Note (ZN)

We remain in a downtend but the speed of the decline has slowed, with 10Y notes basically trading sideways last week. Momentum remains negative on 4h and daily charts, with momentum on the zero line on the 1h chart. This is a market poised to move on the slew of macro this week. We expect strong prints (Durable Goods, GDP, PCE) and a marginally more hawkish Fed. The rate decision is a fait accompli but expect fireworks to be lit during the post-meeting presser.

30Y Bond (ZB)

Same setup as the 10Y, i.e.. will move on the data this week. Our expectation is for marginally hotter data and marginally more hawkish Fed, but we have no alpha in predicting this data. Our expectation is for the existing trend to continue because with the Fed on pause, the market will be driven principally by endogenous forces rather than policy response. Indications are that the US economy has started to re-accelerate post election, with the resolution of election uncertainty giving the greenlight to many pending transactions. Consumer confidence and investor confidence are still on the upswing, and that should fuel growth but perhaps also inflation, given the labour market remains tight. And it has not gone unnoticed that commodities have been ripping despite US Dollar strength.

Equities

S&P 500 (ES)

On the surface, the stock index charts resemble the 10Y and 30Y charts. Last week, they each broke the monthly down channel and tested the channel from above. However, our proprietary momentum data tells a different story. The S&P 500, for example, is firmly positive on 1h, 4h and daily timeframes, whereas treasuries only recently flipped positive on the lower timeframes.

Nasdaq 100 (NQ)

The Nasdaq closed weak on Friday, as did all the indexes. Momentum remains positive on all timeframes we track; however, on the 1h chart the Nasdaq is approaching the zero line. A break below would be the first sign of reversal.

In Masaponzi Meme Top, Shrub shines a light on why the $500 billion Stargate announcement might mark a meme top. And in a separate comment, he pointed out that while Facebook plans to ramp their AI capex by 30% (15 billion), Nvidia stock was down 3%. The move in NVIDA was due to headlines that a scrappy competitor LLM “Deepseek” was trained on a measly $5 million. What the first reports buried was that the Deepseek model runs on $2 billion of Nvidia GPUs. Easy to imagine many trapped short sellers here wishing they didn’t sell the news.

Reminiscences of a Shrub Operator

Masaponzi Meme Top?

On Wednesday, Softbank’s Masaponzi Son, announced a $500bn JV with OpenAI to invest in AI Infrastructure in the US, aptly called Stargate, since it’s Science Fiction like most of Son’s projects…

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a year ago · 98 likes · 10 comments · Le Shrub

Russell 2000 (RTY)

Higher yields continue to pressure many unprofitable, debt-laden companies that comprise the Russell 2000. For more than a month it has been sideways, most recently with a subtle upward bias. Momentum is positive on all timeframes, making RTY a potential bullish exposure. In our inventory, we possess OTM calls which will pay off nicely if/when the market becomes convinced that the economy can withstand high rates and continue to grow.

Dow Jones (YM)

Strongest performer amongst the indexes as industrials stocks catch most of the trade winds from Trumpian policy announcements. We would commend seeking tactical opportunities to get long the Dow.

Commodities

Crude Oil (CL)

Crude fell out of bed last week, essentially extending the move that began the week prior following the roll of the front month contract. We believe that the top is in for now, and the explosive buying into contract expiry was marked by trapped speculative shorts who were forced to cover.

In the short term, we believe this market will be driven by headlines more than macro. There are wildly divergent scenarios for the future path of prices depending on unknowable events such as (i) whether Trump will strictly enforce Russian sanctions to coerce a deal on Ukraine, and (ii) whether the Saudis will turn on the spigot to aid their security alliance with the USA. It is no touch for us until the key driver/s become apparent; definitely do not rely heavily on technical analysis because a big headline can immediately change the winds of trade.

Gold (GC)

What can be said other than pinch your nose and BTFD? When an asset is going up when fundamentals (rising real yields) say it should be going down, do we fade the trend? Of course not, the trend is your friend! When the trend is at an end, we’ll first observe momentum flips from bullish to bearish on 15m and 1h timeframes. And we’ll see the market start to invalidate the monthly channel.

Copper (HG)

After a solid run-up earlier this month—largely on hopes of stronger global growth and China’s renewed stimulus—copper has recently lost some steam. Several crosscurrents are now influencing its price action:

China’s Role Still Key
Copper’s underlying bull case depends heavily on Chinese demand. Although Beijing’s fiscal and monetary easing have supported industrial metals, actual Chinese demand indicators and new orders data have been mixed, keeping copper from extending its rally decisively.

Global Macro Data Are Uneven

• Japan reported a better-than-expected trade balance and higher inflation, but it remains uncertain how far domestic growth can offset weaker global demand.

• Europe (UK in particular) showed softer consumer confidence and a rising unemployment rate—signs of potential slowing in consumption and industrial activity.

• US data remain relatively firm (e.g., robust housing starts, steady industrial production), suggesting pockets of strength. Still, consumer sentiment dipped, and the Fed’s tone at the upcoming FOMC meeting could swing broader risk appetite.

Short-Term Technicals
Momentum indicators have flattened; copper briefly pulled back from local highs. Traders seem hesitant to extend longs ahead of significant central bank decisions (the Fed this week) and further signals on China’s growth trajectory.

Bitcoin (BTC)

Bitcoin has seen a choppy but broadly positive bias in recent weeks, reflecting the market’s ongoing risk appetite and persistent speculation around pro-crypto policy shifts under the new U.S. administration. However, momentum has cooled somewhat as traders weigh conflicting macro signals:

Resilient Risk Appetite

• U.S. Data: While consumer sentiment (U. of Michigan) came in softer than expected at 71.1 (vs. 73.2 forecast), strong existing home sales (4.24M vs. 4.19M exp.) and robust housing starts underscore that overall economic activity remains healthy. This underpins a generally “risk-on” mood, which can benefit assets like Bitcoin.

Mixed Global Backdrop

• UK: Economic data disappointed—unemployment rose to 4.4%, consumer confidence slid to –22. Sterling nonetheless rallied, suggesting broader FX flows rather than simple fundamental strength. Bitcoin often trades as an alternative or “neutral” currency play, so a stronger pound on shaky fundamentals points to ongoing FX market uncertainty.

• Japan: An uptick in inflation (3.6% vs. 3.2% exp.) and a positive trade balance suggest partial improvement domestically. However, Bank of Japan interest rates remained at 0.5%, indicating Japan is still wary of tightening too aggressively.

Technical Picture

• After an initial post-inauguration rally spurred by speculation of a pro-Bitcoin executive order, BTC’s momentum plateaued. Price action has been characterized by rapid intraday swings, consistent with traders re-evaluating crypto’s role amid shifting policy signals.

Outlook
If global central banks signal they’ll remain supportive of liquidity—especially the Fed at its upcoming meeting—Bitcoin could find fresh tailwinds. Yet, a unexpectedly hawkish shift or cooler risk sentiment (e.g., from worsening consumer data) might temper near-term upside. Overall, Bitcoin remains in a cautious upswing: still bid on dips, but awaiting a clear catalyst to extend momentum meaningfully higher.

Bottom Line

Despite political fireworks in Washington, the market keeps pushing forward on the back of solid economic and corporate earnings momentum. The big puzzle for next week is how central banks (Fed, BoC, ECB) balance decent growth data against inflation that’s still elevated in pockets (e.g., Japan). Equity bulls continue to hold the reins, but watch for any upside surprises in growth or inflation numbers to nudge yields and rotate leadership.

We stay constructive on risk, with a watchful eye on next week’s heavy calendar for any pivot in global monetary policy or growth expectations. In the meantime, the “buy-the-dip” mindset in equities remains intact, and near-term momentum suggests we might yet grind higher before any real test of risk appetite emerges.

Market Recap: A Tale of Momentum and Reactions

Before we dive into inauguration and the BOJ, let us first review the week that was. A quick note about how I measure momentum; I measure relative strength at multiple timeframes and scale the result by volatility at each time scale. Regardless of timeframe or asset class, the momentum values in this table remain comparable. However, when it comes to taking a position you need to do your own work scaling position size according to asset volatility.

Equities

As I covered in A Tale of Two Reports, the market oscillated from selling (strong than expected jobs data on Friday, 10th January) to ripping on Wednesday 15th, January (weaker than expected CPI). Looking at the price action in the hour prior to CPI release, it is not unreasonable to suspect the data leaked as both bonds and stocks began to rally into the number.

Stocks held their gains throughout the week through Retail Sales (MOM) which came in softer than expected (0.4% vs 0.6% expected) and Housing Starts (1.499M vs 1.32M) and Permits (1.483 vs 1.6M) both beat expectations.

• Momentum Summary:

  • Strong positive momentum across all indices (e.g., ES, NQ, YM) in hourly, 4-hour, and daily timeframes.

  • Smaller-cap index (RTY) has positive but more subdued momentum compared to large-cap counterparts (ES, YM).

• Implication:

  • Equities are benefiting from risk-on sentiment, likely driven by favorable liquidity conditions or easing near-term fears around monetary policy.

  • The disparity between RTY and large-cap indices suggests rotation out of higher-beta, smaller-cap names, favoring established, liquid stocks.

Trading Note: Watch for resistance in these indices as momentum approaches overbought territory.

Fixed Income

Bonds and stocks were back to moving in lock step, and it was a strong week for fixed income, with the whole curve lifting. We opened on the lows and rallied all week.

• Momentum Summary:

  • Consistently negative momentum across Treasury instruments (ZT, ZN, ZB) in longer timeframes, though slightly mixed in the 1-hour window.

  • Longer-duration instruments (ZB) show steeper declines compared to shorter-duration (ZT, ZN), reflecting steepening pressure.

• Implication:

  • Bonds remain under pressure as term premiums expand and yields rise. This indicates persistent concerns about inflation and supply-demand imbalances.

  • Flattening in shorter timeframes could suggest stabilization attempts or position squaring.

Trading Note: Avoid long positions in bonds. For nimble traders on a shorter timeframes, you can trade inevitable relief rallies but don’t overstay your welcome.

Foreign Exchange (FX)

The US Dollar was flat to down, with relative outperformance by JPY notable.

• Momentum Summary:

  • Broad weakness in EUR, GBP, AUD, and JPY across all timeframes, with GBP and AUD showing the steepest declines.

• Implication:

  • The USD remains the dominant force, driven by relative strength in US yields and hawkish Federal Reserve policy.

  • The weakness in high-beta currencies like AUD suggests a risk-off tone in the currency market, possibly offset by equity strength.

Trading Note: Keep an eye on JPY and the BOJ meeting this week. Also, expecting AUD to turn bid if the commodity rally continues.

Commodities & Bitcoin

Gold and Bitcoin were strong from start to finish

Copper started strong and finished weak.

Crude Oil had the contract roll, and was mostly flat to down.

• Momentum Summary:

  • Bitcoin (BTC) shows robust momentum across all timeframes, with particularly strong short-term readings.

  • Crude oil (CL) shows moderate upward momentum in 4-hour and daily windows, reflecting supply concerns and seasonal demand.

  • Copper (HG) is showing mixed signals, with slight gains in longer timeframes, suggesting optimism tied to China’s fiscal stimulus.

  • Gold (GC) demonstrates strong positive momentum across all timeframes, likely driven by safe-haven demand amid inflationary pressures.

• Implication:

  • Bitcoin is capturing speculative inflows, likely from the broader risk-on sentiment reflected in equities. The movement could also be tied to regulatory developments or increasing institutional interest.

  • Gold is the standout performer, reflecting investor hedging against macroeconomic uncertainty and persistent inflation.

  • Oil’s strength is more cyclical, with limited structural drivers, while copper indicates optimism around industrial recovery.

Trading Note: Gold offers the most attractive asymmetric setup for continued upside. Crude oil positions should be treated as shorter-term tactical trades, and copper can be approached cautiously given its reliance on Chinese demand recovery.

Final Takeaways

The market environment is characterized by competing forces of risk-on sentiment in equities and BTC, against inflationary pressures and rising yields. Focus on high-conviction trades in strong momentum assets like gold and equities, while managing downside risk through hedges in FX and fixed income.

1. Risk-On Sentiment Dominance: Strength in equities and BTC suggests that traders are embracing risk, while weakness in FX pairs like AUD underscores divergence between asset classes.

2. Inflation and Yield Dynamics: Fixed-income markets are pricing in a more hawkish tone, while gold and crude oil offer complementary hedges for inflationary concerns.

3. Tactical Opportunities:

   • Go long on equities and gold.

   • Short FX pairs like GBP/USD and AUD/USD.

   • Avoid longer-duration Treasuries in the near term.

The Week Ahead

Presidential Impact: Trump’s First 90 Days

The first 90 days of a U.S. presidential term are often seen as a critical period for setting the tone and priorities of an administration. This timeframe is typically used by a president to demonstrate leadership, build momentum, and lay the groundwork for achieving key goals.

Will Trump enter the ring like Mike Tyson, looking to drop trade adversaries in the first round with steep “Day 1 tariffs”, or like Tyson Fury will he dance a little and find his range before landing killer blows. We don’t have to wait long to find out!

Stay alert for surprise announcements and key legislative progress, as these will drive near-term risk and opportunity. Other headlines traders should watch for include:

1. Policy Announcements: Expect market volatility around new tax, trade, or regulatory policies, especially impacting energy, tech, and financial sectors.

2. Geopolitical Moves: Potential re-escalation of U.S.-China tensions or shifts in foreign policy could impact commodities, currencies, and equities.

3. Fiscal Stimulus: Any major spending plans could influence bond yields and equity markets, particularly in infrastructure and defense.

4. Regulatory Changes: Deregulation or policy reversals in key industries may create sector-specific opportunities.

5. Market Sentiment: Political uncertainty could increase volatility in equities, while safe-haven assets (gold, USD, treasuries) may see inflows.

BOJ in Focus: Japan's Monetary Turning Point

Japanese inflation data drops on Thursday along with the BOJ interest rate decision. The BOJ is expected (betting markets pricing?) to hike interest rates to combat sticky inflation; real wages continue to decline in Japan and there is mounting pressure on the BOJ to act to preserve the purchasing power of Japanese workers and savers.

The Yen has been a relative outperformer vs. the USD, and if the BOJ delivers a medium to long-term bottom might well be in for the Yen.

Expected response across global macro assets include:

• Strengthening JPY currency, which could pressure Japanese exporters and be a drag on the Nikkei;

• Rising global bond yields as Japanese investor repatriate capital, putting pressure back on US yields;

• Higher bond yields could weight on global equity markets, particularly high-valuation rate-sensitive sectors like tech;

• Stronger JPY and rising yields would typically put downward pressure on gold, but it seems bulletproof at the moment with central banks on the bid;

• Finally, a BOJ hike could re-activate the “higher for longer” narrative, leading to increased volatility across asset classes as markets reassess risk premia.

Trading Opportunities on My Radar

I’m looking for the following opportunities this week

• Long VIX: looking to tactically hold VIX exposure to profit from headline risks expected during Trump’s first 90 days; most likely I will structure these as OTM Call Spreads.

• Long JPY: I already have a small and tentative long JPY position via options. If BOJ hikes, I’ll be adding delta as JPY has been a clear outperformer..

• Long AUD: It is not going up yet, so too early for me to take a position. But there is divergence between what commodities and AUD is doing. If commodities continue rallying, I expect this to divergence to resolve even if the RBA remains soft on rates.

• Long S&P 500: We are set to open the week at the top of the 4 week channel, so I am looking for a pullback but not trading short. I want to attempt a long around 5,920.

• Short 10Y and 30Y: I think we are in a relief rally right now after the weaker than expected CPI. I think rates continue to go higher and no, I don’t know when it stops. Higher rates will continue to surprise all.

• Long Copper: pulled back almost 2% on Friday; now I’m just waiting for it to start moving up again before buying.

• Short Crude: Patiently waiting for a tactical spot to short crude if/when momentum flips. Not looking to add longs at current prices. If it just congests sideways, I’ll leave it alone.

• Short Canadian Dollar (or 2Y Note spread): I am looking for Canadian monetary policy to weaken and am looking at either doing something in FX or a pairs trade on the short-end of the fixed income market.